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 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 Materials Pursuant to Rule 14a-11(c) Rule 14a-12
EQUUS II INCORPORATED
(Name of Registrant as Specified in Its Charter)
PATRICK M. CAHILL, 2929 ALLEN PARKWAY, SUITE 2500, HOUSTON, TX 77019
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(I)(1) 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:
________________________________________________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing fee for which the offsetting fee was
paid previously. Identify the previous filing by registration 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>
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TIME 9:00 a.m. Houston time on Thursday, May 6, 1999
PLACE Meeting Room No. 1, Ground Level,
Wortham Tower
2727 Allen Parkway
Houston, Texas 77019
ITEMS OF BUSINESS 1. To elect eight members to the Board of
Directors for the ensuing year
2. To ratify the Board of Directors'
appointment of Arthur Andersen LLP as the
Fund's independent auditors for the fiscal
year ending December 31, 1999
3. To transact such other business as may
properly come before the meeting
RECORD DATE You are entitled to vote if you were a
stockholder at the close of business on
March 24, 1999.
VOTING BY PROXY Please submit a proxy as soon as possible so
that your shares can be voted at the meeting in
accordance with your instructions. You may
submit your proxy (1) by telephone or (2) by
mail. For specific instructions, please refer
to the Questions and Answers, beginning on page
2 of this proxy statement and the instructions
on the proxy card.
By order of the Board of Directors,
TRACY H. COHEN
SECRETARY
This proxy statement and accompanying proxy card are being distributed on or
about April 5, 1999.
<PAGE>
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500
HOUSTON, TEXAS 77019
_______________________
PROXY STATEMENT
_______________________
This Proxy Statement is furnished to the stockholders of Equus II
Incorporated ("EQS" or the "Fund"), in connection with the solicitation by its
Board of Directors of proxies to be voted at the 1999 Annual Meeting of
Stockholders to be held on Thursday, May 6, 1999, at 9:00 a.m., local time, at
Meeting Room No. 1, Ground Level, Wortham Tower, 2727 Allen Parkway, Houston,
Texas 77019, and at any adjournment thereof.
ABOUT THE MEETING
WHAT IS THE PURPOSE OF THE ANNUAL MEETING?
At the Fund's annual meeting, stockholders will act upon the matters
outlined in the accompanying notice of meeting, including the election of
directors and ratification of the Fund's independent auditors. In addition, the
Fund's management will report on the performance of the Fund during 1998 and
respond to questions from stockholders.
WHO IS ENTITLED TO VOTE?
Only stockholders of record at the close of business on the record date,
March 24, 1999, are entitled to receive notice of the annual meeting and to vote
the shares of common stock that they held on that date at the meeting, or any
postponement or adjournment of the meeting. Each outstanding share entitles its
holder to cast one vote on each matter to be voted upon. A list of stockholders
on the record date will be available for inspection at the Fund's office at 2929
Allen Parkway, Suite 2500, Houston, Texas for 10 days before the meeting.
WHO CAN ATTEND THE MEETING?
All stockholders as of the record date, or their duly appointed proxies,
may attend the meeting. Each stockholder may be asked to present valid picture
identification, such as a driver's license or passport. Cameras, recording
devices, and other electronic devices will not be permitted at the meeting.
Please note that if you hold your shares in "street name" (that is,
through a broker or other nominee), you will need to bring a copy of a brokerage
statement reflecting your stock ownership as of the record date and check in at
the registration desk at the meeting.
Parking is available at local garages; the fee for parking is $.55 per
half hour.
<PAGE>
WHAT CONSTITUTES A QUORUM?
The presence at the meeting, in person or by proxy, of the holders of a
majority of the shares of common stock outstanding on the record date will
constitute a quorum, permitting the meeting to conduct its business. As of the
record date, 4,954,304 shares of common stock of the Fund were outstanding.
Proxies received but marked as abstentions and broker non-votes that are voted
on any matter will be included in the calculation of the number of shares
considered to be present at the meeting.
HOW DO I VOTE?
If you complete and properly sign the accompanying proxy card and return
it to the Fund, it will be voted as you direct. If you are a registered
stockholder (that is, if you hold your stock in your own name), and attend the
meeting, you may deliver your completed proxy card in person. "Street name"
stockholders who wish to vote at the meeting will need to obtain a proxy form
from the institution that holds their shares.
CAN I VOTE BY TELEPHONE OR ELECTRONICALLY?
If you are a registered stockholder you may vote by telephone, or by
following the instructions included with your proxy card.
If your shares are held in "street name," you will need to contact your
broker or other nominee to determine whether you will be able to vote by
telephone or electronically.
CAN I CHANGE MY VOTE AFTER I RETURN MY PROXY CARD?
Yes. Even after you have submitted your proxy, you may change your vote
at any time before the proxy is exercised by filing with the Secretary of the
Fund either a notice of revocation or a duly executed proxy bearing a later
date. The powers of the proxy holders will be suspended if you attend the
meeting in person and so request, although attendance at the meeting will not by
itself revoke a previously granted proxy.
WHAT ARE THE BOARD'S RECOMMENDATIONS?
Where a choice is specified on any proxy card as to the vote on any
matter to come before the Annual Meeting, the proxy will be voted in accordance
with such specification. Where no choice is specified, the persons named as
proxy holders on the proxy card will vote in accordance with the recommendations
of the Board of Directors. The Board's recommendation is set forth together with
the description of each item in this Proxy Statement. In summary, the Board
recommends a vote:
o FOR election of the nominated slate of directors (see page 4);
and
o FOR ratification of the appointment of Arthur Andersen LLP as
the Fund's independent auditors (see page 14)
With respect to any other matter that properly comes before the meeting,
the proxy holders will vote as recommended by the Board of Directors or, if no
recommendation is given, in their own discretion.
