<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
CAPSTONE CAPITAL CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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 part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
CAPSTONE CAPITAL CORPORATION
1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 1, 1997
---------------------
To The Stockholders:
The annual meeting of stockholders of Capstone Capital Corporation (the
"Company") will be held at the Richard M. Scrushy Conference Center, Two
HEALTHSOUTH Parkway, Birmingham, Alabama, 35243, on the 1st day of May, 1997, at
10:00 a.m. (local time), for the following purposes:
(1) Election of a Board of Directors to serve until the next annual
meeting or until their successors are duly elected.
(2) Proposal to amend the Company's 1994 Stock Incentive Plan to (a)
increase the number of shares of Common Stock reserved for issuance
thereunder to 1,750,000; and (b) to amend certain provisions of the Plan to
permit the exercise of options within a specified time after termination of
employment or association with the Company.
(3) Proposal to ratify the engagement of the accounting firm of KPMG
Peat Marwick LLP as independent auditors for the current fiscal year; and
(4) To transact such other business as may properly come before the
meeting or any adjournment thereof.
We hope you will attend the meeting and take an active part in it. Details
concerning those matters to come before the meeting are set forth in the
accompanying proxy statement for your inspection. Whether you plan to attend the
meeting or not, please execute the enclosed proxy and return it in the return
envelope that is enclosed for your convenience.
The annual report of the Company for the fiscal year ended December 31,
1996, is enclosed. We hope you will find it informative.
Pursuant to a resolution adopted by the Board of Directors of the Company,
the close of business on March 14, 1997, has been fixed as the date for
determination of stockholders entitled to notice of this meeting and to vote at
the meeting.
By Order of the Board of Directors
Richard M. Scrushy Sig
Richard M. Scrushy
Chairman
Dated: March 27, 1997
<PAGE> 3
March 27, 1997
CAPSTONE CAPITAL CORPORATION
1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
---------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 1, 1997
PROXY STATEMENT
---------------------
INTRODUCTION
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Capstone Capital Corporation (the
"Company") to be voted at the annual meeting of stockholders to be held at the
Richard M. Scrushy Conference Center, Two HEALTHSOUTH Parkway, Birmingham,
Alabama 35243 on May 1, 1997, at 10:00 a.m. (local time), for the purposes set
forth in the accompanying notice, and at any adjournment thereof. This Proxy
Statement and the accompanying form of proxy are first being mailed or given to
stockholders on or about March , 1997.
If the enclosed proxy is properly executed, returned and not revoked, it
will be voted in accordance with the instructions, if any, given by the
stockholder, and if no instructions are given, will be voted (a) FOR the
election as directors of the nominees as listed and described in this Proxy
Statement, (b) FOR the proposal to amend the Company's 1994 Stock Incentive Plan
(the "Incentive Plan") to increase the number of shares of the Company's Common
Stock, par value $.001 per share (the "Common Stock") reserved for issuance
thereunder to 1,750,000 shares and to amend certain provisions of the Incentive
Plan to permit the exercise of options within a specified time after termination
of employment or association with the Company; (c) FOR the ratification of the
engagement of the accounting firm of KPMG Peat Marwick LLP as independent
auditors for the current fiscal year, and (d) FOR the recommendations of the
Board of Directors on any other proposal that may properly come before the
meeting. The persons named as proxies in the enclosed form of proxy were
selected by the Company's Board of Directors.
Please sign and return the proxy in the enclosed return envelope so the
Common Stock you own will be voted in accordance with your wishes. Proxies may
be solicited by personal interview, telephone or mail. Banks, brokerage houses
and other custodians, nominees or fiduciaries will be requested to forward
soliciting materials to their principals and to obtain authorization for the
execution of proxies, and will be reimbursed for their reasonable out-of-pocket
expenses incurred in that process. The Company will bear the cost of the
solicitation of proxies, which is expected to be nominal. This proxy must be
returned by April 30, 1997.
PROXY IS REVOCABLE
If after you send in your proxy you desire to revoke your proxy for any
reason, you may do so by giving notification of such intent to Andrew L. Kizer,
the Secretary of the Company, in writing at any time prior to the commencement
of the annual meeting. Also, your proxy may be revoked by submitting a
later-dated proxy or by attending the meeting and voting in person. Unmarked
proxies received by the Company will be voted in favor of each of the proposals
herein specified and as directed by the attorneys-in-fact as to any other matter
which may come before the meeting.
DATE OF RECORD
The close of business on March 14, 1997, has been fixed as the record date
for the purpose of determining the stockholders entitled to notice and to vote
at the annual meeting. Each share of Common Stock is entitled to one vote on all
matters.
<PAGE> 4
OUTSTANDING SECURITIES
As of the close of business on March 14, 1997, the Company had authorized
50,000,000 shares of common stock, $.001 par value per share (the "Common
Stock"), of which 14,288,529 shares were issued and outstanding and entitled to
vote. The Common Stock is the Company's only outstanding voting stock.
