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 Section 240.14a-11(c) or Section 240.14a-12
Capital Associates, Inc.
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(Name of Registrant as Specified in Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
| | $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:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
| | 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
CAPITAL ASSOCIATES, INC.
7175 West Jefferson Avenue
Lakewood, Colorado 80235
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
October 23, 1998
To the Stockholders of
Capital Associates, Inc.:
The 1998 Annual Meeting of Stockholders (the "Annual Meeting") of
Capital Associates, Inc., a Delaware corporation (the "Company"), will be held
on Friday, October 23, 1998, starting at 8:30 a.m. (local time), in the Hampden
Room of the Holiday Inn, 7390 West Hampden Avenue, Lakewood, Colorado 80235, for
the following purposes:
1. To elect five 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 the selection by the Board of Directors of KPMG Peat
Marwick LLP as independent auditors of the Company for the 1999 fiscal year.
3. To transact such other business as may properly come before the
Annual Meeting, or any adjournment(s) or postponement(s) thereof.
The Board of Directors has fixed the close of business on Friday,
September 11, 1998, 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, 1998, a Proxy Statement and a proxy card accompany this notice. These
materials are first being sent to stockholders on or about September 25, 1998.
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,
/s/PHILIP J. TEIGEN
-------------------------------------
PHILIP J. TEIGEN
Secretary
Lakewood, Colorado
September 25, 1998
<PAGE>
CAPITAL ASSOCIATES, INC.
7175 West Jefferson Avenue
Lakewood, Colorado 80235
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FRIDAY, OCTOBER 23, 1998
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 1998 Annual Meeting of
Stockholders to be held on Friday, October 23, 1998, at 8:30 a.m. (local time),
in the Hampden Room of the Holiday Inn, 7390 West Hampden Avenue, Lakewood,
Colorado 80235, 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,
1998 ("Fiscal 1998"), are first being mailed to stockholders on or about
September 25, 1998. 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
five directors of the Company to serve until the next annual meeting of
stockholders or until their successors are duly elected and qualified; (2)
ratify KPMG Peat Marwick LLP as the Company's auditors for the year ending May
31, 1999 ("Fiscal 1999"); and (3) transact such other business as may properly
come before the Annual Meeting.
The Board recommends a vote "FOR" (1) the election of the five
nominees for directors of the Company listed below, and (2) ratification of KPMG
Peat Marwick LLP as the Company's auditors for Fiscal 1999.
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 11, 1998 (the "Record Date"), will be entitled to notice of,
and to vote at, the Annual Meeting. As of the Record Date, there were 5,125,444
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.
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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 five nominees for directors of the Company listed below
and (2) ratification of KPMG Peat Marwick LLP as the Company's auditors for
Fiscal 1999. The holders of a majority of the outstanding shares of Common Stock
or the Company, present at the Annual Meeting in person or represented by proxy,
shall constitute a quorum. If a quorum is present, directors are elected by a
plurality of the vote, i.e., the nominees receiving the highest number of votes
cast in favor of their election will be elected to the Board. As to all other
matters voted on at the Annual Meeting, the matter is approved if the votes cast
in favor of the matter exceed the votes cast opposing the matter. 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 be counted 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 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 five members: William H. Buckland,
James D. Edwards, Gary M. Jacobs, Robert A. Sharpe II and James D. Walker. All
of the directors were elected at the prior annual meeting of stockholders of the
Company held on October 24, 1997 (the "1997 Annual Meeting").
The Board proposes that the five 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.
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The names of the nominees, their ages at the Record Date and
certain other information about them are set forth below:
<TABLE>
<CAPTION>
Nominee Age Position(s) with Company Director Since
------- --- ------------------------ --------------
<S> <C> <S> <C>
William H. Buckland 53 Director 1995
James D. Edwards 58 Director 1987
Gary M. Jacobs 51 Director 1978-1990 and 1994
Robert A. Sharpe II 40 Director 1996
Chairman of the Board, President,
James D. Walker 53 Chief Executive Officer and Director 1994
</TABLE>
Mr. Buckland has been Chairman of the Board, President and Chief
Executive Officer of MCC Financial Corporation, an aircraft and equipment lessor
("MCC"), since May 1998. From May 1988 to May 1998, Mr. Buckland was Chairman of
the Board, Secretary and Treasurer of MCC. From May 1988 to present, Mr.
Buckland has been and continues to be a director and 50% stockholder of MCC.
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.,
Lexicor, Red Hill, Dezignz 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. Sharpe has been Executive Vice President of Fairchild
Fasteners, a fastener manufacturer, since July 1996. From July 1994 through June
1996, Mr. Sharpe was Vice President, Corporate Development of Smithfield Foods,
Inc, a food processor. 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. Mr. Sharpe is also a director of the Fairchild
Corporation and CAII.
Mr. Walker has been the President and Chief Executive Officer of
the Company since April 1998. From May 1988 to May 1998, Mr. Walker was
President and Chief Executive Officer of MCC. From May 1988 to present, Mr.
Walker has been and continues to be a director and 50% stockholder of MCC. Prior
to that time, Mr. Walker was involved
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<PAGE>
in equipment lease management with Equipment Leasing and Financing Corp.