2
<PAGE>
WHAT VOTE IS REQUIRED TO APPROVE EACH ITEM?
ELECTION OF DIRECTORS. The affirmative vote of a plurality of the votes
cast at the meeting is required for the election of directors. A properly
executed proxy marked "WITHHOLD AUTHORITY" with respect to the election of one
or more directors will not be voted with respect to the director or directors
indicated, although it will be counted for purposes of determining whether there
is a quorum.
OTHER ITEMS. For each other item, the affirmative vote of the holders of
a majority of the shares represented in person or by proxy and entitled to vote
on the item will be required for approval. A properly executed proxy marked
"ABSTAIN" with respect to any such matter will not be voted in favor of or
against such matter, although it will be counted as votes for purposes of
determining whether there is a quorum.
If you hold shares in "street name" through a broker or other nominee,
your broker or nominee may not be permitted to exercise voting discretion with
respect to some of the matters to be acted upon. Thus, if you do not give your
broker or nominee specific instructions, your shares may not be voted on those
matters and will not be counted in determining the number of shares necessary
for approval. Shares represented by such "broker non-votes" will, however, be
counted in determining whether there is a quorum.
WHO WILL BEAR THE COST OF SOLICITING VOTES FOR THE MEETING?
The cost of soliciting proxies will be paid by the Fund. Copies of
solicitation material will be furnished to brokerage houses, fiduciaries and
custodians to forward to beneficial owners of stock held in the name of such
nominees. The solicitation of proxies will be by mail, telephone, or otherwise
through the officers and regular employees of the Fund or Equus Capital
Management Company, the Fund's investment advisor (the "Management Company"),
without special compensation therefor.
WHO ARE THE LARGEST OWNERS OF THE FUND'S STOCK?
Other than Sam P. Douglass, Chairman of the Board and Chief Executive
Officer of the Fund, and Nolan Lehmann, President of the Fund, the Fund knows of
no single person or group that is the beneficial owner of more than 5% of the
outstanding shares of EQS Common Stock. The directors and officers of EQS, as a
group, beneficially own (including currently exercisable stock options)
approximately 22.4% of the shares of EQS Common Stock.
HOW MUCH STOCK DO THE FUND'S DIRECTORS AND EXECUTIVE OFFICERS OWN?
The table on page 13 shows the amount of common stock of the Fund
beneficially owned by the Fund's directors, the executive officers of the Fund
named in the Summary Compensation Table below, and the directors and executive
officers of the Fund as a group.
<PAGE>
PROPOSAL 1. ELECTION OF DIRECTORS
Article III, Section 3.2 of the By-laws of the Fund currently provides
for a minimum of three and a maximum of fifteen directors (a majority of whom
must be independent directors). There are currently eight directors, including
five independent directors (i.e. directors who are not "interested persons" as
defined in the Investment Company Act). The nominees receiving an affirmative
vote of a plurality of the shares entitled to vote and present, either in person
or by proxy, at the Annual Meeting, will be elected as members of the Board. All
of the elected directors will serve until their respective successors have been
duly elected and qualified or until they resign, die or are removed from office.
The persons named as proxies in the enclosed form of proxy were selected
by the Board, and have advised the Board that, unless authority is withheld,
they intend to vote the shares represented by them at the Annual Meeting for the
election of Sam P. Douglass, Gregory J. Flanagan, Robert L. Knauss, Nolan
Lehmann, Gary R. Petersen, John W. Storms, Dr. Francis D. Tuggle, and Dr. Edward
E. Williams. All of the nominees are current members of the Board, five of whom
are independent directors (Messrs. Flanagan, Knauss, Petersen, Storms, and Dr.
Tuggle). All of the nominees have consented to their nomination and will serve
if elected to the Board.
The Board knows of no reason why any nominee for director would be
unable to serve as a director. If at the time of the Annual Meeting any of the
named nominees are unable or unwilling to serve as directors of the Fund, the
persons named as proxies intend to vote for such substitutes as may be nominated
by the Board.
THE BOARD UNANIMOUSLY RECOMMENDS THAT EACH
STOCKHOLDER VOTE "FOR" THE ELECTION OF THE
BOARD'S NOMINEES FOR DIRECTOR.
NOMINEES FOR DIRECTOR
DIRECTOR
NAME AND OCCUPATION AGE SINCE
-------------------- --- --------
SAM P. DOUGLASS*................................... 66 1991
Chairman of the Board and Chief Executive
Officer of the Fund and the Management Company.
GREGORY J. FLANAGAN (1)(3)(4)(5)................... 53 1992
Vice President of Arthur J. Gallagher & Co.
ROBERT L. KNAUSS (1)(2)(4)(5)...................... 68 1991
Chairman of the Board of Philip Services Corp and
Baltic International USA, Inc.
NOLAN LEHMANN*..................................... 54 1991
President of the Fund and the Management
Company.
GARY R. PETERSEN (1)(2)(4)(5) ..................... 52 1994
Partner of EnCap Investments, L. C.
JOHN W. STORMS (1)(3)(4)(5)........................ 54 1991
Managing General Partner of Storms & Critz,
Certified Public Accountants.
DR. FRANCIS D. TUGGLE (1)(4)(5) ................... 56 1991
Professor at the Kogod College of Business
Administration at American University.
DR. EDWARD E. WILLIAMS (2)(3)* .................... 53 1992
Henry Gardiner Symonds Professor and Director of
the Entrepreneurship Program of the Jesse H. Jones
Graduate School of Management at Rice University.
<PAGE>
* "Interested Person" as defined in the Investment Company Act.
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
(3) Member of Committee to Study Methods for Enhancement of Shareholder Value.
(4) Member of Nominating Committee.