BUSINESS TO BE CONSIDERED AT ANNUAL MEETING OF STOCKHOLDERS
It is expected that the following business will be considered and action
taken thereon at the annual meeting:
(1) The election of a Board of Directors to serve until the next
annual meeting or until their successors are duly elected;
(2) A proposal to amend the Company's Incentive Plan to increase the
number of shares of Common Stock reserved for issuance thereunder to
1,750,000 shares and to amend certain provisions of the Incentive Plan to
permit the exercise of options within a specified time after termination of
employment or association with the Company;
(3) A proposal to ratify the engagement of the accounting firm of KPMG
Peat Marwick LLP as independent auditors for the current fiscal year; and
(4) Such other business as may properly come before the meeting or any
adjournment thereof.
STOCKHOLDERS LIST
A complete list of the stockholders entitled to vote at the annual meeting
of stockholders to be held on May 1, 1997, will be available for inspection
during normal business hours at the principal office of the Company for a period
of at least 10 days prior to the meeting, upon written request to the Company by
a stockholder, and at all times during the annual meeting at the place of the
meeting.
ELECTION OF DIRECTORS
INTRODUCTION
A Board of Directors consisting of no less than three and no more than 15
persons is authorized by the Company's Amended and Restated Bylaws (the
"Bylaws"). As provided in the Company's Bylaws, the Board of Directors has fixed
at nine (9) the present number of members to serve on the Board. Proxies cannot
be voted for a greater number of persons than the number of nominees named. The
nine nominees receiving the highest number of votes at the annual meeting will
be elected as directors. Abstentions and broker non-votes will not affect the
tally of votes cast in the election. (A non-vote occurs when a broker, or other
fiduciary, holding shares for a beneficial owner votes on one proposal but lacks
authority from the owners to vote on another proposal.) The present Board of
Directors consists of nine (9) members, all of whom are nominees for election to
the Board of Directors at this meeting. All of the present Directors were
elected to the Board of Directors of the Company during 1996 by the
stockholders. Each nominee for the Board of Directors has expressed the
willingness to serve as a Director during the coming year. Each Director elected
to the Board of Directors at this meeting will serve for a term of one year or
until a successor is duly elected and qualified.
According to Maryland law, directors are elected by a plurality of the
votes cast by the shares entitled to vote in the election at a meeting at which
a quorum is present. The Company's Articles of Incorporation do not provide for
cumulative voting and, accordingly, each shareholder may cast one vote per share
for each nominee.
Unless a proxy shall specify otherwise, the persons named in the proxy
shall vote the shares covered thereby for the nominees designated by the Board
of Directors listed below. Should any nominee become unavailable for election,
the current Board of Directors will determine how the proxies will be voted.
2
<PAGE> 5
The name, age, principal occupation or employment of each nominee for
Director and the year in which each became a Director is set forth below.
NOMINEES
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- --------
<S> <C> <C> <C>
Richard M. Scrushy........ 44 Chairman of the Board of the Company; Chairman of 1994
the Board and Chief Executive Officer of HEALTHSOUTH
Corporation since 1983
John W. McRoberts......... 44 President and Chief Executive Officer of the Company 1994
since 1994; Senior Vice President of AmSouth Bank
from 1988 to 1993.
Michael D. Martin......... 36 Executive Vice President, Finance and Treasurer of 1994
HEALTHSOUTH Corporation since 1989.
Robert N. Elkins.......... 53 Chairman of the Board and Chief Executive Officer of 1994
Integrated Health Services, Inc. since 1986.
Eric R. Hanson............ Chairman of the Board and Chief Executive Officer of 1994
U.S. Strategies Corp. since 1984.
Larry R. House............ 53 Chairman of the Board, Chief Executive Officer and 1996
President of MedPartners, Inc. since 1993;
President of HEALTHSOUTH International, Inc. from
1992 to 1993; Chief Operating Officer of
HEALTHSOUTH Corporation from 1985 to 1992.
Larry D. Striplin, Jr..... 67 Chairman of the Board of Nelson-Brantley Glass 1994
Contractors, Inc. since 1963; Chairman and Chief
Executive Officer of Circle "S" Industries from
1978 to 1995; Chairman and Chief Executive Officer
of Clearview Properties, Inc. since 1978.
Barry Morton.............. 59 Chairman of the Board of the Robins & Morton Group 1994
since 1996; President and Chief Executive Officer of
the Robins & Morton Group from 1982 to 1996.
George E. Bogle........... 59 Chairman of the Board and Chief Executive Officer of 1994
USA Managed Care Organization, Inc. since 1984.
</TABLE>
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During 1996, the Board of Directors held four regularly scheduled meetings.
Each director attended all of the meetings, except Mr. Elkins who attended two
of the four meetings, and Michael D. Martin and George E. Bogle, each of whom
attended three of the four meetings. The Board of Directors has established the
standing committees described below.