(President 1987-1988),Thomson McKinnon Securities, Regional Vice President -
Lease Originations from 1986 to 1987 and Finalco, Inc. starting as Marketing
Representative in 1981 and becoming Senior Vice President of Marketing. 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 1998 and no special meetings. The Board currently has an Audit and
Finance Committee, Compensation and Operations Committee, Nominating Committee
and Executive Committee.
The Audit and Finance Committee, consisting of Messrs.
Buckland, Jacobs, and Sharpe, held a total of four (4) meetings during Fiscal
1998. 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.
The Compensation and Operations Committee consisting of
Messrs. Edwards and Walker, held a total of four (4) meetings during Fiscal
1998. 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.
The Nominating Committee consisting of Messrs. Sharpe and
Walker, held a total of one (1) meeting during Fiscal 1998. 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. The Nominating Committee will not consider nominees
recommended by stockholders. Mr. Walker currently serves as the Chairman of the
Nominating Committee.
The Executive Committee consisting of Messrs. Buckland and
Walker, held a total of fourteen (14) meetings during Fiscal 1998. 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 Fiscal 1998, the Board also appointed a Special
Compensation Committee, consisting of Messrs. Edwards, Jacobs and Sharpe, to
review proposed changes to the compensation for non-employee members of the
Executive Committee and to review the compensation package for Mr. Walker when
he became an employee of the Company and accepted the additional
responsibilities of President and Chief Executive Officer of the Company in
April 1998. This Special Committee held two (2) meetings during Fiscal 1998. The
Special Compensation Committee was dissolved in April 1998.
Until his resignation in April 1998, Mr. Lacey had served on
the Audit and Finance Committee, the Compensation and Operations Committee, the
Nominating Committee and the Executive Committee. The vacancies on these
committees created by Mr. Lacey's resignation have not been filled.
4
<PAGE>
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, and (5) all reasonable
out-of-pocket expenses of attending such meetings and performing any consulting
services for the Company.
Pursuant to a Consulting Agreement with Mr. Buckland, dated as of
June 1, 1996, the Company paid $187,500 for services rendered during Fiscal
1998. Pursuant to a Consulting Agreement with Mr. Walker, dated as of June 1,
1996, the Company paid $218,750 for services rendered during Fiscal 1998 through
April 7, 1998, at which time the Consulting Agreement was terminated when Mr.
Walker became an employee of the Company. In addition, pursuant to the
Consulting Agreements, the Board's Special Committee determined the form of
incentive compensation for Messrs.
Buckland and Walker for Fiscal 1997, 1998 and 1999.
For Fiscal 1997, the Board's Special Compensation Committee
decided to provide incentive compensation to each of Messrs. Buckland and Walker
through the Company's assignment to each of 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.
For Fiscal 1998 and 1999, the Consulting Agreements provide
incentive compensation of 4% (the "Base Incentive Payment Percentage") of the
Company's pre-tax earnings for each such fiscal year. The Base Incentive Payment
Percentage is to be adjusted up or down by the percentage change in the average
closing price of the Company's stock for the last four months of the applicable
fiscal year, as compared to the same period in the prior fiscal year, but in no
event will the Base Incentive Payment Percentage be adjusted lower than 3% or
higher than 6%.
For Fiscal 1998, the total incentive compensation earned by Mr.
Buckland was $96,000 and by Mr. Walker was $82,000. Mr. Walker's incentive
compensation payment was pro-rated to the date his Consulting Agreement was
terminated, April 7, 1998. Of those amounts, payment of one-third has been
deferred to June 1, 2001 so that Messrs. Buckland and Walker have received for
Fiscal 1998, $64,000 and $54,667, respectively, and will receive the balance of
$32,000 and $27,333, respectively, on June 1, 2001, provided each is still a
director and/or employee on that date.
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 1998:
<TABLE>
<CAPTION>
Quarterly Prior Year Consulting
Directors Retainer Meeting Fees Fees Fees(1) Total (2)
--------- -------- ------------ ---- ------- ---------
<S> <C> <C> <C> <C> <C>
William H. Buckland $ 15,000 $ 8,000 (4) -0- $ 187,500 $ 210,500
James D. Edwards $ 15,000 $ 10,000 (5) -0- -0- $ 25,000
Gary M. Jacobs $ 15,000 $ 10,000 (6) $ 37,000 -0- $ 62,000
Robert A. Sharpe II $ 15,000 $ 10,000 (7) $ 2,000 -0- $ 27,000
James D. Walker $ 20,000 (3) $ 8,000 (8) -0- $ 218,750 $ 246,750
</TABLE>
(1) For Fiscal 1998, Messrs. Buckland and Walker earned $96,000 and $82,000,
respectively, in the form of incentive compensation; payment of one-third
of which has been deferred to June 1, 2001. Mr. Walker's incentive
compensation was pro-rated to the date his Consulting Agreement terminated,
April 7, 1998, as Mr. Walker became an employee of the Company on that
date.