(5) Member of the Committee of Independent Directors
Sam P. Douglass has been Chairman of the Board and Chief Executive
Officer of the Fund since August 1991. Mr. Douglass also has been Chairman of
the Board and Chief Executive Officer of the Management Company since 1983.
Since December 1978, he has served as Chairman and Chief Executive Officer of
Equus Corporation International ("ECI"), a privately-owned corporation engaged
in a variety of investment activities. Mr. Douglass is a director of Advanced
Technical Products, Inc. He is also a director of GCS RE, Inc. and VRPI Spin
Off, Inc., which are privately-owned companies in which the Fund has an
investment. Mr. Douglass is a licensed attorney.
Gregory J. Flanagan has been a director of the Fund since October 1992.
He was a director of ECC from July 1984 to October 1992. He has been a Vice
President of Arthur J. Gallagher since January 1997. He was a Vice President and
Regional Director of Alexander & Alexander, Inc. from December 1993 to January
1997 and was Senior Vice President from March 1990 to December 1993. He was
President of Bank of Oklahoma, N.A. from September 1986 to February 1990.
Robert L. Knauss has been a director of the Fund since October 1991 and
was an Independent General Partner of the Fund's predecessor from its inception
in 1987. He has been Chairman and Chief Executive Officer of Baltic
International USA, Inc. since January 1994 and Chairman of the Board of
Directors of Philip Services Corp since May 1998. He was Dean and Distinguished
University Professor of Law at the University of Houston Law Center from 1981 to
1993. He also serves as a director of The Mexico Fund, Inc.
Nolan Lehmann has been President and a director of the Fund since August
1991. Mr. Lehmann has been President and a director of the Management Company
since 1983. Mr. Lehmann is also a director of Allied Waste Industries, Inc.,
American Residential Services, Inc., Brazos Sportswear, Inc., Drypers
Corporation and Paracelsus Healthcare Corporation. In addition, he serves as a
director of ten of the privately-owned companies in which the Fund has an
investment. Mr. Lehmann is a certified public accountant.
<PAGE>
Gary R. Petersen has been a director of the Fund since November 1994. He
has been a partner of EnCap Investments, L. C. since 1988. Mr. Petersen had
previously served as Senior Vice President and Manager of the Corporate Finance
Division of the Energy Banking Group for RepublicBank Corporation from 1985 to
1988. He is also a director of Harken Energy Corporation, Nuevo Energy, Inc.,
and Energy Capital Investment Company.
John W. Storms has been a director of the Fund since October 1991 and
was an Independent General Partner of the Fund's predecessor from its inception
in 1987. He has been the Managing General Partner of Storms & Critz, Certified
Public Accountants since May of 1988. Mr. Storms is a certified public
accountant.
Dr. Francis D. Tuggle has been a director of the Fund since October 1991
and was an Independent General Partner of the Fund's predecessor from its
inception in 1987. He has been a Professor at the Kogod College of Business
Administration at American University since July 1990 where he was Dean from
July 1990 to June 1996. From 1981 to 1990, he was the Jesse H. Jones Professor
of Management at the Jesse H. Jones Graduate School of Administration of Rice
University.
Dr. Edward E. Williams has been a director of the Fund since October
1992 and was a director of Equus Capital Corporation, a Delaware corporation and
wholly owned subsidiary of the Management Company ("ECC"), from March 1987 to
June 1995. Since 1982, he has been the Henry Gardiner Symonds Professor and the
Director of the Entrepreneurship Program of the Jesse H. Jones Graduate School
of Management at Rice University. Dr. Williams is Manager of First Texas Venture
Capital, a limited liability company, which was a former stockholder of ECC. Dr.
Williams is also a director of Service Corporation International and serves on
its investment committee. Dr. Williams is also a director of VRPI Spin Off,
Inc., a privately-owned company in which the Fund has an investment.
There is no family relationship between any director, executive officer
or person nominated or selected by the Board to become a director or executive
officer.
WHAT ARE THE DUTIES OF THE BOARD OF DIRECTORS?
The Board provides overall guidance and supervision with respect to the
operations of the Fund and performs the various duties imposed on the directors
of business development companies by the Investment Company Act. Among other
things, the Board supervises the management arrangements of the Fund, the
custodial arrangements with respect to portfolio securities, the selection of
accountants, fidelity bonding and transactions with affiliates. All actions
taken by the Board are taken by majority vote unless a higher percentage is
required by law or unless the Investment Company Act, the Fund's Restated
Certificate of Incorporation or By-laws require that the actions be approved by
a majority of the independent directors. The Investment Company Act requires
that a majority of the directors be individuals who are not "interested persons"
(as defined under the Investment Company Act) of the Fund.
<PAGE>
WHAT COMMITTEES HAS THE BOARD ESTABLISHED?
The Board has five committees: an Audit Committee, a Committee of the
Independent Directors, a Compensation Committee, a Nominating Committee, and a
Committee to Study Methods for the Enhancement of Shareholder Value. The Board
has no other standing committees.
The members of the Audit Committee are Messrs. Flanagan, Knauss,
Petersen and Storms and Dr. Tuggle, all of whom are independent directors. The
functions of the Audit Committee are to: make recommendations to the full Board
regarding the engagement or discharge of independent accountants; direct and
supervise investigations of matters within the scope of the independent
accountants' duties; review with the independent accountants the audit plan and
results of the audit; approve each professional service provided by the
independent accountants prior to the performance of such service; consider the
range of audit and nonaudit fees; and review the adequacy of the Fund's system
of internal accounting controls.
The members of the Committee of the Independent Directors are Messrs.
Flanagan, Knauss, Petersen and Storms and Dr. Tuggle, the Fund's independent
directors. The functions of the Committee of the Independent Directors are to:
recommend to the full Board approval of any management, advisory, or
administration agreements; recommend to the full Board any underwriting or
distribution agreements; review the fidelity bond and premium allocation; review
any joint insurance policies and premium allocation; review and monitor the
Fund's compliance with procedures adopted pursuant to certain rules promulgated
under the Investment Company Act; and carry out such other duties as the
independent directors shall, from time to time, conclude are necessary in the
performance of their duties under the Investment Company Act.