The Executive Committee acts on behalf of the Board of Directors on all
matters concerning the management and conduct of the business and affairs of the
Company except those matters that cannot by law be delegated by the Board. The
current members of the Executive Committee are Richard M. Scrushy, John W.
McRoberts, Michael D. Martin and Barry Morton. The Executive Committee held one
meeting during 1996.
The Audit Committee, consisting of Larry D. Striplin, Jr., George E. Bogle,
and Robert N. Elkins, confers with the auditors and determines the scope of
their annual and interim examinations, determines through discussions with the
auditors and otherwise that no restrictions were placed by management on the
scope of the examination or its implementation, inquires into the effectiveness
of the Company's accounting and internal control functions, reports to the Board
of Directors on the results of the committee's activities and recommends any
changes in the appointment of independent auditors which the committee may deem
to be in the best interest of the Company and its Stockholders. No member of the
Audit Committee may be an officer or employee of the Company. The Audit
Committee held one meeting during 1996.
3
<PAGE> 6
The Compensation Committee, consisting of John W. McRoberts, Richard M.
Scrushy, Michael D. Martin, and Eric R. Hanson, establishes the general
compensation policy for the Company and has the responsibility for the approval
of increases in directors' fees and for determining salaries and bonuses paid to
executive officers and senior employees of the Company. The Compensation
Committee also possesses all of the powers of administration under all of the
Company's employee benefit plans, including any stock option plans, bonus plans,
retirement plans, stock purchase plans and medical, dental and insurance plans.
In connection therewith, the Compensation Committee determines, subject to the
provision of the Company's plans, the directors, officers and employees of the
Company eligible to participate in any of the plans, the extent of such
participation and terms and conditions under which benefits may be vested,
received or exercised. The Compensation Committee held one meeting during 1996.
The Company does not have a Nominating Committee.
COMPENSATION OF DIRECTORS
Directors who are employees of the Company receive no additional
compensation for serving on the Board of Directors. Each nonemployee member of
the Board received annual compensation in 1996 of $5,000 for serving on the
Board of Directors, plus a fee of $1,000 for each Board and committee meeting
attended, except that only one fee is be paid when more than one such meeting is
held on a single day. All directors are eligible to receive reimbursement of
travel expenses incurred in attending Board of Directors and committee meetings.
In addition, the Compensation Committee awarded compensation of $108,000 to
Richard M. Scrushy and $72,000 to Michael D. Martin for consulting services
rendered to the Company during 1996.
As of December 31, 1996, options to purchase the following number of shares
at $16.50 had been granted under the Incentive Plan to the following outside
directors: Richard M. Scrushy -- 73,000; Michael D. Martin -- 55,000; 5,000 each
to Robert N. Elkins, Eric R. Hanson, Larry D. Striplin, Jr., Barry Morton and
George E. Bogle; and options to purchase the following number of shares at
$18.375 had been granted under the Incentive Plan to the following outside
directors: Richard M. Scrushy -- 85,000; Michael D. Martin -- 55,000; and 45,000
each to Robert N. Elkins, Eric R. Hanson, Larry R. House, Larry D. Striplin,
Jr., Barry Morton and George E. Bogle.
OFFICERS
The officers of the Company serve a term of one year or until their
successors are duly elected and qualified. The offices held by Richard M.
Scrushy and John W. McRoberts are designated in the Nominees chart appearing on
page 3 of this Proxy Statement. William C. Harlan, age 46, has been employed by
the Company since June 30, 1994, and was elected Senior Vice President-Head of
Acquisitions in June 1994. Andrew L. Kizer, age 40, has been employed by the
Company since June 30, 1994, and was elected Vice President, Chief Financial
Officer, Secretary and Treasurer in June 1994.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE PROPOSED NOMINEES TO THE BOARD OF DIRECTORS.
PROPOSED AMENDMENT TO 1994 STOCK INCENTIVE PLAN
The Company maintains the 1994 Stock Incentive Plan (the "Incentive Plan")
which provides that 1,063,600 shares of the Company's Common Stock, $.001 par
value, may be issued pursuant to the exercise of options or incentive stock
awards granted under the Incentive Plan to officers, directors, employees and
consultants of the Company. As of December 31, 1996, there were 1,063,600 shares
of the Company's authorized but unissued Common Stock reserved for grants to
officers, directors, employees and consultants, of which options for 1,060,500
shares had been granted, leaving 3,100 shares available and unreserved for the
future issuance of options or incentive stock awards under the Incentive Plan.
On February 6, 1997, the Board of Directors approved an amendment to the
Incentive Plan which (a) increased the number of shares reserved for issuance to
officers, directors, employees and consultants to 1,750,000 shares, an increase
of 686,400 shares, and (b) amended certain provisions of the Incentive Plan to
permit the exercise of options within 90 days after termination of employment or
association with the Company for any reason other than death or permanent
disability, and in the event of termination due to death or permanent
disability, options may be exercised for up to
4
<PAGE> 7
twelve months after termination. As of December 31, 1996, all of the Company's
directors and three employees were participants in the Incentive Plan and six
employees were eligible to participate in the Incentive Plan.