(2) These amounts do not include (a) expense reimbursements paid to the
Non-Employee Directors during Fiscal 1998, (b) the value of stock options
that were granted to the Non-Employee Directors in Fiscal 1998 and prior
fiscal years, and (c) any amount that Mr. Walker received as incentive
compensation as an employee of the Company from April 7 to May 31, 1998.
(3) As Chairman of the Board, Mr. Walker's quarterly retainer is $5,000. At Mr.
Walker's instructions, the Company paid $5,000 of accrued Board fees
otherwise payable to Mr. Walker to MCC World Aviation Associates, Inc., a
corporation owned 50% by Mr. Buckland and 50% by Mr. Walker.
(4) Consists of $1,000 per meeting for (a) four regular Board meetings and (b)
four committee meetings.
(5) Consists of $1,000 per meeting for (a) four regular Board meetings and (b)
four committee meetings, and (c) two special committee meetings.
(6) Consists of $1,000 per meeting for (a) four regular Board meetings, (b)
four committee meetings, and two special committee meetings. Mr. Jacobs
elected to defer receipt of $37,000 of prior year's fees, which were paid
in Fiscal 1998.
(7) Consists of $1,000 per meeting for (a) four regular Board meetings, (b)
four committee meetings, and two special committee meeting. Mr. Sharpe
elected to defer receipt of $2,000 of prior year's fees, which were paid in
Fiscal 1998.
(8) Consists of $1,000 per meeting for (a) four regular Board meetings and (b)
four committee meetings.
For Fiscal 1998, the Company granted under the its Non-Employee
Director Stock Option Plan (the "Non-Employee Director Plan") to each of Messrs.
Edwards, Jacobs and Sharpe an option to acquire 5,000 shares of Common Stock at
an exercise price of $3.25 per share and to each of Messrs. Buckland and Walker
6
<PAGE>
an option to acquire 10,000 shares at an exercise price of $ 3.25 per share (the
"1998 Director Options"). All of the 1998 Director Options vested in full on May
31, 1998, and will expire in June, 2008. The Board determined that it was
beneficial to the Company that Mr. Walker became an employee of the Company on
April 7, 1998, and waived the forfeiture of his 1998 Director Options.
For Fiscal 1999, the Company granted under the Non-Employee
Director Plan to each of Messrs. Edwards, Jacobs and Sharpe an option to acquire
5,000 shares of Common Stock at an exercise price of $4.125 per share and to Mr.
Buckland an option to acquire 45,000 shares at an exercise price of $4.125 per
share (the "1999 Director Options"). All of the 1999 Director Options will vest
in full on May 31, 1999, provided each recipient remains as a director and will
expire in June, 2009. The Company granted Mr. Walker an option to acquire 10,000
shares of Common Stock under the Employee Stock Option Plan, at an exercise
price of $4.125 per share, which will vest in full on May 31, 1999 and will
expire in June, 2009.
COMPENSATION AND OPERATIONS COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Lacey resigned as President and Chief Executive Officer in
April 1998 and was not replaced as a member of the Compensation and Operations
Committee. Messrs. Edwards, Lacey (until April 1998) and Walker are (were)
directors of the Company. In April 1998, Mr. Walker became an employee of the
Company. Mr. Edwards has never been an employee of the Company. Messrs. Edwards,
Lacey (until April 1998) and Walker also are (were) directors of CAII. Messrs.
Buckland and Walker are directors and 50% stockholders of MCC and MCC World
Aviation Associates, Inc. ("MCC World"), which own of record 2,833,369 and
23,706 shares, respectively, of Common Stock. Mr. Buckland is also an officer of
MCC and MCC World. See "Certain Transactions" below. The Company leased from MCC
office space for its Southeast Region Office and paid MCC rent in the amount of
$23,060 for Fiscal 1998. The Company reimbursed MCC $8,449 for insurance on
certain aircraft that had been returned after lease expiration. Mr. Lacey was
President and Chief Executive Officer and a director of the Company and of CAII
until his resignation in April 1998. Mr. Walker is now President and Chief
Executive Officer and a director of CAII.
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
------------------ --- --------------------------
James D. Walker 53 Chairman of the Board, President, Chief
Executive Officer & Director
Anthony M. DiPaolo 38 Senior Vice President - Chief Financial
Officer & Treasurer
David L. Fabian 50 Senior Vice President - Corporate
Services
John F. Olmstead 53 Senior Vice President - Capital Markets
Group & Assistant Secretary
John A. Reed 43 Senior Vice President - Administration
Richard H. Abernethy 44 Vice President - Portfolio Management
Robert A. Golden 51 Vice President - Sales
See "Election of Directors - Nominees" above for a description of
Mr. Walker's background and the positions held by Mr. Walker with the Company.
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<PAGE>
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 and credit administration departments until October, 1991. From
October 1991 to January 1992, Mr. DiPaolo was Vice President - Controller of the
Company. From January 1992 to November 1995, Mr. DiPaolo was Senior Vice
President - Controller and Assistant Secretary of the Company. From November
1995 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 an officer, but not a director, of CAII.
