PILGRIM AMERICA CAPITAL CORPORATION
40 North Central Avenue, Suite 1200
Phoenix, Arizona 85004
(602) 417-8100
--------------------------------------------------
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 24, 1998
----------------------------------------------------
To the Holders of Our Common Stock:
The 1998 Annual Meeting of Stockholders of Pilgrim America Capital
Corporation (the "Company") will be held at the Company's headquarters in
Phoenix, Arizona on February 24, 1998, at 10:00 a.m., local time, to elect two
directors to the Company's Board of Directors and to consider such other
business as may properly come before the Annual Meeting. Management is presently
aware of no other business to come before the Annual Meeting.
The Board of Directors has fixed the close of business on December 29, 1997
as the record date for the determination of stockholders entitled to receive
notice of and to vote at the Annual Meeting or any adjournment thereof. Shares
of Common Stock can be voted at the Annual Meeting only if the holder is present
at the Annual Meeting in person or represented by valid proxy. A copy of the
Company's 1997 Annual Report to Stockholders, which includes certified
consolidated financial statements, was mailed with this Notice and Proxy
Statement on or about January 16, 1998 to all stockholders of record on the
record date for the Annual Meeting. The officers and directors of the Company
cordially invite you to attend the Annual Meeting.
The Company formerly was named Express America Holdings Corporation prior
to changing its name on April 25, 1997.
Your attention is directed to the attached Proxy Statement.
By Order of the Board of Directors
Robert W. Stallings
Chairman of the Board
Phoenix, Arizona
January 16, 1998
IMPORTANT
Stockholders are requested to SIGN, DATE and MAIL the enclosed proxy. A
postage-paid envelope is provided for mailing in the United States.
<PAGE>
PILGRIM AMERICA CAPITAL CORPORATION
40 North Central Avenue, Suite 1200
Phoenix, AZ 85004
(602) 417-8100
----------------------------------
PROXY STATEMENT
-----------------------------------
This Proxy Statement is furnished by the Board of Directors of PILGRIM
AMERICA CAPITAL CORPORATION (the "Company"), a Delaware corporation, in
connection with the Company's Annual Meeting of Stockholders (the "Annual
Meeting") to be held on February 24, 1998. The proxy materials were mailed on or
about January 16, 1998 to the Company's common stockholders (the "Stockholders")
of record at the close of business on December 29, 1997 (the "Record Date"). As
of the Record Date, there were 3,866,330 shares of the Company's common stock,
$.01 par value per share (the "Common Stock"), issued and outstanding. Only
holders of Common Stock on the Record Date will be entitled to vote at the
Annual Meeting. Each holder of shares of Common Stock issued and outstanding on
the Record Date is entitled to one vote for each share held on each matter of
business to be considered at the Annual Meeting. The holders of a majority of
the voting power of the issued and outstanding Common Stock entitled to vote,
present in person or represented by proxy, shall constitute a quorum at the
Annual Meeting.
The enclosed proxy is solicited by the Board of Directors of the Company. A
person giving the enclosed proxy has the power to revoke it at any time before
it is exercised by (i) attending the Annual Meeting and voting in person, (ii)
duly executing and delivering a proxy bearing a later date, or (iii) sending
written notice of revocation to the Company's Secretary at 40 North Central
Avenue, Suite 1200, Phoenix, Arizona 85004. The Company will bear the cost of
the solicitation of proxies, including the charges and expenses of brokerage
firms and others who forward solicitation material to beneficial owners of
Common Stock. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone or other means deemed appropriate by the Board of
Directors.
If the enclosed proxy is properly executed and returned to the Company in
time to be voted at the Annual Meeting, it will be voted as specified on the
proxy, unless it is properly revoked prior thereto. If no specification is made
on the proxy as to any one or more of the proposals, the shares represented by
the proxy will be voted for the election of the nominees for directors named
below and, with respect to any other matters that may come before the Annual
Meeting, at the discretion of the proxy holders.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspectors of Election appointed for the meeting and will determine whether
or not a quorum is present. The Inspectors of Election will treat abstentions as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but as unvoted for purposes of determining the approval of
any matter submitted to the Stockholders for a vote. If a broker indicates on
the proxy that it does not have discretionary authority as to certain shares to
vote on a particular matter, those shares will not be considered as present and
entitled to vote with respect to that matter.
The information included herein should be reviewed in connection with the
consolidated financial statements, notes to consolidated financial statements
and independent auditors' report included in the Company's 1997 Annual Report to
Stockholders.
1
<PAGE>
ELECTION OF DIRECTORS
The Company's Board of Directors is comprised of six members classified in
three groups; members of each group serve a three-year term. At the Annual
Meeting, two directors will be elected to the class of directors whose terms
expire at the close of the 2001 Annual Meeting of Stockholders. The shares
represented by the enclosed proxy will be voted for the election as directors of
the two nominees named below, unless a vote is withheld from any or all of the
individual nominees. If any nominee becomes unavailable for any reason or if a
vacancy should occur before election (which events are not anticipated), the
shares represented by the enclosed proxy may be voted for such other person as
may be determined by the holders of the proxy. The two nominees receiving the
highest number of votes cast at the meeting will be elected.