The members of the Compensation Committee are Messrs. Knauss and
Petersen and Dr. Williams. The function of the Compensation Committee is to
determine and issue stock options for officers of the Fund under the Equus II
Incorporated 1997 Stock Incentive Plan (the "Plan"), which is the only form of
compensation paid by the Fund to its officers for serving as such.
The members of the Nominating Committee are Messrs. Flanagan, Knauss,
Petersen and Storms and Dr. Tuggle. The function of the Nominating Committee is
to select individuals for nomination to the Board of Directors of the Fund.
The members of the Committee to Study Methods for the Enhancement of
Shareholder Value are Messrs. Flanagan and Storms and Dr. Williams. The function
of the Committee to Study Methods for the Enhancement of Shareholder Value is to
recommend to the Board plans and actions which might increase the value at which
the EQS Common Stock trades on the New York Stock Exchange.
HOW OFTEN DID THE BOARD AND ITS COMMITTEES MEET DURING 1998?
During 1998, the Board met in person five times (including the Annual
Meeting), the Audit Committee held two meetings and the Compensation Committee
and the Committee to Study Methods for the Enhancement of Shareholder Value held
no meetings. The Committee of Independent Directors met as needed at regularly
scheduled Board Meetings. All directors attended more than 75% of the meetings
held by the Board or the committees of the Board on which they served.
<PAGE>
The Restated Certificate of Incorporation and By-laws of the Fund
provide for the indemnification of the Fund's directors in connection with their
activities as directors.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS OF THE FUND
Directors who are officers of the Fund receive no remuneration from the
Fund. Commencing as of January 1, 1998, each director who is not an officer of
the Fund receives from the Fund an annual fee of $25,000, $3,000 for each
meeting of the directors attended in person, $1,500 for participation in each
meeting of the directors conducted by telephonic conference, $1,500 for each
committee meeting attended ($500 for each committee meeting - if attended on the
same day as a Board meeting) and reimbursement for all out-of-pocket expenses
relating to attendance at such meetings. The independent directors will not
receive any additional compensation from the Fund or companies in which the Fund
invests ("Portfolio Companies") for any additional services rendered. Officers
and directors of the Fund who are affiliated with the Management Company may
serve as directors of Portfolio Companies and in such capacities may receive and
retain directors' fees and other compensation directly from the Portfolio
Companies. The Fund does not pay any cash compensation directly to its officers.
Such officers are employed by and receive a salary from the Management Company.
The Fund established a stock incentive plan in 1997 to provide incentive
compensation to its directors, officers, and employees.
The directors who were not officers of the Fund were paid an aggregate
of $234,500 and $194,500 as compensation for the years ended December 31, 1998
and 1997, respectively.
Under the 1997 Stock Incentive Plan (the "Plan") each non-officer
director was automatically granted an incentive option to purchase 5,000 shares
of EQS Common Stock. In addition each individual elected as a non-officer
director is, on the first business day following the annual stockholders
meeting, granted an incentive stock option to purchase 2,000 shares of EQS
Common Stock at the closing sales price for shares of EQS Common Stock on that
date. The Fund currently has no bonus, profit-sharing, pension or retirement
plan. Any new director will automatically be granted an option to purchase 5,000
shares of EQS Common Stock on the first business day following such director's
first board meeting.
Under the Plan the Fund may grant stock options to eligible directors
and officers for up to the number of shares of EQS Common Stock equal to 20% of
the outstanding shares. At December 31, 1998, the Fund could issue stock options
for up to 990,860 shares of EQS Common Stock under the Plan and had issued stock
options covering an aggregate of 939,131 shares. The Compensation Committee is
responsible for granting awards of stock options under the Plan.
CASH COMPENSATION
The following table sets forth all cash compensation paid to the
directors during or with respect to 1998, for services rendered in all
capacities to the Fund.
<TABLE>
<CAPTION>
PENSION OR
RETIREMENT LONG-TERM
AGGREGATE BENEFITS ACCRUED COMPENSATION AWARDS
COMPENSATION AS PART OF NUMBER OF SECURITIES
NAME OF DIRECTOR FROM THE FUND FUND EXPENSES UNDERLYING OPTIONS
----------------- ------------- ---------------- --------------------
<S> <C> <C> <C> <C>
Sam P. Douglass*......... $- (1) $ - -
Gregory J. Flanagan...... 41,000 - 2,000
Robert L. Knauss......... 41,000 - 2,000
Nolan Lehmann* - (1) - -
Gary R. Petersen......... 38,000 - 2,000
John W. Storms........... 38,000 - 2,000
Francis D. Tuggle........ 38,000 - 2,000
Edward E. Williams*...... 38,500 - 2,000
</TABLE>
- ----------------
* Designates an "interested person."
(1) Mr. Douglass and Mr. Lehmann do not receive a salary or Board of Director
fees from the Fund.
OPTIONS GRANTED DURING 1998
The following table contains information concerning the grant of stock options
under the Fund's incentive stock plan to directors and executive officers during
1998.