The Company's Compensation Committee administers the Incentive Plan and
nominates officers, directors, employees and consultants to whom options or
restricted stock awards are to be granted by the Board of Directors. The
exercise price and vesting schedule for option and restricted stock award grants
are established at the time of grant by the Compensation Committee, in its sole
discretion. Generally the exercise price is the market value of the Company's
Common Stock on the grant date and the term is ten (10) years. Options granted
under the Incentive Plan are intended to be either "non-qualified stock options"
or "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code. The Incentive Plan is not a qualified pension, profit sharing or
stock bonus plan under Section 401(a) of the Internal Revenue Code, nor is the
Incentive Plan an "employee benefit plan" subject to the provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
An optionee will recognize no taxable income upon the grant of an incentive
stock option or upon the grant of a non-qualified stock option. With respect to
incentive stock options (i) no taxable income will be realized by an optionee
upon the exercise of the incentive stock option (except as may be incurred under
the "minimum tax for tax preferences" provisions of the Internal Revenue Code),
provided that at all times during the period beginning with the date of the
granting of the incentive stock option and ending on the day three (3) months
before the date of such exercise, such individual was an employee of the Company
or one of its Affiliates; (ii) the optionee, upon the disposition of the shares
acquired upon such exercise, will realize capital gains or losses, rather than
ordinary income or loss, in the amount of the difference between the option
price and the sale price; and (iii) the Company and its Affiliates will not be
allowed any deduction for federal income tax purposes with respect to the shares
issued upon the exercise of the incentive stock options.
Upon the exercise of a non-qualified option, the optionee will recognize
ordinary income equal to the excess of the fair market value of the shares of
Common Stock on the exercise date over the exercise price paid for the shares
pursuant to the option. The optionee's tax basis for the Common Stock acquired
upon exercise of a nonqualified option will be increased by the amount of such
taxable income. The Company will be entitled to a federal income tax deduction
in an amount equal to such excess, provided the Company complies with the
applicable withholding rules.
No options or restricted stock awards were granted and no options were
exercised under the Incentive Plan during 1996.
The affirmative vote of the holders of a majority of the shares present (or
represented) and entitled to vote at the meeting is required for approval of the
proposed amendment to the Incentive Plan. For purposes of the vote on the
proposed amendment, abstentions will have the same effect as votes against the
proposed amendment, and broker non-votes will not be counted as shares entitled
to vote on the matter and will have no effect on the result of the vote. (Both
abstentions and broker non-votes will count toward the presence of a quorum at
the annual meeting.)
As of March 24, 1997, the market value of the Common Stock of the Company
was $22 1/2 per share.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ADOPTION OF THIS PROPOSAL.
SELECTION OF AUDITORS
KPMG Peat Marwick LLP, 505 20th Street North, 1200 Financial Center,
Birmingham, Alabama 35203, has been recommended by the Board of Directors for
selection as independent auditor of the Company for 1997. KPMG Peat Marwick LLP
has served as independent auditor of the Company for the fiscal years ended
December 31, 1996 and 1995 and for the period from June 30, 1994 (inception) to
December 31, 1994. Services provided by KPMG Peat Marwick LLP include work
related to the audit of the financial statements and preparation of state and
federal income tax returns. A representative of KPMG Peat Marwick LLP is
expected to attend the annual meeting of stockholders and will have the
opportunity to make a statement, if he desires, and will be available to respond
to appropriate questions.
5
<PAGE> 8
The affirmative vote of a majority of the votes cast at the meeting is
needed to ratify the appointment of KPMG Peat Marwick LLP as auditor of the
Company for 1997. If the appointment is not approved, the matter will be
referred to the Audit Committee for further review.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
RATIFICATION OF THE APPOINTMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth information with respect to ownership of
shares of the Company's Common Stock as of December 31, 1996, by (i) each of the
Company's directors; (ii) the Company's chief executive officer and the two
other executive officers of the Company whose total annual salary and bonus
exceeded $100,000 in 1996 (the "Named Executive Officers"), (iii) each person
known to the Company to be the beneficial owner of more than five percent of the
outstanding shares of the Common Stock, and (iv) all directors and executive
officers (including the Named Executive Officers) of the Company as a group.
Unless otherwise indicated, each of the stockholders listed below has sole
voting and investment power with respect to the shares beneficially owned.