Information Concerning Directors And Nominees
The present terms of Messrs. John C. Cotton and Paul J. Renze expire upon
the close of the 1998 Annual Meeting of Stockholders. Both individuals have been
unanimously proposed as nominees for election as directors in the election to be
held at the meeting.
Information concerning the names, ages, terms, positions with the Company
and the Board, and business experience of the nominees and the directors whose
present terms continue after the Annual Meeting is set forth below. Each
director has served continuously with the Company since his first election as
indicated below.
<TABLE>
<CAPTION>
Name Age Position (1) Director Term
- ---- --- ------------ -------------
Since Expires (1)
----- -----------
<S> <C> <C> <C>
Robert W. Stallings(2)(5) 48 Chairman of the Board, 1990 1999
President, Chief Executive
Officer and Director
John C. Cotton(2)(3)(5) 59 Director 1991 1998
Roy A. Herberger, Jr.(2)(4) 55 Director 1992 2000
John M. Holliman, III(2)(4)(5) 44 Director 1991 1999
Stephen A McConnell (3)(4) 45 Director 1991 2000
Paul J. Renze(3) 41 Director 1991 1998
</TABLE>
- ------------
(1) The Company's directors are classified into three groups; each elected on a
staggered basis for three-year terms.
(2) Member of Executive Committee.
(3) Member of Audit Committee.
(4) Member of Compensation Committee.
(5) Member of Nominating Committee.
2
<PAGE>
Robert W. Stallings has served as the Company's Chairman and Chief
Executive Officer since August 1990 and its President since December 1993.
John C. Cotton has served as a director of the Company since May 1991 and
as President of the Maricopa Partnerships, Inc., a Phoenix-based merchant and
investment banking organization, since 1982.
Roy A. Herberger, Jr. has served as a director of the Company since March
1992 and has served as President of the Thunderbird American Graduate School of
International Management, Glendale, Arizona, since April 1989. He served as Dean
of the Edwin L. Cox School of Business at Southern Methodist University from
1982 to July 1989. Mr. Herberger is a director of Pinnacle West Capital Corp.
and MicroAge Inc.
John M. Holliman, III has served as a director of the Company since May
1991 and as a General Partner of AGP Management LP, the General Partner of
Valley Ventures LP, formerly Arizona Growth Partners LP, and a Phoenix-based
venture investment partnership since February 1993. Mr. Holliman served in
various capacities, lastly as Senior Managing Director, of Valley National
Investors, Inc., the venture investment subsidiary of Valley National Bank of
Arizona, from February 1985 to February 1993. Mr. Holliman is a director of
OrthoLogic Corporation, Voxel and DenAmerica Corporation.
Stephen A McConnell has served as a director of the Company since May 1991
and as the President of Solano Ventures, a Phoenix-based investment firm, since
January 1992. He served as Chairman of Mallco Lumber & Building Materials, Inc.,
a Phoenix based wholesale distributor of lumber and doors, from September 1991
to July 1997 and as President of Belt Perry Associates, Inc., a Phoenix-based
property tax consulting firm, from September 1991 until October 1995. He is
currently a director of Carma Corporation, Vodavi Technology, Inc., Capital
Title Group, Inc. and Unitech Industries, Inc.
Paul J. Renze has served as a director of the Company since May 1991 and as
General Partner of Apex Management Partnership LP, a Chicago-based venture
capital fund management company, since July 1988. Mr. Renze is also the
President of Chartwell Holdings Inc., Barrington, Illinois and Chief Executive
Officer of Schiavi Leasing Corporation, Oxford, Maine.
Board and Committee Meetings
The Audit Committee makes recommendations to the Board concerning the
selection of outside auditors, reviews the financial statements of the Company
and considers such other matters in relation to the internal and external audit
of the financial affairs of the Company as may be necessary or appropriate to
facilitate accurate and timely financial reporting. The Audit Committee met four
times during the fiscal year ended September 30, 1997.
The Compensation Committee of the Board of Directors administers the
Company's Stock Option Plan and the Company's Performance Share Plan, reviews
all aspects of compensation of the Company's officers and makes recommendations
on such matters to the full Board of Directors. The Compensation Committee met
once during the fiscal year ended September 30, 1997. The Compensation Committee
Report on Executive Compensation is set forth elsewhere herein.
The Nominating Committee of the Board of Directors makes recommendations to
the Board concerning the selection of nominees to stand for election to the
Board of Directors. The Nominating Committee met once during the fiscal year
ended September 30, 1997.