Mr. Fabian has been Senior Vice President - Corporate Services of
the Company since April 1991. Prior to joining the Company, he was Vice
President of Human Resources for MAI Systems Corporation, Vice President of
Human Resources for Contel Computer Systems and Vice President of Human
Resources for TRW-Fujitsu. Before that, he held human resources positions for
eleven years with Data General and Honeywell Information Systems. Mr. Fabian is
an officer, but not a director, of CAII.
Mr. Olmstead has been Vice President - Capital Markets Group and
Assistant Secretary of the Company since September 1991. Mr. Olmstead joined the
Company as a Vice President in December 1988. From 1969 through 1983, Mr.
Olmstead was a co-owner of 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 an
officer, but not a director, of CAII.
Mr. Reed has been Senior Vice President - Administration of the
Company since June 1998. Mr. Reed joined the Company in January 1990 as an
Assistant Secretary and Tax Director. From October 1991 to April 1994, Mr. Reed
was Vice President - Credit. From April 1994 to October 1997, Mr. Reed was Vice
President - Marketing. From October 1997 to June 1998, Mr. Reed was Vice
President - Capital Markets Group. Prior to joining the Company, Mr. Reed was
employed for eight years by Coopers & Lybrand serving in various capacities, the
most recent being Tax Manager. Mr. Reed is an officer, but not a director of
CAII.
Mr. Abernethy has been Vice President - Portfolio Management of
the Company since October 1997. Mr Abernethy joined CAII in April 1992, as the
Equipment Valuation Manager. From September 1994 to October 1997, Mr. Abernethy
was Vice President - Asset Management of the Company. Prior to joining CAII, Mr.
Abernethy was employed by Barclays Leasing for six years where he served as
Equipment Manager with similar duties. Mr. Abernethy is not an officer or
director of the Company but does serve as an officer of CAII.
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. Mr. Golden is an officer, but not a director, of CAII.
8
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION AND OPERATIONS COMMITTEE REPORT. The Compensation and
Operations Committee is composed currently of Messrs. Edwards and Walker. Mr.
Lacey was a member until he resigned in April 1998. 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 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 employee stock option 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.
The Company's Fiscal 1998 executive officer compensation program
was composed entirely of base salary compensation, cash bonuses and the grant of
stock options. 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 1997, the Compensation and Operations Committee
approved the Capital Associates Cash Incentive Bonus Plan for the Fiscal Year
Ending May 31, 1998 (the "1998 Cash Bonus Plan"). The 1998 Cash Bonus Plan
consisted of a bonus based on the Company achieving its targeted earnings and
lease originations for Fiscal 1998. Assuming targeted earnings were met, the
bonus was to be 20% of the Company's pre-tax earnings, reduced by one-third if
the targeted lease originations were not met. 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 officer's personal
performance targets (which were identified in an attachment to the 1998 Cash
Bonus Plan). In setting the earnings targets, the personal performance targets
and the vesting percentages in the 1998 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 1998 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 1998. 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 and charges in Fiscal 1998) as compared to Fiscal 1997 (b)
the Company's failure to meet the targeted lease originations and (b) stock
performance, the Compensation and Operations Committee approved a bonus amount
of $180,000 for all of the senior officers, $14,000 of which was awarded to Mr.
Walker. See "Summary Compensation Table" for a discussion of the bonuses awarded
to the Named Executive Officers, as defined below.
9
<PAGE>
The Compensation and Operations Committee reviewed the Common
Stock and stock option ownership of the Company's executives at the end of
Fiscal 1998. Based on that review, the Compensation and Operations Committee
determined that increases in the price of the Common Stock during Fiscal 1998,
assuming the Company met its financial goals in Fiscal 1998, would not 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 1998 and, therefore, did make additional
awards of stock option grants to the executive officers in May 1998.
Until April 1998, Dennis J. Lacey was the Company's President and
Chief Executive Officer. Mr. Lacey's compensation during Fiscal 1998 was
governed by the terms of the Lacey Employment Agreement, which is described in
detail in "Executive Officers - Executive Employment Agreements" below.
In April 1998, the Special Compensation Committee, consisting of
Messrs. Edwards, Jacobs and Sharpe, set Mr. Walker's Fiscal 1998 compensation on
becoming an employee of the Company and assuming the additional responsibilities
of President and Chief Executive Officer of the Company. The Special
Compensation Committee also negotiated on behalf of the Company an Employment
Agreement with Mr. Walker that commenced in April 1998 and continues until May
31, 2001, unless sooner terminated pursuant to its terms, which is described in
detail in "Executive Officers - Executive Employment Agreements" below. The
employment agreement with Mr. Walker is based on both quantitative and
qualitative factors directly linked to the Company's performance, achievement of
short-term and long-term objectives, the enhancement of stockholder value.
For Mr. Lacy's and Walker's base compensation and cash bonuses,
see "Executive Officers - Summary Compensation Table" below.
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
James D. Edwards
James D. Walker
September 21, 1998
EXECUTIVE EMPLOYMENT AGREEMENTS.
THE LACEY EMPLOYMENT AGREEMENT. During Fiscal 1998, the terms of
Mr. Lacey's compensation were governed by the Lacey Employment Agreement (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
and all of which expire in October 2005, 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.