<TABLE>
<CAPTION>
% OF TOTAL
OPTIONS
NUMBER OF GRANTED TO POTENTIAL REALIZABLE VALUE AT ASSUMED
SECURITIES DIRECTORS AND ANNUAL RATES OF STOCK PRICE
UNDERLYING OFFICERS EXERCISE APPRECIATION FOR OPTION TERM(1)
OPTIONS IN FISCAL YEAR PRICE EXPIRATION --------------------------------------
NAME GRANTED(#) 1998 ($/SH) DATE 5%($) 10%($)
-------- ------------ --------------- ------------ ----------- --------------------------------------
<S> <C> <C> <C>
Sam P. Douglass - - $ - - $ - $ -
Gregory J. Flanagan 2,000 16.7% 27.4375 05/14/08 34,511 87,457
Robert L. Knauss 2,000 16.7% 27.4375 05/14/08 34,511 87,457
Nolan Lehmann - - - - - -
Gary R. Petersen 2,000 16.7% 27.4375 05/14/08 34,511 87,457
John W. Storms 2,000 16.7% 27.4375 05/14/08 34,511 87,457
Francis D. Tuggle 2,000 16.7% 27.4375 05/14/08 34,511 87,457
Edward E. Williams 2,000 16.7% 27.4375 05/14/08 34,511 87,457
</TABLE>
- -----------
(1) The amounts shown under these columns are the result of calculations at
the 5% and 10% rates required by the rules adopted by the Securities and
Exchange Commission and are not intended to forecast future appreciation
of the Fund's stock price. The potential realizable values are based on
an assumption that the stock price of the shares of EQS Common Stock
appreciates at the annual rate shown (compounded annually) from the date
of grant until the end of the option term. The values do not take into
account amounts required to be paid as income taxes or option provisions
providing for termination of an option following termination of
employment, nontransferability, or vesting over periods of up to four
years.
<PAGE>
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth certain information concerning the value
of unexercised options held by each of the directors of the Fund at December 31,
1998. None of the directors exercised any stock options during the year ended
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
----------------------------------- -------------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C>
Sam P. Douglass............... 165,602 94,566 $ - $ -
Gregory J. Flanagan........... 4,333 2,667 - -
Robert L. Knauss.............. 4,333 2,667 - -
Nolan Lehmann................. 147,660 85,594 - -
Gary R. Petersen.............. 4,333 2,667 - -
John W. Storms................ 4,333 2,667 - -
Francis D. Tuggle............. 4,333 2,667 - -
Edward E. Williams............ 4,333 2,667 - -
</TABLE>
- ------------
(1) The value is based on a closing sale price of $16.125 per share on
December 31, 1998.
EXECUTIVE OFFICERS OF THE FUND
The executive officers of the Fund are: Sam P. Douglass, Chairman of the
Board and Chief Executive Officer; Nolan Lehmann, President; Patrick M. Cahill,
Vice President and Treasurer; Tracy H. Cohen, Vice President and Secretary; Gary
L. Forbes, Vice President and Randall B. Hale, Vice President. Executive
officers receive no cash compensation from the Fund, but participate in the 1997
Stock Incentive Plan. See "Investment Management Agreement" and "Management
Company" below. For a description of the business background of each of Messrs.
Douglass and Lehmann see "Nominees for Director" above.
Patrick M. Cahill, age 39, has been Treasurer of the Fund since March
1996 and a Vice President of the Fund since May 1994. He has been Treasurer and
a Vice President of ECC since March 1996 and Controller of ECC Since May 1987.
He has also been the Controller of the Management Company since May 1987. Mr.
Cahill is a director of The Drilltec Corporation which is a privately-owned
company in which the Fund has an investment. From June 1982 to May 1987, he was
employed by Ernst & Young. Mr. Cahill is a certified public accountant.
Tracy H. Cohen, age 32, has been Secretary of the Fund since March 1996
and a Vice President of the Fund since May 1995. She has been Secretary of ECC
since March 1996 and a Vice President of ECC since April 1995. She is also
Investor Relations Manager of the Management Company where she has been employed
since April 1995. From September 1990 to April 1995, she was employed by Arthur
Andersen LLP. Ms. Cohen is a director of Equicom, Inc., which is a
privately-owned company in which the Fund has an investment. Ms. Cohen is a
certified public accountant.
Gary L. Forbes, age 55, has been a Vice President of the Fund since
December 1991. Mr. Forbes has been a Vice President of the Management Company
and ECC since November 1991. He is a director of Advanced Technical Products,
Inc., Consolidated Graphics, Inc., Drypers Corporation, and NCI Building
Systems, Inc. In addition, he serves as a director of nine of the
privately-owned companies in which the Fund has an investment. Mr. Forbes is a
certified public accountant.
<PAGE>
Randall B. Hale, age 36, has been a Vice President of the Fund, ECC, and
the Management Company since November 1992. He has been a director of ECC and
the Management Company since February 1996. He has been Secretary of the
Management Company since March 1996. From June 1985 to October 1992, he was
employed by Arthur Andersen LLP. Mr. Hale is a director of American Residential
Services, Inc. and Brazos Sportswear, Inc. Mr. Hale is also a director of
Equicom, Inc., Strategic Holdings, Inc., SMIP, Inc., and Tulsa Industries, Inc.,
which are privately-owned companies in which the Fund has an investment. Mr.
Hale is a certified public accountant. Brazos Sportswear, Inc. filed a voluntary
petition under Chapter 11 of the U.S. Bankruptcy Code on January 21, 1999.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, the Fund's directors, executive (and
certain other) officers, and any persons holding more than ten percent of EQS
Common Stock are required to report their ownership of EQS Common Stock and any
changes in that ownership to the Fund and the Securities and Exchange Commission
(the "SEC"). Specific due dates for these reports have been established by
regulation and the Fund is required to report in this proxy statement any
failure to file by these dates in 1998. All of these filings were satisfied by
the Fund's directors, officers, and ten percent holders, except that Mr.
Douglass made two late filings relating to certain purchases of shares by his
wife.
As of April 1, 1999, the Fund believes that all directors, officers and
ten percent holders are current in their filings. In making these statements,
the Fund has relied on the written representations of its directors, officers
and ten percent holders and copies of reports that they have filed with the SEC.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDER
Other than Messrs. Douglass and Lehmann, the Fund does not know of any
person who is a beneficial owner of more than 5% of the outstanding shares of
EQS Common Stock.