The Executive Committee of the Board of Directors has full authority to act
on behalf of the Board in the absence of regular Board Meetings. The Executive
Committee met eight times during the fiscal year ended September 30, 1997.
3
<PAGE>
During the fiscal year ended September 30, 1997, the Board of Directors of
the Company met on six occasions. Each director attended 80% or more of the
meetings of the Board and of the Board committees on which he served.
PRINCIPAL STOCKHOLDERS
AND STOCKHOLDINGS OF MANAGEMENT
The following table sets forth information, as of December 15, 1997,
concerning the Common Stock of the Company beneficially owned by each director
and nominee of the Company, by the Company's Chief Executive Officer and its
other four most highly compensated executive officers during the fiscal year
ended September 30, 1997 and all executive officers and directors as a group,
and by each Stockholder known by the Company to be the beneficial owner of more
than 5% of the outstanding Common Stock. The Common Stock is the only capital
stock of the Company issued and outstanding
Name (1) Common Shares Beneficially Owned (2)
- ------- ------------------------------------
Shares Percent
------ -------
Robert W. Stallings 262,569 (3) 6.59%
John C. Cotton 190,877 (4) 4.93%
Roy A. Herberger, Jr. 16,434 .42%
John M. Holliman, III 303,334 (5) 7.84%
Stephen A McConnell 43,355 1.12%
Paul J. Renze 145,709 (6) 3.77%
James R. Reis 128,415 3.28%
James M. Hennessy 53,841 1.38%
Howard Tiffen 36,546 .94%
Stanley D. Vyner -- --
Cramer Rosenthal McGlynn, Inc. 739,900 (7) 19.12%
Dimensional Fund Advisors 244,400 (8) 6.32%
All directors and executive officers
as a group (11 persons) 1,239,613 30.15%
- ----------------
4
<PAGE>
(1) Except as otherwise noted below, the persons named in the table have sole
voting and investment power with respect to all shares of the Company's
Common Stock shown as beneficially owned by him, subject to applicable
community property law. Except as otherwise noted, the addresses for the
persons named in the table is 40 North Central Avenue, Suite 1200, Phoenix,
Arizona 85004.
(2) Includes shares of Common Stock subject to options which were presently
exercisable or which may become exercisable within 60 days of December 15,
1997. All exercisable options were "in the money" as of December 30, 1997.
(3) Includes 15,840 shares owned by his wife.
(4) Includes 58,643 shares beneficially owned by the Cotton Family Limited
Partnership, a limited partnership of which Mr. Cotton is a general
partner, and 5,800 shares owned by his wife.
(5) Owned by Valley Ventures LP formerly named Arizona Growth Partners LP. Mr.
Holliman is a general partner of AGP Management LP, which, in turn, is the
general partner of Valley Ventures LP
(6) Includes 128,375 shares of Common Stock owned by Apex Investment Fund LP.
Mr. Renze is a managing partner of Apex Management Partnership, which, in
turn, is the general partner of Apex Investment Fund. Mr. Renze disclaims
beneficial ownership of all Apex-owned shares of Common Stock except to the
extent of his proportionate interest therein.
(7) Information with respect to Cramer Rosenthal McGlynn, Inc. ("CRM") is
provided in reliance upon information included in a Schedule 13G dated July
8, 1997 filed by such stockholder. CRM is a registered investment adviser,
and states in such Schedule 13G that none of its investment advisory
clients is known to own more than five percent of the Common Stock. CRM's
address is 707 Westchester Avenue, White Plains, New York 10604. (See
"Certain Transactions and Relationships").
(8) Information with respect to Dimensional Fund Advisors is provided in
reliance upon information included in Schedule 13F-E dated August 1, 1997
filed by such stockholder. Dimensional Fund Advisor's address is 1299 Ocean
Avenue, 11th floor, Santa Monica, CA 90401.
5
<PAGE>
EXECUTIVE COMPENSATION
The following information sets forth the aggregate compensation paid by the
Company for services rendered during the fiscal year ended September 30, 1997 to
the Company's (i) Chief Executive Officer and (ii) the four other most highly
compensated executive officers whose total salary and bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ------------------
Name and Stock Options/ All Other
Principal Position Year Salary Bonus Performance Shares Compensation(1)
- --------------------------------- ------------ ----------- ------------------ -------------------
<S> <C> <C> <C> <C> <C>
Robert W. Stallings 1997 $350,000 $150,000 0 $10,979
Chairman of the 1996 350,000 0 157,000 9,500
Board, President and 1995 320,337 0 200,000 4,014
Chief Executive
Officer
James R. Reis 1997 200,000 50,000 0 17,917(2)
Vice Chairman and 1996 200,000 0 63,000 17,333(2)
Chief Financial Officer 1995 200,000 25,000 75,000 19,398(2)
James M. Hennessy 1997 150,000 50,000 30,000 62,375(2)(4)
Senior Vice President 1996 150,000 0 15,000/30,000(4) 15,750(2)
And Secretary 1995 141,712 15,000 30,000 54,375(5)
Stanley D. Vyner 1997 200,000 50,000 25,000 13,000
President, 1996 108,333 0 0 33,500(3)
Pilgrim America 1995 0 0 0 0
Investments, Inc.