<TABLE>
<CAPTION>
STOCK BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS # OF SHARES % OF CLASS
- ---------------- ----------- ----------
<S> <C> <C>
Richard M. Scrushy.......................................... 415,936(1) 2.9
John W. McRoberts........................................... 281,858(2) 1.9
William C. Harlan........................................... 154,837(3) *
Andrew L. Kizer............................................. 117,844(4) *
Michael D. Martin........................................... 127,064(5) *
Robert N. Elkins............................................ 56,000(6) *
Eric R. Hanson.............................................. 52,000(7) *
Larry R. House.............................................. 45,000(8) *
Larry D. Striplin, Jr....................................... 50,000(9) *
Barry Morton................................................ 50,500(10) *
George E. Bogle............................................. 50,000(11) *
All executive officers and directors as a group (11
persons).................................................. 1,401,039(12) 9.2
</TABLE>
- ---------------
* Less than 1%
(1) Includes (i) 344,656 shares owned directly by Richard M. Scrushy (of which
158,000 shares are represented by options exercisable by him within sixty
days under the Company's Incentive Plan), and (ii) 71,280 shares owned by
HEALTHSOUTH Corporation of which Mr. Scrushy is Chairman of the Board and
Chief Executive Officer as to which he shares voting and investment power.
(2) Includes 279,000 shares owned directly by Mr. McRoberts, of which 250,000
shares are represented by options exercisable by him within 60 days under
the Company's Incentive Plan, and 2,858 shares held in the Company's
sec. 401(k) plan (the "KPlan").
(3) Includes 154,837 shares owned directly by Mr. Harlan, of which 140,000
shares are represented by options exercisable by him within 60 days under
the Company's Incentive Plan.
(4) Includes 117,844 shares owned directly by Mr. Kizer, of which 105,000
shares are represented by options exercisable by him within 60 days under
the Company's Incentive Plan.
(5) Includes 127,064 shares owned directly by Mr. Martin, of which 110,000
shares are represented by options exercisable by him within 60 days under
the Company's Incentive Plan.
(6) Includes 56,000 shares owned directly by Mr. Elkins, of which 50,000 shares
are represented by options exercisable by him within 60 days under the
Company's Incentive Plan.
(7) Includes 52,000 shares owned directly by Mr. Hanson, of which 50,000 shares
are represented by options exercisable by him within 60 days under the
Company's Incentive Plan.
(8) Includes 45,000 shares represented by options exercisable by Mr. House
within 60 days under the Company's Incentive Plan.
(9) Includes 50,000 shares represented by options exercisable by Mr. Striplin
within 60 days under the Company's Incentive Plan.
(10) Includes 50,500 shares owned directly by Mr. Morton, of which 50,000 shares
are represented by options exercisable by him within 60 days under the
Company's Incentive Plan.
6
<PAGE> 9
(11) Includes 50,000 shares represented by options exercisable by Mr. Bogle
within 60 days under the Company's Incentive Plan.
(12) Includes 1,058,000 shares represented by options exercisable within 60 days
under the Company's Incentive Plan.
REPORTS OF BENEFICIAL OWNERSHIP
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the SEC initial reports of
ownership and reports of changes in ownership of the Common Stock. The executive
officers, directors and greater than 10% stockholders of the Company are
required by SEC rules to furnish the Company with copies of all Section 16(a)
reports they file. There are specific due dates for these reports and the
Company is required to report in this Proxy Statement any failure to file
reports as required during 1996.
Based upon a review of these filings and written representations from
certain of the Company's directors and executive officers that no other reports
were required, the Company believes that the reporting and filing requirements
relating to ownership of Common Stock were complied with during 1996 and prior
years, except as follows. Each of the Company's executive officers and directors
was granted options to purchase shares of the Company's Common Stock pursuant to
the Incentive Plan. The grant of such options was not reported until March 1996.
Additionally, the Company believes that Richard M. Scrushy and Michael D. Martin
inadvertently failed to report the purchase of 5,000 and 5,000 shares,
respectively, on November 20 and November 21, 1996. These purchases were
subsequently reported on December 13, 1996.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table reflects the compensation of the Named Executive
Officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
--------------------------- ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) BONUS OPTIONS # COMPENSATION(2)
--------------------------- ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
John W. McRoberts........................ 1996 $281,083 $250,000 0 $28,140
President and Chief Executive Officer 1995 239,583 168,000 125,000 26,005
1994 200,000 105,000 125,000 18,389
William C. Harlan........................ 1996 $144,167 $ 85,000 0 $26,752
Senior Vice President and Head of 1995 124,583 60,000 55,000 24,760
Acquisitions 1994 100,000 60,000 85,000 15,129
Andrew L. Kizer.......................... 1996 $130,292 $ 70,000 0 $23,433
Vice President, Chief Financial 1995 110,208 60,000 55,000 22,010
Officer, Secretary and Treasurer 1994 80,000 40,000 50,000 9,121
</TABLE>
- ---------------
(1) Annualized for year ended December 31, 1996.