10
<PAGE>
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 was 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 was voluntary or for
cause. The severance benefits were equal to 100% of his base salary, were to be
paid in twelve (12) equal monthly installments and will be reduced by any salary
Mr. Lacey received from subsequent employment during such 12-month period. The
Lacey Employment Agreement provided 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 also agreed to maintain Mr. Lacey's health insurance for the period
during which Mr. Lacey received 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, a long term incentive
bonus program was established (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 provided 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 agreed not to compete (as defined therein) against
the Company during those two years. Mr. Lacey resigned in April 1998 and the
Lacy Employment Agreement terminated.
THE WALKER EMPLOYMENT AGREEMENT. The Company entered into an
Employment Agreement with Mr. Walker, dated as of April 7, 1998 (the "Walker
Employment Agreement"), whereby: (1) Mr. Walker's employment with the Company as
President and Chief Executive Officer (in addition to his existing office as
Chairman of the Board) commenced on April 7, 1998, and continues until May 31,
2001 and, thereafter, the term will be automatically renewed for successive one
year terms unless either provides the other notice to terminate 60 days prior to
the end of the then current term; (2) Mr. Walker's annual base salary is
$350,000; (3) Mr. Walker is to receive incentive compensation equal to 4% of the
Company's pre-tax earnings, which percentage can be increased or decreased by
the percentage change in the average closing price of the Company's common stock
for the last four months of the current fiscal year as compared to the same
period in the prior fiscal year, but in no event will it be adjusted lower than
3% or higher than 6%; (4) Mr. Walker will be granted stock options annually,
equal to those granted to the non-employee Directors; (5) Mr. Walker's
Director's fees will continue, including the additional fee for Mr. Walker's
service as Chairman of the Board; (6) payments are to be made to MCC to
reimburse it for certain group benefit plans and MCC's SEP/IRA plans provided to
Mr. Walker; (7) reimbursement is made to Mr. Walker of his reasonable expenses
incurred in carrying out his duties; and (8) payment is to be made to Mr. Walker
of severance benefits in the event of his involuntary termination without cause
or due to a change of control of the Company, equal to the greater of (i) three
times his annual base salary or (ii) his base salary to the end of the term of
the Walker Employment Agreement, plus the pro rated amount of the incentive
compensation Mr. Walker would have received for the fiscal year in which such
termination occurs. The Walker Employment Agreement also acknowledges Mr.
Walker's duties as an officer and director of MCC and his duties in the event of
a conflict of interest between the Company and MCC, and requires Mr. Walker to
abide by certain non-disclosure and non-use of the Company's confidential
information and his agreement not to solicit employees or customers of the
Company.
11
<PAGE>
SUMMARY COMPENSATION TABLE. The following table provides certain
summary information for Fiscal 1998, Fiscal 1997 and Fiscal 1996, concerning
compensation awarded or paid to, or earned by, the Company's current 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 who resigned his offices in April 1998 (collectively referred
to herein as the "Named Executive Officers"):
<TABLE>
<CAPTION>
Long-Term
Compensation
--------------------------------------------
Fiscal
Year
Name and Ended
Position 5/31 Annual Compensation Awards Payouts
- ------------------- ------- ---------------------------------------------- -------------------------- -----------
Other Restricted Securities
Annual Stock Underlying LTIP
Salary (1) Bonus(8) Compensation Awards Options Payouts
--------------- ---------- -------------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <S>
James D. Walker,
President, Chief 1998 $ 42,500 $14,000 (9) $ -0- -0- 35,000 $ -0-
Executive, Chairman 1997 -0- $ -0- $ -0- -0- -0- $ -0-
of the Board (2) 1996 -0- $ -0- $ -0- -0- -0- $ -0-
Dennis J. Lacey,
President, Chief 1998 $243,339 $ -0- $ 15,585 (13) -0- -0- -0-
Executive Officer & 1997 $256,800 $75,000 $ 11,160 (14) -0- -0- $ 76,922 (22)
Director (2) 1996 $252,362 $50,000 $ 9,193 (15) -0- 75,000 (21) -0-
Anthony M. DiPaolo,
Senior Vice 1998 $138,030 $45,000 (10) -0- -0- 25,000 -0-
President, Chief 1997 $110,722 $20,000 -0- -0- -0- $ 45,335 (23)
Financial Officer & 1996 $ 99,097 $13,000 -0- -0- -0- -0-
Treasurer
John F. Olmstead,
Senior Vice 1998 $173,304 $45,000 (11) $ 1,600 (16) -0- 25,000 -0-
President, Capital 1997 $164,300 $40,000 -0- -0- -0- $ 81,527 (24)
Markets Group & 1996 $164,300 $30,000 -0- -0- -0- -0-
Assistant Secretary
John A. Reed, Senior 1998 $152,045(4) $ 9,000 (12) $ 1,600 (17) -0- 15,000 -0-
Vice President - 1997 $ 88,126 $17,000 -0- -0- -0- $ 21,225 (25)
Administration (3) 1996 $ 80,256 $ 8,500 -0- -0- -0- -0-
Robert A. Golden, 1998 $136,343(5) $ -0- $ 5,985 (18) -0- 3,750 -0-
Vice President - 1997 $178,320(6) $ -0- $ 13,316 (19) -0- -0- $ 18,000 (26)
Sales 1996 $165,362(7) $ -0- $ 6,000 (20) -0- -0- -0-
</TABLE>
(1) Includes an accrual of $6,800 in each of Fiscal 1998, 1997 and 1996 for
premium paid on behalf of each Named Executive Officer, except Messrs.