Howard Tiffen 1997 200,000 200,000 (7) 0 21,926(6)
President, 1996 (8) 168,939 50,000 25,000 15,943(6)
Pilgrim America 1995 (8) 0 0 0 0
Prime Rate Trust
</TABLE>
- ----------------
(1) Except as otherwise indicated in the footnotes below, all amounts represent
401(K) matching contributions made under a tax deferred savings plan under
Section 401(K) of the Internal Revenue Code. The Company's 401(K) savings
plan was established in July 1991. The Company has discretion to match
participant's contributions and since May 1995, the Company has matched
participant contributions up to 7% of the compensation contributed by each
participant.
6
<PAGE>
(2) Includes payment for unused vacation of $8,333 annually in 1997 and 1996
and $15,866 in 1995 to Mr. Reis, and $6,250 in both 1997 and 1996 to Mr.
Hennessy.
(3) Until June 24, 1996, Mr. Vyner served as a consultant to the Company. Other
Compensation includes $30,000 for consulting fees paid to him prior to his
hire date.
(4) On February 11, 1997, James M. Hennessy, Senior Vice President of the
Company, agreed to have 30,000 in options, previously granted, cancelled in
exchange for the issuance of options which entitled him to acquire 30,000
shares. The exercise price of the cancelled options was $5.75 with five
years vesting, 20% each year beginning April 7, 1996. The exercise price of
the new options was $9.50 with three years vesting, 40% vested as of the
grant date with 20% additional vesting each annual anniversary date. In
connection with the cancellation of the stock appreciation rights, Mr.
Hennessy was paid $45,000, representing the difference in value of such
rights on the date of cancellation and on the grant date. He will be paid
$22,500 on each of the three anniversary dates of April 7, 1997.
(5) Mr. Hennessy served as a consultant to the Company from August 24, 1994
until February 1995, at which time he rejoined the Company as Senior Vice
President. Compensation includes amounts received as severance during this
period. Mr. Hennessy's other compensation for 1995 includes consulting fees
of $50,000 received in connection with services performed related to the
Company's acquisition of certain investment management assets in April
1995.
(6) Includes taxable moving expenses paid to Mr. Tiffen in the amount of
$12,092 and $6,443 in 1997 and 1996 respectively.
(7) Mr. Tiffen's bonus is approved based upon criteria deemed appropriate by
the Compensation Committee and is based upon an analysis of his performance
as Portfolio Manager of Pilgrim America Prime Rate Trust. His bonus is
discretionary and in future years may vary and equal or exceed the amount
awarded in 1997 based upon Mr. Tiffen's performance and the analysis of the
Compensation Committee.
(8) Mr. Tiffen became an executive officer during the fiscal year ended
September 30, 1997.
Director Compensation
Directors who are not employees of the Company are each paid an annual
retainer of $20,000 plus $500 per meeting of the Board of Directors or a
committee thereof attended by the director. Until November 1997, the annual
retainer was $12,000.
Employment Agreements
During August 1995, at the direction of the Board of Directors, the Company
entered into employment agreements with Robert W. Stallings and James R. Reis.
The employment agreements with Messrs. Stallings and Reis were renewed for two
years until December 31, 1998.
The employment agreements provide that the Company shall pay an annual base
salary of at least $325,000 to Mr. Stallings and $200,000 to Mr. Reis. Each
employment agreement may be terminated by the Board of Directors at any time and
by the employee with 90 day's advance notice. If the employee is terminated by
the Board of Directors other than for just cause (defined in the agreement), the
employee will be entitled to a lump sum payment in the amount not less than
$487,494 in the case of Mr. Stallings and $300,000 in the case of Mr. Reis.
7
<PAGE>
Executive officers of the Company and officers of the Company's operating
subsidiaries, and certain middle management personnel, who are not compensated
on an incentive commission basis, are eligible to be paid a discretionary
performance bonus annually. Such bonuses are recommended annually by the
Compensation Committee and are subject to approval by the Company's Board of
Directors.
Employment Severance Agreements
The Company has agreements with certain senior employees which provide that
if the employee is terminated he will receive a lump sum payment equal to
between three and twelve months of the employee's base compensation.
Stock Options and Performance Shares
Pursuant to the Company's Stock Option Plan (the "Option Plan"), the
Company may grant to employees and officers of the Company (including directors
of the Company who are also employees) both incentive stock options and
nonstatutory stock options ("Options") to purchase an aggregate of up to 537,786
shares of the Company's common stock. The Option Plan is administered by the
Compensation Committee of the Board of Directors, which determines the terms of
Options granted, including the exercise price, the number of shares subject to
each Option, and the exercisability of each Option. Stock options were granted
by the Company under the Option Plan during both the fiscal year ended September
30, 1996 and the fiscal year ended September 30, 1997.