(2) The amounts listed in this column represent (i) the Company's contribution
under the KPlan for the benefit of the following executives for 1996, 1995
and 1994: John W. McRoberts $14,467, $13,384 and $6,879; William C. Harlan
$14,667, $13,384 and $3,539; and Andrew L. Kizer $14,667, $13,384 and
$2,812; (ii) automobile allowance to executives for 1996, 1995 and 1994:
John W. McRoberts $7,750, $6,000 and $6,000; William C. Harlan $6,250,
$6,000 and $6,000; and Andrew L. Kizer $4,688, $4,500 and $4,200; (iii)
annual premiums paid by the Company for long-term disability insurance for
executives for 1996 and 1995: John W. McRoberts $2,664 and $2,664; William
C. Harlan $2,660 and $2,660; and Andrew L. Kizer $1,673 and $1,673; (iv)
annual premiums paid by the Company for group term health insurance for
executives for 1996, 1995 and 1994: John W. McRoberts $1,712, $1,859 and
$2,508; William C. Harlan $1,712, $1,859 and $2,508; and Andrew L. Kizer
$-0-, $-0- and $-0-; (v) annual premiums paid by the Company for group term
disability insurance for executives for 1996 and 1995: John W. McRoberts
$470 and $409; William C. Harlan $470 and $470; and Andrew L. Kizer $459 and
$438; (vi) annual premiums paid by the Company for group term life insurance
for executives for 1996, 1995 and 1994: John W. McRoberts
7
<PAGE> 10
$285, $238, and $3,002; William C. Harlan $395, $238 and $3,082; and Andrew
L. Kizer $153, $128 and $2,109; and (vi) annual premiums paid by the Company
for permanent life insurance for executives for 1996 and 1995: John W.
McRoberts $593 and $1,451; William C. Harlan $599 and $149; and Andrew L.
Kizer $1,794 and $1,887.
STOCK OPTION GRANTS
The Company did not grant any stock options or stock appreciation rights in
1996.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides certain information with respect to the Named
Executive Officers in 1996 concerning the exercise of options during 1996 and
with respect to unexercised options at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END(#) YEAR-END($)
EXERCISE REALIZED ----------------------------- -----------------------------
(NUMBER) (DOLLARS) (EXERCISABLE) UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- --------- ------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
John W. McRoberts............ 0 0 250,000 0 $1,234,375 0
William C. Harlan............ 0 0 140,000 0 $ 719,375 0
Andrew L. Kizer.............. 0 0 105,000 0 $ 513,750 0
</TABLE>
RETIREMENT PLANS
Effective July 1, 1994, the Company adopted the Capstone Capital of
Alabama, Inc. 401(k) Retirement Plan ("KPlan"). The KPlan is a Code Section
401(k) plan in which all employees are eligible to participate. The Company, in
its sole discretion, may contribute an amount which it designates as a qualified
nonelective contribution. The Company contributed a total of $50,078.56 to the
KPlan for the KPlan year ended December 31, 1996.
EMPLOYMENT CONTRACT AND CHANGE-IN-CONTROL ARRANGEMENTS.
The Company entered into an Employment and Noncompetition Agreement (the
"Employment Agreement") with John W. McRoberts, effective on November 1, 1996,
pursuant to which he serves as President and Chief Executive Officer of the
Company. The Employment Agreement terminates on December 31, 2000, but is
automatically extended on January 1 of each year for an additional one year
term, unless terminated sooner. Under the Employment Agreement, Mr. McRoberts is
entitled to receive annual base compensation for the period from the effective
date through December 31, 1996, of $285,000 and is entitled to annual increases
at the discretion of the Compensation Committee of the Board of Directors (which
at a minimum, will equal a cumulative cost-of-living increase) and is entitled
to participate in the Company's Incentive Plan and all other benefit programs
generally available to executive officers of the Company. Mr. McRoberts is also
entitled to receive an annual bonus in the discretion of the Compensation
Committee of the Board of Directors.
If the Company terminates Mr. McRoberts' employment without cause or upon a
"change-in-control" (as defined in the Employment Agreement), he is entitled to
receive his accrued salary, earned bonus, vested deferred compensation, if any,
(other than plan benefits which will be paid in accordance with the applicable
plan), and other benefits through the date of termination. In addition, Mr.
McRoberts will receive as severance compensation his base salary for a period of
24 months following the date of termination and an amount equal to his average
annual bonus during the two years immediately preceding his termination. At Mr.
McRoberts' election, he may receive a lump sum severance amount equal to the
present value of such severance payments (using a discount rate equal to the
90-day treasury bill interest rate in effect on the date of delivery of such
election notice).
The Company may terminate the Employment Agreement "for cause" which is
defined to include willful dishonesty toward, fraud upon, or deliberate injury
or attempted injury to the Company or Mr. McRoberts' willful breach of the
Employment Agreement, which has resulted in material injury to the Company. In
the event of Mr. McRoberts' termination for cause, he shall receive all accrued
salary, earned bonus compensation, vested deferred compensation, if any (other
than plan benefits which will be payable in accordance with the applicable
plan), and other benefits through the date of termination, but shall receive no
other severance benefits.