Golden, Reed and Walker, 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 (except Messrs. Golden, Reed and Walker) under the Company's
12
<PAGE>
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 April 1998, Mr. Lacey resigned from his offices with the Company and Mr.
Walker was elected to the offices of President and Chief Executive Officer.
(3) In June 1998, Mr. Reed was elected to the office of Senior Vice President -
Administration.
(4) Includes $54,526 in commissions.
(5) Includes $21,243 in commissions.
(6) Includes $63,320 in commissions.
(7) Includes $29,799 of relocation expenses that were reimbursed in Fiscal
1996.
(8) All bonuses were paid in the following fiscal year.
(9) $9,333 paid this year and payment of the remaining one-third ($4,667) is
deferred to June 1, 2001, provided Mr. Walker continues as an employee of
the Company through that date.
(10) $30,000 paid this year and payment of the remaining one-third ($15,000)
is deferred to June 1, 2001, provided Mr.. DiPaolo continues as an
employee of the Company through that date.
(11) $30,000 paid this year and payment of the remaining one-third ($15,000)
is deferred to June 1, 2001, provided Mr.. Olmstead continues as an
employee of the Company through that date.
(12) $6,000 paid this year and payment of the remaining one-third ($3,000)
is deferred to June 1, 2001, provided Mr.. Reed continues as an
employee of the Company through that date.
(13) Includes $12,000 automobile allowance, $1,985 in insurance premiums
paid for term life and disability insurance and $1,600 for travel
expense paid with respect to employee's spouse accompanying employee on
business travel.
(14) Includes a $6,000 automobile allowance, $3,560 of premiums paid for
term life and disability insurance and $1,600 for travel expense paid
with respect to employee's spouse accompanying employee on business
travel.
(15) Includes a $6,000 automobile allowance and $3,193 of premiums paid for
term life and disability insurance.
(16) Travel expense paid with respect to employee's spouse accompanying
employee on business travel.
(17) Travel expense paid with respect to employee's companion accompanying
employee on business travel.
(18) Automobile allowance.
(19) Includes a $6,000 automobile allowance and $7,316 in relocation
expenses.
(20) Automobile allowance.
13
<PAGE>
(21) 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 terminated, canceling
Mr. Lacey's right to receive 450,000 unearned Incentive Shares (on a
pre-Reverse Stock Split basis) 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 in "Executive Officers -
Executive Employment Agreements" above.
(22) 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.
(23) 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.
(24) 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.
(25) In Fiscal 1997, Mr. Reed received $21,255 of proceeds (net of the
option exercise prices) from the sale of options to acquire 20,000
shares of Common Stock to the Company pursuant to the Stock Option
Repurchase Program.
(26) In Fiscal 1997, Mr. Golden received $18,000 of proceeds (net of the
option exercise prices) from the sale of options to acquire 15,000
shares of Common Stock to the Company pursuant to the Stock Option
Repurchase Program.
14
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR. The following table sets
forth information concerning stock option grants made in Fiscal 1998 to the
Named Executive Officers. There were no grants of stock appreciation rights
("SARs") to said individuals during Fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
Name
Potential Realizable
Number of % of Total Value at Assumed
Shares Options Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for
Granted Employees in Price Expiration Option Term (2)
Options (1) Fiscal 1998 ($/share) Date ------------------------------
------------- ------------ ------------ -------------- 5% 10%
<S> <C> <C> <C> <C> <C> <C>
James D. Walker 35,000 13.42 $ 4.125 05/06/08 $ 90,797 $ 230,097
Anthony M. DiPaolo 25,000 9.59 $ 4.125 05/06/08 $ 64,855 $ 164,355
John F. Olmstead 25,000 9.59 $ 4.125 05/06/08 $ 64,855 $ 164,355
John A. Reed 15,000 5.75 $ 4.125 05/06/08 $ 38,913 $ 98,613
Robert A. Golden 3,750 1.44 $ 4.125 05/06/08 $ 9,728 $ 24,653
Dennis J. Lacey (3) -0- N/A N/A N/A N/A N/A
</TABLE>
(1) The options granted will vest over four years at the rate of 25% following
each of the first, second, third and fourth anniversaries of the date of
grant.
(2) The indicated 5% and 10% rates of appreciation are provided to comply with
Securities and Exchange Commission regulations and do not necessarily
reflect the views of the Company as to the likely trend in the stock price.
Actual gains, if any, on stock option exercises and the sale of Common
Stock holdings will be dependent on, among other things, the future
performance of the Common Stock and overall stock market conditions. There
can be no assurance that the amounts reflected in this table will be
achieved.