OWNERSHIP OF MANAGEMENT
The following table sets forth at March 31, 1999, the number and
percentage of outstanding shares of EQS Common Stock beneficially held by (i)
each director and nominee for director of the Fund, and (ii) all officers and
directors as a group. Under the rules of the SEC, a person is deemed to own
beneficially all securities as to which that person owns or shares voting or
investment power, as well as all securities which such person may acquire within
60 days through the exercise of currently available conversion rights, warrants
or options. Except as otherwise indicated, the stockholders listed in the table
below have sole voting and investment power with respect to the shares
indicated.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
------------------------------------------
SOLE VOTING OPTIONS
AND EXERCISABLE OTHER
INVESTMENT WITHIN BENEFICIAL PERCENT
TITLE OF CLASS NAME POWER 60 DAYS OWNERSHIP TOTAL OF CLASS
- -------------- ---- ------------- ----------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common Stock Sam P. Douglass(1) 9,432 206,706 247,781(2) 463,919 8.2%
Gregory J. Flanagan 4,000 4,666 0 8,666 *
Robert L. Knauss 412 4,666 268(3) 5,346 *
Nolan Lehmann(4) 101,602 184,613 47,789(5) 334,004 5.9%
Gary R. Petersen 3,078 4,666 0 7,744 *
John W. Storms 3,953 4,666 0 8,619 *
Francis D. Tuggle 2,000 4,666 0 6,666 *
Edward E. Williams 28,095 4,666 3,479(6) 36,240 *
All directors and 252,046 725,679 299,317 1,277,042 22.4%
officers as a group
(twelve persons)
</TABLE>
* Indicates less than one percent.
(1) Mr. Douglass' address is 2929 Allen Parkway, Suite 2500, Houston, Texas
77019.
(2) Includes (a) 3,873 shares held by Paula T. Douglass, his spouse, (b) 1,842
shares held in an Individual Retirement Account of Paula T. Douglass, (c)
9,575 shares held in a 401K Plan for the benefit of Paula T. Douglass, (d)
24,226 shares held by Douglass Trust IV, FBO S. Preston Douglass, Jr., Mr.
Douglass' son, of which Mr. Douglass is the trustee and a lifetime
beneficiary, (e) 24,226 shares held by Douglass Trust IV, FBO Brooke
Douglass, Mr. Douglass' daughter, of which Mr. Douglass is the trustee and
a lifetime beneficiary, (f) 24,833 shares held by the Tiel Trust I, FBO Sam
P. Douglass, (g) 25,651 shares held by Tiel Trust I, FBO Paula T. Douglass,
and (h) 133,555 shares held by Equus Corporation International, a Delaware
corporation of which Mr. Douglass is the Chairman of the Board and Chief
Executive Officer. Mr. Douglass disclaims beneficial ownership of all
shares not directly owned by him.
(3) Includes 268 shares held by the Robert L. Knauss Defined Plan (the "Knauss
Plan") of which Mr. Knauss is a control person. Mr. Knauss disclaims
beneficial ownership of the shares held by the Knauss Plan.
(4) Mr. Lehmann's address is 2929 Allen Parkway, Suite 2500, Houston, Texas
77019.
(5) Includes (a) 3,520 shares held by Jeanne Lehmann, Mr. Lehmann's spouse, (b)
17,041 shares held by the 1983 Lehmann Children's Trust, of which Mr.
Lehmann's sister is the trustee, and (c) 27,228 shares held by Lehmann
Investments, L.P., of which Mr. Lehmann is the general partner. Mr. Lehmann
disclaims beneficial ownership of all shares not owned directly by him.
(6) Includes 3,479 shares held by First Texas Venture Capital, a limited
liability company, of which Dr. Williams is the Managing Partner. Dr.
Williams disclaims beneficial ownership of all shares not owned directly by
him.
INVESTMENT MANAGEMENT AGREEMENT
The investments and business of the Fund are managed by the Management
Company, pursuant to a Management Agreement (the "Management Agreement")
initially approved by the stockholders of the Fund at a special meeting held on
April 9, 1997.
<PAGE>
The Management Agreement provides that the Management Company shall
provide, or arrange for suitable third parties to provide, any and all
management and administrative services reasonably necessary for the operation of
the Fund and the conduct of its business. Such management and administrative
services include, without limitation, providing the Fund with office space,
equipment, facilities and supplies and clerical services; keeping and
maintaining the books and records of the Fund, and handling communications and
correspondence with stockholders; preparing accounting, management and other
reports; and providing such other managerial and administrative services as may
be reasonably requested by the Fund to identify, evaluate, structure, monitor
and dispose of the Fund's investments. In return for its services and the
expenses which the Management Company assumes under the Management Agreement,
the Fund pays the Management Company, on a quarterly basis, a management fee
equal to 0.5% of the net assets of the Fund on the last day of each calendar
quarter (2% per annum). The management fee is payable quarterly in arrears. The
Management Company's management fee from the Fund was $2,706,325 for the year
ended December 31, 1998. The total net assets of the Fund as of December 31,
1998, were approximately $116.2 million.
Under the Management Agreement, the Fund is obligated to bear all costs
and expenses directly allocable and identifiable to the Fund or its business or
investments, including, but not limited to, all expenses with respect to
investments or the acquisition or disposition thereof, expenses of registering
the shares under federal and state securities laws, costs of printing proxies
and other expenses related to meetings of stockholders, litigation expenses,
costs of third party evaluations or appraisals of the Fund (or its assets) or
its actual investments, fees of transfer agents and custodians, legal fees, fees
of independent public accountants, expenses of printing and distributing reports
to stockholders, securities holders and regulatory bodies, federal, state and
local taxes, and other costs and expenses directly allocable and identifiable to
the Fund or its business or investments.