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<PAGE> 11
Mr. McRoberts' Employment Agreement may also be terminated if Mr. McRoberts dies
or becomes disabled and his disability continues for a period of 12 consecutive
months. In the event of termination of the Employment Agreement because of Mr.
McRoberts' death or disability, Mr. McRoberts (or his estate) shall receive
these same payments but no additional severance, except that, if Mr. McRoberts
becomes disabled, the Company will maintain his insurance benefits for the
remaining term of his Employment Agreement.
The Company has agreed to indemnify Mr. McRoberts for certain liabilities
arising from actions taken within the scope of his employment. Mr. McRoberts'
Employment Agreement contains restrictive covenants pursuant to which he has
agreed not to compete with the Company during the period of his employment and
for a period of 24 months following termination of his employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
The members of the Compensation Committee of the Company's Board of
Directors are Richard M. Scrushy, John W. McRoberts, Michael D. Martin and Eric
R. Hanson. There are no interlocks among the members of the Compensation
Committee. Richard M. Scrushy is Chairman of the Board and Chief Executive
Officer of HEALTHSOUTH Corporation ("HEALTHSOUTH"). Although John W. McRoberts
serves on the Company's Compensation Committee, he does not participate in any
decisions regarding his own compensation as an executive officer.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors has furnished the
following report on executive compensation:
Executive Compensation
The Company's compensation program is administered by the Compensation
Committee of the Board of Directors, which is composed of the directors listed
below this report. The Board of Directors, on the recommendation of the
Compensation Committee, establishes a general compensation policy for the
Company and has the responsibility for the approval of increases in compensation
paid to the executive officers of the Company. The Compensation Committee
administers the Company's employee benefit plans, including the KPlan and the
Incentive Plan. In addition, the Compensation Committee evaluates the
performance of the executive officers of the Company and related matters. The
Compensation Committee reviews its recommendations with the full Board of
Directors.
In recommending compensation levels for the Company's executive officers,
the Compensation Committee focuses primarily on (i) rewarding executive officers
for achievement of the Company's strategic goals and the enhancement of
stockholder value, (ii) recognizing superior company performance as compared to
that of competing businesses and (iii) attracting, motivating and retaining
highly-trained and talented executives who are vital to the Company's long-term
success. Individual compensation packages are generally set at levels believed
by the Compensation Committee to correspond to the median range of compensation
paid to individuals serving in comparable positions at other real estate
investment trusts ("REITs") with publicly-traded securities (including those
comprising the National Association of Real Estate Investment Trusts Index
referred to in the performance graph set forth hereinafter). At present the
Company's compensation package is comprised of a base salary, an annual cash
bonus, long-term incentives in the form of stock options and stock grants and
other benefits typically offered to executives by REITs in the Company's peer
group.
Base Salary. Each executive officer's base salary is set by the Board of
Directors on an annual basis. In 1996, on the recommendation of the Compensation
Committee, the Board increased the salaries of the Company's executive officers
based upon a subjective assessment of the individual's experience, tenure in
position, past performance and contributions to the Company, as well as a review
of base salaries paid to executive officers of comparable REITs. Mr. McRoberts
reviews all salary recommendations for executive officers (except Mr. McRoberts)
with the Compensation Committee, which is responsible for approving or
disapproving those recommendations. The Compensation Committee (excluding Mr.
McRoberts) is solely responsible for determining the salary of Mr. McRoberts.
During 1996, the Board of Directors, on the recommendation of the
Compensation Committee, increased the salaries paid to each of the three
executive officers of the Company. These salary increases were based on cost-of-
9
<PAGE> 12
living adjustments, position tenure, subjective assessments of individual
performance, comparability considerations (including the Company's financial
performance relative to its competitors) and competitive data, including asset
growth, revenue growth and cash flow growth. In setting compensation levels for
1996, the Compensation Committee gave considerable weight to the Company's
favorable 1995 financial results. The 1995 financial results generally exceeded
management's expectations, which further influenced the Compensation Committee's
decision to increase salaries. Performance assessments were also given greater
weight in the Compensation Committee's determinations relative to the other
factors.
Annual Bonus. The employment arrangements with the Company's executive
officers contemplate consideration of variable annual bonuses. On January 23,
1997, the Compensation Committee authorized bonuses to its executive officers
and staff employees based upon their respective performance and contribution
toward the attainment of the goals of the Company for the period ending December
31, 1996. The performance measures reviewed by the Compensation Committee
included the Company's asset growth, revenue growth, cash flow growth and total
return to stockholders compared to that of its peer group. These measures were
assigned approximately equal weight in the Compensation Committee's
determinations. The Company's targets for each of these measures were exceeded
in 1996 and generally compared favorably to or exceeded its peer group's
corresponding results. The increases in the bonuses paid to executive officers
in 1996 over those paid in 1995 were based in large part on these results. All
of the Company's goals for 1996 were achieved. Mr. McRoberts recommended bonuses
for the executive officers and staff, except Mr. McRoberts, to the Compensation
Committee for its review and approval. The amount of the bonuses was based upon
a subjective assessment of the performance of the Company during 1996 and
individual employee performance as compared with its goals for the year. The
Compensation Committee determined the bonus award for Mr. McRoberts, with Mr.