(3) In April 1998, Mr. Lacey resigned his from his offices with the Company.
15
<PAGE>
OPTION EXERCISES AND HOLDINGS. The following table provides
information with respect to the Named Executive Officers concerning the exercise
of stock options during Fiscal 1998 and unexercised stock options held as of the
end of Fiscal 1998 (after giving effect to sales of stock options to the Company
pursuant to the Stock Option Repurchase Program discussed below):
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values
Value of Unexercised In-the-
Number of Unexercised money
Number of Number of Unexercised Options at Year End (2)
Shares Value Options at Year End ------------------------------
Acquired on Realized on -------------------
Name Exercise(1) Exercise (1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James D. Walker -0- -0- 36,667 45,000 $62,564 -0-
Anthony M. -0- -0- 10,000 25,000 $ 34,450 -0-
DiPaolo
John F. Olmstead -0- -0- 18,750 25,000 $ 53,250 -0-
John A. Reed -0- -0- 5,000 15,000 $17,225 -0-
Robert A. Golden -0- -0- 13,750 3,750 $ 35,781 -0-
Dennis J. Lacey (3) 75,000 $210,938 26,250 -0- $ 63,694 N/A
</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, 1998 ($4.125 per share), less the exercise price per
share of the options.
(3) In April 1998, Mr. Lacey resigned from his offices with the Company.
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). See "Executive Compensation - Summary
Compensation Table" to determine the Named Executive Officers who participated
in this program.
LONG-TERM INCENTIVE PLANS. See "Summary Compensation Table" and
"Stock Option Grants in Last Fiscal Year" above for a discussion of long-term
incentive plan awards in Fiscal 1998. See also "Stock Option Repurchase Program"
above for information concerning sales of stock options by the Named Executive
Officers to the Company during Fiscal 1997.
16
<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)
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
NASDAQ $100 $105 $125 $182 $205 $261
SELECTED PEER $100 $138 $185 $251 $340 $509
CAI $100 $ 78 $ 64 $133 $156 $178
* Assumes $100 Investment on January 1, 1993 and reinvestment of dividends
into additional shares of same class.
* Select Peer Group is comprised of the following independent leasing
companies:
Amplicon
Comdisco, Inc.
Sunrise Leasing
17
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
(the "Exchange Act") requires the Company's directors, 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 1998, all Section 16(a)
filing requirements applicable to its directors, officers and 10% Holders were
complied with.
CERTAIN TRANSACTIONS
In November 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.
Jack Durliat and Gary M. 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 January 1995, MCC purchased 75,000 shares of
Common Stock for a purchase price of $2.00 per share, or an aggregate amount of
$150,000. 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. In January 1996, 1997 and 1998, MCC
completed the purchase of 550,000, 437,500 and 257,500 shares, respectively, of
Common Stock for a purchase price of $3.30, $3.70 and $4.02 per share,
respectively, or an aggregate amount of $4,468,900.
The Company leased from MCC office space for its Southeast Region
Office and paid MCC rent in the amount of $23,060 for Fiscal 1998. The Company
reimbursed MCC $8,449 for insurance on certain aircraft that had been returned
after lease expiration.
During Fiscal 1998, 1997 and 1996, the Company paid the following
amounts to the Messrs. Buckland and Walker, who are each 50% stockholders of
MCC, for Executive Committee fees and under their consulting agreements:
Fiscal 1998 Fiscal 1997 Fiscal 1996
----------- ----------- -----------
Mr. Buckland $187,500 $187,500 $135,334
Mr. Walker $218,750 $250,000 $135,334
See "Election of Directors - Director Compensation" for a description o the
incentive compensation received by Messrs. Buckland and Walker in Fiscal 1997
and Fiscal 1998, under their respective Consulting Agreements. Also, in Fiscal
1997, the Company paid Mr. Walker $150,000 for relocation expenses.
The Company purchases substantially all of its office supplies
from CEI. Mr. Jacobs is an executive officer of CEI. The Company does not
presently have, and does not anticipate that it will enter into in the future, a
written purchase/supply contract with CEI. The Company paid CEI approximately
$46,000 in Fiscal 1998 for office supplies.
The Company believes that the transactions described above and
under the subheading "Election of Directors - 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
18
<PAGE>
transactions or loans between the Company and its directors, officers, principal
stockholders and their affiliates 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.
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(3)
Number of Shares Percent
James D. Walker (1) 1,462,204 28.53%
7175 West Jefferson Avenue, Suite 4000
Lakewood, Colorado 80235
William H. Buckland (1) 1,461,905 28.52%
8180 Greensboro Drive, Suite 1000
McLean, Virginia 22102
ROI Capital Management, Inc. (2) 611,200 11.92%
17 East Sir Francis Drake Boulevard - #225
Larkspur, California 94939
Gary M. Jacobs (3) 363,253 7.09%
2995 Baseline Road
Boulder, Colorado 80303
(1) Messrs. Buckland and Walker, who otherwise are unrelated to each other,
each own 50% of the issued and outstanding capital stock of MCC and MCC
World Aviation Associates, Inc. ("MCC World"). MCC and MCC World, each
having the address of 8180 Greensboro Drive, Suite 1000, McLean, Virginia
22102, are record owners of 2,833,369 and 23,706 shares, respectively, of
Common Stock, which represents 55.28% and .46%. respectively of the issued
and outstanding Common Stock. Messrs. Buckland and Walker also own 33,367
and 33,667 vested stock options, respectively, for the purchase of Common
Stock. These amounts do not include 45,000 unvested stock options for the
purchase of Common Stock, granted to each of Messrs. Buckland and Walker.