The Management Company also receives compensation for providing certain
investor communication services of which $50,000 is included in the Statements
of Operations for the year ended December 31, 1998.
Certain officers and directors of the Fund serve as directors of
Portfolio Companies. In consideration for such service, such officers or
directors may receive and retain fees and non-employee director stock options
from such Portfolio Companies. During 1998, the officers and directors of the
Fund received $294,468 of director fees from Portfolio Companies.
The Management Agreement will continue in effect until June 30, 1999,
and from year-to-year thereafter provided such continuance is approved at least
annually by (i) a vote of a majority of the outstanding shares of the Fund or
(ii) a majority of the directors who are not "interested persons" of the Fund,
at a meeting called for the purpose of voting on such approval. The Management
Agreement may be terminated at any time, without the payment of any penalty, by
a vote of the Board of Directors of the Fund or the holders of a majority of the
Fund's shares on 60 days' written notice to the Management Company, and would
automatically terminate in the event of its "assignment" (as defined in the
Investment Company Act).
MANAGEMENT COMPANY
The Management Company was organized as a Delaware corporation on
September 27, 1983, and maintains its offices at 2929 Allen Parkway, Suite 2500,
Houston, Texas 77019. The Management Company's sole activity is to perform
management, administrative and investment advisory services for the Fund, Equus
Capital Partners, L.P. and Equus Equity Appreciation Fund, L.P. The Management
Company is a registered investment adviser under the Investment Advisers Act of
1940.
<PAGE>
The officers and directors of the Management Company are: Sam P.
Douglass, Chairman of the Board and Chief Executive Officer; Nolan Lehmann,
President and director; Randall B. Hale, Vice President, director and Secretary;
Paula T. Douglass, director; S. Preston Douglass, Jr., director and Gary L.
Forbes, Vice President. For a description of the business background of each of
Messrs. Sam P. Douglass, Lehmann, Hale and Forbes see "Nominees for Director"
and "Executive Officers of the Fund" above. A description of the business
background of Paula T. Douglass and S. Preston Douglass, Jr., is set forth
below. The business address of the Management Company's officers and directors
is 2929 Allen Parkway, Suite 2500, Houston, Texas 77019, except for S. Preston
Douglass, Jr. whose address is 820 Main Street, Suite 100, Kerrville, Texas
78028.
Paula T. Douglass, age 47, has been a director of ECI since December
1978 and the Management Company since July 1993. She was elected a director of
ECC in February 1996. Since February 1998, Ms. Douglass has been Chairman and
Chief Executive Officer of Cinema Film Systems, Inc. From September 1989 to
September 1990 she was employed as an attorney by Fulbright & Jaworski, LLP. She
served as Chairman of Iwerks Entertainment, Inc. from January 1995 to March
1997. Mrs. Douglass is a licensed attorney.
S. Preston Douglass, Jr., age 37, has been a director of the Management
Company since July, 1993. He was elected a director of ECC in February 1996. He
is a partner in the law firm of Wallace, Machann, Jackson, Williams & Douglass,
in Kerrville, Texas where he began in January 1989. Mr. Douglass was a
prosecutor in the 216th Judicial District in Kerrville, Texas from December 1987
to December 1988. He is a licensed attorney and former President of the Kerr
County Bar Association.
There is no family relationship between any independent director of the
Fund and any director or officer of the Management Company. Paula T. Douglass is
the wife of Sam P. Douglass and S. Preston Douglass, Jr. is the son of Sam P.
Douglass.
As a result of its stock ownership in the Management Company, ECI has
80% voting control of the Management Company.
PROPOSAL 2. RATIFICATION OF THE SELECTION OF INDEPENDENT
AUDITORS FOR THE FUND
The Board, including a majority of the Fund's disinterested directors,
has selected the accounting firm of Arthur Andersen LLP to audit the Fund's
financial statements for, and otherwise act as the Fund's independent
accountants with respect to the fiscal year ending December 31, 1998. The Fund's
engagement of Arthur Andersen LLP is conditioned on the Fund's right (exercised
by a vote of a majority of its outstanding securities at any meeting called for
such purpose) to terminate at any time, with or without cause and without
penalty, such employment. In accordance with the Board's resolution, the
selection of Arthur Andersen LLP for the current fiscal year is submitted to
stockholders for ratification. The Fund knows of no direct or indirect financial
interest of Arthur Andersen LLP in the Fund.
<PAGE>
Arthur Andersen LLP has served as the independent accountants for the
Fund since its organization in 1991. A representative of Arthur Andersen LLP is
expected to be present at the Annual Meeting and will be available to make a
statement, if he or she so desires, and to respond to appropriate questions of
the stockholders.
The proposal to ratify the appointment of Arthur Andersen LLP as the
Fund's independent auditors requires the affirmative vote of a majority of the
outstanding shares of EQS Common Stock represented and entitled to vote at the
Annual Meeting.
THE BOARD UNANIMOUSLY RECOMMENDS THAT EACH STOCKHOLDER VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF ARTHUR ANDERSEN LLP AS THE INDEPENDENT
AUDITORS OF THE FUND.
OTHER MATTERS
The Board knows of no matters other than those listed in the attached
Notice of Annual Meeting which are likely to come before the Annual Meeting.
However, if any other matter properly comes before the Annual Meeting, the
persons named on the enclosed proxy card will vote the proxy in accordance with
their best judgment on such matters.
In the event that sufficient votes in favor of the proposals set forth
in the Notice of the Annual Meeting of Stockholders and Proxy Statement are not
received by the time scheduled for the Annual Meeting, the individuals named as
proxies may move for one or more adjournments of the Annual Meeting to permit
further solicitation of proxies with respect to any such proposals. Any such
adjournment will require the affirmative vote of a majority of the shares
present at an Annual Meeting.