On August 30, 1996, the Company adopted the 1996 Performance Share Plan
(the "Performance Share Plan"), approved and administered by the Company's Board
of Directors, in which certain officers and employees were granted interests
("Performance Shares") that entitle them to compensation amounts directly
related to the market price of the Company's Common Stock. These amounts were to
be payable at the Company's election, in cash or in shares of Common Stock.
Performance Shares vest over a five-year period. The maximum aggregate
number of Performance Shares that may be issued under the plan as of September
30, 1997 is 243,800. Cancelled and forfeited Performance Shares may be reissued
under the Performance Share Plan. As of September 30, 1997, 197,500 Performance
Shares were outstanding, each with an assigned value between $5.75 and $15.50
per share and five year vesting, 20% each year, beginning on April 7, 1995 or
the employee's grant date, if later.
OPTION/PERFORMANCE SHARE GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Term (1)(2)
% of Total
Options
Options Granted to Exercise or
Granted Employees in Base Price Expiration
Name (#) Fiscal Year ($/SH) Date 5%($) 10%($)
---- --- ----------- ------ ---- ----- ------
<S> <C> <C> <C> <C> <C> <C>
James M. Hennessy (3) 30,000 100% $9.50 2/11/05 $136,075.00 $325,923.00
</TABLE>
8
<PAGE>
(1) These amounts are based on assumed appreciation rates of 5% and 10%
prescribed by the Securities and Exchange Commission and are not intended
to forecast possible future appreciation, if any, of the Company's stock
price
(2) Gains are reported net of the Option exercise price, but before taxes
associated with exercise. These amounts represent certain assumed rates of
appreciation only. Actual gains, if any, on Option exercises are dependent
on the future performance of the Common Stock, overall stock conditions, as
well as the optionholder's continued employment through the vesting period.
The amounts reflected in this table may not necessarily be achieved.
(3) Mr. Hennessy is the only executive officer to whom Options were granted
during the fiscal year ended September 30, 1997. Mr. Hennessy's Options are
exercisable 40% on the date of grant and in cumulative 20% installments
commencing one year from the date of grant, with full vesting occurring on
the third anniversary date.
The table below contains certain information concerning exercises of
Options or Performance Sahres during the fiscal year ended September 30, 1997 by
each of the Company's executive officers and the fiscal year end value of
unexercised Options or Performance Shares.
AGGREGATED OPTION/PERFORMANCE SHARE EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/Performance Shares Options/Performance Shares
at Fiscal Year End at Fiscal Year End (1)
Shares Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Robert W. Stallings 0 0 119,000/ 138,000(Options) $2,112,250 / $2,449,500
James R. Reis 0 0 54,334 / 83,666 964,429 / 1,458,072
James M. Hennessy 0 0 36,998 / 38,002 656,715 / 674,536
Robert J. Boulware 0 0 8,333 / 16,447 147,911 / 291,934
Howard Tiffen 0 0 5,000 / 20,000 88,750 / 355,000
Stanley D. Vyner 0 0 0 / 25,000 0 / 443,750
</TABLE>
Messrs. Stallings, Boulware, Reis and Mr. Tiffen's Performance Shares are
exercisable at a price of $5.75 per share. Mr. Hennessy has 30,000 Options that
are exercisable at a price of $9.50 per share and the remaining 45,000 are
exercisable at a price of $5.75 per share. Mr. Vyner's Performance Shares are
exercisable at a price of $15.50 per share. The last reported sale price of
Common Stock as reported on September 30, 1997 by the NASDAQ National Market
System was $17.75 per share.
9
<PAGE>
BOARD OF DIRECTORS REPORT ON OPTION PERFORMANCE SHARE REPRICINGS
The Company's Board of Directors met on August 20, 1996 to review the
pricing of options that were previously granted to certain executive officers
and other employees under the Option Plan and options granted to members of the
Board of Directors under the Non-Employee Director Stock Option Plan ("Directors
Option Plan"). Based upon its review, the Board determined that the previously
granted options were substantially out of the money and were not providing the
incentive the Board intended when the options were originally granted. The
Options granted to each director under the Directors Option Plan were
exercisable at $12.75 per share and had a remaining term of three years seven
months out of an original eight-year term. 261,000 of the Options previously
granted under the Option Plan were out of the money. Of these 261,000 Options,
125,000 had an original exercise price of $7.00 and a remaining term of six
years ten months and 136,000 had an original exercise price of $12.75 and a
remaining term of three years seven months. On August 30, 1996, when the
repriced options were granted, the closing price of the Company's Common Stock
on the NASDAQ National Market was $4.75.