(2) As disclosed in the Schedule Form 13 G filed with the United States
Securities And Exchange Commission on June 6, 1998
(3) Includes (a) 25,971 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 334,282 shares held of record. This does not
include 5,000 unvested stock options owned by Mr. Jacobs.
(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
19
<PAGE>
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.
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 Named Executive Officers and the
directors and executive officers as a group:
Management Ownership(8)
------------------------------
Holder Number of Shares Percent
------ ---------------- -------
Anthony M. DiPaolo (1) 26,000 .51%
James D. Edwards (2) 95,250 1.86%
Robert A. Golden (3) 14,750 .29%
John F. Olmstead (4) 47,250 .92%
John A. Reed (5) 11,000 .21%
Robert A. Sharpe II (6) 7,959 .16%
Dennis J. Lacey (7) 47,200 .92%
Directors and Executive Officers (other than 249,409 4.87%
Major Stockholders) as a Group (7 persons)
(1) Includes 10,000 shares of Common Stock that Mr. DiPaolo is entitled to
acquire upon the exercise of vested stock options. This does not
include 25,000 shares subject to unvested stock options granted to Mr.
DiPaolo.
(2) 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 shares subject to unvested stock options granted to Mr.
Edwards.
(3) Includes 13,750 shares of Common Stock that Mr. Golden is entitled to
acquire upon the exercise of vested stock options. This does not
include 3,750 shares subject to unvested stock options granted to Mr.
Golden.
(4) Includes 18,750 shares of Common Stock that Mr. Olmstead is entitled to
acquire upon the exercise of vested stock options. This does not
include 25,000 shares subject to unvested stock options granted to Mr.
Olmstead.
(5) Includes 5,000 shares of Common Stock that Mr. Reed is entitled to
acquire upon the exercise of vested stock options. This does not
include 15,000 shares subject to unvested stock options granted to Mr.
Reed.
(6) 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 shares subject to unvested stock options granted to Mr.
Sharpe.
(7) Includes 26,250 shares of Common Stock that Mr. Lacey is entitled to
acquire upon the exercise of vested stock options.
20
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(8) 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.
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 1999 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 1999 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 or she
desires to do so and to respond to appropriate questions.
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for
stockholder action at the Company's annual meetings consistent with regulations
adopted by the Securities and Exchange Commission. For such proposals to be
considered for inclusion in the proxy statement and form of proxy relating to
the 1999 annual meeting, they must be received by the Company not later than May
28, 1999. Such proposals should be addressed to the Company at 7175 West
Jefferson Avenue, Suite 4000, Lakewood, Colorado 80235, Attn: Corporate
Secretary.
Proxies which confer discretionary authority will be able to be
voted on stockholder proposals that the stockholders do not request be included
in the Company's Proxy Statement but plan to present at the Company's next
Annual Meeting of Stockholders, unless the Company receives notice of the
proposals by no later than May 28, 1999.
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 of Stockholders 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.
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FORM OF PROXY
CAPITAL ASSOCIATES, INC.
7175 WEST JEFFERSON AVENUE
LAKEWOOD, COLORADO 80235
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
October 23, 1998
The undersigned hereby appoints each of James D. Walker and Philip J.
Teigen as proxies and attorneys-in-fact for the undersigned with full power of
substitution to vote on behalf of the undersigned at the 1998 Annual Meeting of
Stockholders of Capital Associates, Inc. ("Company") to be held on October 23,
1998, starting at 8:30 a.m. (local time), in the Hampden Room of the Holiday
Inn, 7390 West Hampden, Lakewood, Colorado 80235 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.
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 AND 2. 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. The undersigned hereby revokes any
proxy or proxies heretofore given by the undersigned.
It is understood that this proxy confers discretionary authority in respect
to matters not known or determined at the time of the mailing of the Notice of
Annual Meeting of Stockholders to the undersigned. The proxies and attorneys
intend to vote the shares represented by this proxy on such matters, if any, as
determined by the Board of Directors.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
1. ELECTION OF DIRECTORS FOR all nominees____ WITHHOLD AUTHORITY____
(except as indicated to vote for all nominees
to the contrary)
Nominees: William H. Buckland, James D. Edwards, Gary M. Jacobs, 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 of KPMG Peat Marwick LLP as auditors for the Company for the
1999 fiscal year:
FOR____ AGAINST____ ABSTAIN____
The undersigned hereby acknowledges receipt of the Notice of Annual
Meeting of Stockholders and the Proxy Statement and Annual Report furnished
herewith.
Please sign exactly as name appears at below:
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.