ANNUAL REPORT
The financial statements of the Fund are contained in the 1998 Annual
Report to Stockholders, which has been provided to the stockholders concurrently
herewith. Such report and the financial statements contained therein are not to
be considered as a part of this soliciting material. A copy of the Fund's Annual
Report to Stockholders is available without charge upon request. Please direct
your request to Equus II Incorporated, Attention: Investor Relations, P. O. Box
130197, Houston, Texas 77219-0197, (713) 529-0900.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETING
Under the regulations of the SEC, a record or beneficial owner of shares
of EQS Common Stock may submit proposals on proper subjects for action at the
2000 Annual Meeting of Stockholders of the Fund. All such proposals must be
mailed to the Fund, c/o Equus Capital Management Corporation, 2929 Allen
Parkway, Suite 2500, Houston, Texas 77019, attention: Nolan Lehmann, and must be
received at that address no later that December 1, 1999, in order to be
considered for inclusion in the Fund's proxy statement and form of proxy
relating to the 2000 Annual Meeting. Submission of a stockholder proposal does
not guarantee inclusion in the Fund's proxy statement or form of proxy because
certain SEC rules must be met.
<PAGE>
Under the Fund's Bylaws if a stockholder entitled to vote for the
election of directors at a meeting wishes to make a director nomination at an
annual meeting, written notice of such stockholder's intent to make such
nomination must be given, either by personal delivery or by U.S. mail, postage
prepaid, to Tracy H. Cohen, Secretary, Equus II Incorporated, 2929 Allen
Parkway, Suite 2500, Houston, Texas 77019, not less than 60 nor more than 90
days prior to the meeting; provided, however, that in the event less than 70
days' notice or prior public disclosure of the date of the meeting is given to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the fifth day following the day on which such
notice is mailed or such public disclosure was made. Each notice must set forth
certain information specified in the Bylaws. The chairman of the meeting will
determine if a nomination complies with the foregoing requirements and may
disregard the nomination of any person not made in compliance with the foregoing
procedure.
The Bylaws also provide that no business may be brought before an annual
meeting unless it has been properly brought before the meeting. To be properly
brought before the meeting a stockholder must deliver a written notice to the
Fund at the address set forth in the preceding paragraph of the stockholder's
intention to present a proposal (containing certain information specified in the
Bylaws) within the time limits described above for delivering of notice of a
nomination for the election of a director. These requirements apply to any
matter that a stockholder wishes to raise at an annual meeting other than
pursuant to the procedures in SEC Rule 14a-8. The chairman of the meeting will
determine if a proposal is properly before the meeting and if it is determined
that a proposal is not properly before the meeting, no action shall be taken on
such proposal.
The proxy solicited by the Board of Directors for the 2000 Annual
Meeting of Stockholders will confer discretionary authority to vote on any
shareholder proposal presented at that meeting, unless the Fund is provided with
notice of such proposal no later than February 15, 2000.
A copy of the full text of the Bylaws provisions discussed above may be
obtained by writing to the Corporate Secretary, 2929 Allen Parkway, Suite 2500,
Houston, Texas 77019.
<PAGE>
EQUUS II INCORPORATED
2929 ALLEN PARKWAY, SUITE 2500, HOUSTON, TEXAS 77019
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF EQUUS II INCORPORATED
("THE FUND") FOR THE ANNUAL MEETING OF STOCKHOLDERS ON MAY 6, 1999
The undersigned hereby constitutes and appoints Sam P. Douglass or Nolan
Lehmann, with full power of substitution and revocation to each, the true and
lawful attorneys and proxies of the undersigned at the Annual Meeting of
Stockholders of EQUUS II INCORPORATED, to be held on May 6, 1999, at 9:00 a.m.,
local time, at Meeting Room No. 1, Ground Level, Wortham Tower, 2727 Allen
Parkway, Houston, Texas 77019, or any adjournments thereof (the "Annual
Meeting") and to vote the shares of Common Stock, $.001 par value per share, of
the Fund (the "Shares") standing in the name of the undersigned on the books of
the Fund on March 24, 1999, the record date for the Annual Meeting, with all
powers the undersigned would possess if personally present at the Annual
Meeting.
The undersigned hereby acknowledges previous receipt of the Notice of
Annual Meeting of Stockholders and the Proxy Statement and hereby revokes any
proxy or proxies heretofore given by the undersigned.
_______________________________________________________________________________
FOLD AND DETACH HERE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR Please mark
THE ELECTION OF THE NOMINEES AND your votes as
FOR PROPOSALS 2 AND IF NO SPECIFICATION IS MADE, indicated in [X]
THE SHARES WILL BE VOTED FOR this example
SAID NOMINEES AND PROPOSALS.
PROPOSALS DIRECTORS RECOMMEND FOR WITHHELD
1. Election of Directors. The
eight nominees for a one-year FOR 1. [ ] [ ]
term or until their successors
are elected and shall qualify FOR AGAINST ABSTAIN
are:
NOMINEES: 01 Sam P. Douglass, FOR 2. [ ] [ ] [ ]
02 Gregory J. Flanagan,
03 Robert L. Knauss,
04 Nolan Lehmann, FOR 3. [ ] [ ] [ ]
05 Gary R. Peterson,
06 John W. Storms,
07 Dr. Francis D. Tuggle,
08 Dr. Edward E. Williams
For all nominees except as noted:
__________________________________
2. Ratification of the appointment of Arthur Andersen LLP as the independent
auditors for the Fund for the fiscal year ending December 31, 1999.
3. In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Please sign exactly as name appears hereon. 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 full
corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized
person.
Dated:________________________________________________________
______________________________________________________________
(Signature)
______________________________________________________________
(Signature if held jointly)
_______________________________________________________________________________
FOLD AND DETACH HERE