The Board of Directors determined that it was in the best interest of the
Company and its shareholders to offer to cancel all out of the money Options and
grant to the optionees who accepted the offer, new Options in order to provide
the incentive envisioned by the Board when it adopted both the Option Plan and
the Directors Option Plan. The Board cancelled all such Options and reissued new
options with an exercise price of $5.75, three year vesting, 33% per year, and
an eight year term.
On February 11, 1997, the Company's Board od Director's met to amend the
Performance Share Plan. In connection with this amendment James M. Hennessy,
Senior Vice President of the Company, cancelled 30,000 Performance Shares,
previously granted under the Performance Share Plan, in exchange for the
issuance of Options under the Option Plan, which entitled him to acquire 30,000
shares. The exercise price of the cancelled Performance Shares was $5.75 with
five years vesting, 20% each year beginning April 7, 1996. The exercise price of
the new Options was $9.50 with three years vesting, 40% vested as of the grant
date with 20% additional vesting each annual anniversary date. In connection
with the cancellation of the Performance Shares, Mr. Hennessy was paid $45,000,
representing the difference in value of such Shares on the date of cancellation
and on the grant date. He will be paid an additional $22,500 on each of the
three anniversary dates of April 7, 1997.
The following table provides details regarding these repriced options.
Board of Directors
Robert W. Stallings Roy A. Herberger, Jr. John M. Holliman, III
John C. Cotton Stephen A McConnell Paul J. Renze
10
<PAGE>
TEN YEAR OPTION REPRICING
<TABLE>
<CAPTION>
Number of Length of
Securities Original
Underlying Market Price Option Term
Options of Stock At Exercise Remaining At
Repriced Time Of Price At Time New Date Of
Name Date or Repricing Or Of Repricing Exercise Repricing Or
Amended Amendment Or Amendment Price Amendment
-------------- ---------- ---------- ----------- ------------ --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robert W. Stallings August 30, 157,000 $4.75 57,000 / $12,75 $5.75 3 yrs 7 mos
Chairman of the 1996 100,000 / $7.00 6 yrs 10 mos
Board, President and
Chief Executive Officer
James R. Reis August 30, 63,000 $4.75 38,000 / $12.75 $5.75 3 yrs 7 mos
Vice Chairman and Chief 1996 25,000 / $7.00 6 yrs 10 mos
Financial Officer
Robert J. Boulware August 30, 25,000 $4.75 $12.75 $5.75 3 yrs 7 mos
President, Pilgrim 1996
America Securities, Inc.
John C. Cotton August 30, 10,000 $4.75 $12.75 $5.75 3 yrs 7 mos
Director 1996
Roy A. Herberger, Jr. August 30, 10,000 $4.75 $12.75 $5.75 3 yrs 7 mos
Director 1996
John M. Holliman, III August 30, 10,000 $4.75 $12.75 $5.75 3 yrs 7 mos
Director 1996
Stephen A McConnell August 30, 10,000 $4.75 $12.75 $5.75 3 yrs 7 mos
Director 1996
Paul J. Renze August 30, 10,000 $4.75 $12.75 $5.75 3 yrs 7 mos
Director 1996
</TABLE>
11
<PAGE>
Shareholder Return Performance Presentation
The graph below compares the change in the Company's cumulative total
shareholder return on its Common Stock over the five fiscal year periods
after September 30, 1992 with the cumulative total return on equity
securities traded on NASDAQ and the relevant comparative benchmark during
the period. For the period from September 30, 1992 through March 31, 1995
(the quarter in which the Company announced the discontinuance of its
mortgage operations), the relevant comparative benchmark was comprised of a
peer group of public companies engaged in the mortgage banking industry as
described in (1) below. Subsequent to March 31, 1995, the S&P Financials
Index is used as the comparative benchmark due to the change in the
Company's business from mortgage banking to investment management services.
[The following table is represented by a line graph in the printed material.]
PILGRIM AMERICA CAPITAL CORPORATION
Company Stock Price Performance
<TABLE>
<CAPTION>
9/30/92 9/30/93 9/30/94 3/31/95 9/30/95 9/30/96 9/30/97
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Pilgrim America Capitial Corp. 100 71.43 48.98 33.67 47.96 47.45 144.9
NASDAQ Composite 100 130.98 132.05 142.31 182.39 216.44 297.06
Comparative Benchmark (1) 100 125.43 101.38 105.42 136.94 171.47 269.8
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(1) Prior to March 31, 1995, the comparative benchmark is represented by a peer
group of public companies engaged in the mortgage banking industry. The
peer group includes: Countrywide Credit Industries, Inc.; Fleet Mortgage
Group, Inc.; Imperial Credit Industries, Inc.; North American Mortgage
Company; and Plaza Home Mortgage Company. For the period March 31, 1995
through September 30, 1997, the comparative benchmark used is the S&P
Financials Index. This index is used to better correspond to the Company's
investment management services business that began on April 7, 1995,
concurrent with its purchase of certain investment management assets at
that date.
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Compensation Committee Report on Executive Compensation
The Company's Compensation Committee (the "Committee") is composed entirely
of independent outside members of the Board of Directors. The Committee reviews
and approves each of the elements of the executive compensation program of the
Company and its subsidiaries, and periodically assesses the effectiveness and
competitiveness of the program. The Committee met once during the fiscal year
ended September 30, 1997.
Compensation Philosophy. The goals of the Company's executive compensation
program are to support and further the Company's financial performance and its
business plan and to enable the Company to attract and retain the quality of
executive personnel which the Company believes are necessary to meet the
Company's commitment to maximize shareholder value. The philosophy of the
Company is to provide compensation programs designed to reward achievement of
the Company's goals and to provide compensation opportunities that are
commensurate with those of companies engaged in similar businesses which are of
a size and type similar to the Company.
Elements of the Executive Compensation Program. The Company's salary levels
for executive officers are set at a rate consistent with competitive practices
as compared to other investment management services companies of a size and
engaged in business comparable to that of the Company. Salary increases are
generally designed to reflect performance of the executive. These elements will
usually be subjective in nature, as the Company does not have a practice of
establishing specific quantitative target goals for individual compensation
levels.
Executive compensation levels for the fiscal year ended September 30, 1997
and for the fiscal year ending in 1998 were determined against the background of
(i) the Company's increased profitability; (ii) the increase of the share price
of the Company's Common Stock; (iii) the increase in sales of open-end fund
shares distributed by the Company; (iv) the increase in assets under management
through the development of private accounts; (v) the continuation of cost
cutting, and (vi) the improvement in the quality of the Company's staff. In
establishing compensation levels for newly appointed executives, the Committee
considered the compensation levels prevalent in the investment management
industry generally.
In August 1995, the Board approved new employment agreements for the
Company's chief executive officer and certain of its other executive officers.
The employment agreements for the Company's Chief Executive Officer and Chief
Financial Officer were automatically renewed in 1996 for an additional two-year
term ending on December 31, 1998. The base annual salary level of the Chief
Executive Officer was increased approximately 8% while the base and salary level
of the Chief Financial Officer was not increased over the prior years' level.
Other provisions of the renewed agreements, including provisions relating to
payments upon termination of employment at the election of the Company, were
essentially identical to provisions in prior employment agreements.
Recently enacted provisions of the Internal Revenue Code limit to
$1,000,000 the amount of cash compensation that a company may pay each executive
officer and claim a tax deduction in a like amount, with amounts over $1,000,000
generally being a non-deductible expense. Because the Company has never paid
individual compensation amounts approaching the $1,000,000 threshold, the
Committee has not formulated a policy relating to compensation in excess of the
threshold.
Bonus Payments and Other Incentive Payments. Executive officers are
eligible to be paid performance bonuses. Bonus amounts are discretionary, are
recommended by the Committee and are subject to approval by the Board of
Directors. Bonuses are entirely discretionary, and neither the Board nor the
Committee sets performance levels or pre-established formulas for determining
whether bonuses will be paid or the amount of bonus paid. Accordingly, bonus
amounts are based on a subjective assessment of employee performance.
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Historically, the Company has awarded stock options to executives. During
the fiscal year ended September 30, 1997, the Company issued no Options under
the Option Plan other than an Option which entitled James M. Hennessy, Senior
Vice President, to acquire 30,000 shares at an exercise price of $9.50. This
Option was granted in consideration of the cancellation of Performance Shares
under the Performance Share Plan which entitled Mr. Hennessy to acquire an
equivalent number of shares for an exercise price of $5.75. The difference in
the exercise prices will be paid in cash installments over the vesting period of
the original Performance Shares.
In August 1996, the Committee approved the Performance Share Plan, and
amended it in February, 1997 to provide compensation to executives and other
employees based upon increases in the Company's common stock market price. The
Committee designed this Plan to reward executives and other employees for the
financial performance of the Company, which results in increased stockholder
value.
CEO Compensation. The key performance measure the Committee used in
determining the CEO's compensation for 1997 was the Committee's assessment of
his vision and leadership in the development and expansion of the Company's
money management advisory and distribution businesses. The CEO's base salary
through December 31, 1997 was set at $350,000 per annum in connection with an
employment agreement entered into by the Company and the CEO in August 1995 and
renewed for two years to December 31, 1998. The Committee believes this base
salary is competitive with amounts paid other experienced CEO's in similarly
sized investment management companies.
Compensation Committee
Roy A. Herberger, Jr., Chairman
John M. Holliman, III
Stephen A McConnell
Compensation Committee Interlocks and Insider Participation in
Compensation Decisions
The Compensation Committee of the Board of Directors of the Company
consists of Messrs. Herberger, Holliman and McConnell. No Compensation Committee
interlocks exist and no insiders participated in compensation decisions. The
members of the Compensation Committee have at no time been officers or employees
of the Company or any of its subsidiaries, nor do they serve on the board of
directors of any mutual fund for which the Company serves as investment advisor
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Gerald B. Cramer resigned as a director of the Company in April 1995. Mr.
Cramer is a principal owner and officer of CRM Advisors, LLC which became the
subadvisor to the Pilgrim America Masters MidCap Value Fund when it commenced
operations in September 1995. CRM receives a fee for subadvising this Fund which
is managed and advised by Pilgrim America Investments, Inc., a subsidiary of the
Company. During the fiscal year ended September 30, 1997, CRM was paid an
aggregate of $180,813 in such fees. CRM also is an affiliate of Cramer Rosenthal
McGlynn, Inc. which is the beneficial owner of 19.12% of the Company's common
stock. See "Principal Stockholders and Stockholdings of Management."
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's officers and directors, and persons who
beneficially own more than ten percent of a registered class of the Company's
equity securities, to file reports of ownership and change in ownership with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers Automated Quotation System. Such reports are filed on Form 3,
Form 4 and Form 5 under the Exchange Act. Officers, directors and greater than
ten-percent shareholders are required by Exchange Act regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by the
Company or written representations from certain reporting persons that no Form
5's were required for those persons, the Company believes that during fiscal
year ended September 30, 1997 all officers, directors, and greater than
ten-percent beneficial owners complied with the applicable Section 16(a) filing
requirements except for the following: Mr. Reis filed three Form 4's reporting
five transactions; Mr. Herberger filed one Form 4 reporting two transactions;
Mr. Stallings filed two Form 4's reporting five transactions; Mr. Renze filed
two Form 4's reporting one transaction from fiscal year 1994 and one transaction
in fiscal year 1997; subsequent to the required dates.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
The principal independent public accounting firm utilized by the Company
during fiscal years ended September 30, 1995, 1996 and 1997 was KPMG Peat
Marwick, LLP, independent certified public accountants (the "Auditors"). It is
presently contemplated that the Auditors will be retained as the principal
accounting firm to be utilized by the Company throughout the fiscal year ending
September 30, 1998. The Company anticipates that a representative of the
Auditors will attend the Annual Meeting for the purpose of responding to
appropriate questions. At the Annual Meeting, a representative of the Auditors
will be afforded an opportunity to make a statement if the Auditors so desire.
PROPOSALS BY STOCKHOLDERS
Any Stockholder proposal which is intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received at the Company's principal
executive offices by no later than September 15, 1998, if such proposal is to be
considered for inclusion in the Company's proxy statement and form of proxy
relating to such meeting.
OTHER BUSINESS
The Annual Meeting is being held for the purpose set forth in the Notice
that accompanies this Proxy Statement. The Board of Directors is not presently
aware of business to be transacted at the Annual Meeting other than as set forth
in the Notice.
By Order of the Board of Directors
Robert W. Stallings
Chairman of the Board
Phoenix, Arizona
January 16, 1998
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PROXY PROXY
PILGRIM AMERICA CAPITAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby constitutes and appoints ROBERT W. STALLINGS, JAMES R.
REIS and JAMES M. HENNESSY, or any of them acting in absence of the others, with
full power of substitution, the true and lawful attorneys and proxies of the
undersigned, to attend the Annual Meeting of the stockholders of PILGRIM AMERICA
CAPITAL CORPORATION (the "Company") to be held at the Company's Corporate
Headquarters, 40 North Central Ave., Suite 1200, Phoenix, AZ 85004, on February
24, 1998, at 10:00 a.m., local time, and any adjournments directed below, with
all powers the undersigned would possess if personally present at the meeting.
This proxy will be voted in accordance with the directions indicated herein. If
no specific directions are given, this proxy will be voted for the approval of
all nominees listed herein, for approval of the proposals listed herein and,
with respect to any other business as may properly come before the meeting, in
accordance with the discretion of the proxies.
PLEASE PROMPTLY SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
(Continued and to be signed on the reverse side.)
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PILGRIM AMERICA CAPITAL CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY.
[ ]
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FOR WITHHOLD FOR ALL
1. Election of Directors - ALL ALL Except these nominees(s) written below.
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Nominees: John C. Cotton, Paul J. Renze
( ) ( ) ( ) __________________________________________________________
Dated: _____________________________________, 1998
__________________________________________________________
(Signature)
__________________________________________________________
(Signature)
Please sign exactly as your name appears. Joint
owners should sign personally. Where applicable,
indicate your official position or representation
capacity.
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^ FOLD AND DETACH HERE ^
YOUR VOTE IS IMPORTANT!
PLEASE PROMPTLY SIGN AND RETURN IN THE ENCLOSED ENVELOPE.
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