McRoberts excusing himself from such determination, and directed Mr. McRoberts
to pay bonuses to the remaining executive officers and staff employees, based
upon each officer's and employee's respective experience, tenure with the
Company, and contribution to the attainment of the Company's goals.
The opportunity for an annual bonus in the future will reflect the degree
to which an executive contributes to the realization of established short term
objectives of the Company and is intended to be a substantial incentive for the
executive officers to achieve those objectives. Annual incentives and the
combined annual cash compensation is intended to be competitive with market
practices for comparable REITs. The Compensation Committee has established
target objectives of the Company based on asset growth, revenue growth, cash
flow growth, and total return to stockholders, and the annual incentive awards
to be made to the executive officers in the future will relate to the attainment
of these objectives and other subjective factors including each executive
officer's individual contribution toward attaining these objectives. The
Compensation Committee, excluding Mr. McRoberts, is solely responsible for
determining any award for Mr. McRoberts.
Incentive Compensation. The Compensation Committee administers the
Company's Incentive Plan. Pursuant to the Incentive Plan, stock options have
been awarded in order to retain and motivate executives to improve long-term
stock price performance. Stock options are granted at a price equal to the
current fair market value of the Company's stock at the time of grant and will
be of value to the executive only if the total return to stockholders increases
over time. The Compensation Committee grants stock options, pursuant to the
Company's Incentive Plan, to executive officers of the Company based principally
upon the success of the Company in achieving all of its goals for a particular
year, as described above, and on a comparison of option grants to executives
with similar responsibilities in other companies and the executive's level of
responsibility and relative importance to the operations of the Company. Because
no shares were available for grant under the Incentive Plan in 1996, no stock
options were granted during 1996. Future grants of stock options or restricted
stock of the Company to its executive officers will be designed to provide
material incentive to focus officers on maximizing total returns to stockholders
measured over an extended period of time. In addition, the Company intends to
implement target stock ownership guidelines for executive officers to promote
stock ownership, while further leveraging executive officer total compensation
opportunities. Stock ownership guidelines will be established for each executive
to further align executive and stockholder interests. The Compensation Committee
will prepare target objectives of the Company and determine the long term
incentive awards to be made to the executive officers, relating to the
attainment of the objectives. The Compensation Committee, excluding Mr.
McRoberts, is solely responsible for determining any stock option or incentive
stock award for Mr. McRoberts.
10
<PAGE> 13
Chief Executive Officer Compensation
As President and Chief Executive Officer, Mr. McRoberts' 1996 base salary
was approved by the Board of Directors of the Company. Mr. McRoberts entered
into an Employment and Noncompetition Agreement with the Company on November 1,
1996, which provides for an annual base salary (the "Base Salary") of $285,000
for the period beginning on the date of the agreement through December 31, 1996.
The Base Salary will be increased each year thereafter through December 31,
2000, at a minimum by the cumulative cost-of-living increase on the Base Salary
as reported in the "Consumer Price Index, Birmingham, Alabama, All Items,"
published by the U.S. Department of Labor, using January 1, 1996, as the base
date. Mr. McRoberts' Base Salary will be reviewed annually by the Compensation
Committee. Base Salary in future years will be determined by the Compensation
Committee and ratified by the Board of Directors. Mr. McRoberts is entitled to
participate in the Incentive Plan, the KPlan and all other benefit programs
generally available to executive officers of the Company. The Company does not
provide Mr. McRoberts with incidental perquisites such as club memberships,
company vehicles, financial planning or other similar items, but the Company
does provide Mr. McRoberts with a monthly automobile allowance.
The Compensation Committee's general approach in setting Mr. McRoberts'
annual compensation is to seek to be competitive with base salaries of other
chief executive officers of companies with similar revenues and scope of
operations. The Base Salary was established following a review of Mr. McRoberts'
pay relative to salaries paid by other healthcare REITs and expected trends in
executive pay, taking into account the successful performance of the Company
during the preceding year and the leadership provided by him in his role as
President and Chief Executive Officer. The base salaries and bonuses of all of
the executive officers are set on a general and subjective basis after a review
of certain factors, including salaries paid by other REITs for executives of
similar experience and skills, the overall performance by each executive during
the preceding year and the Company's financial performance during the preceding
year including the growth in assets, revenue, profitability and cash flow, and
the overall return to stockholders. Mr. McRoberts is also entitled to receive an
annual bonus in the discretion of the Compensation Committee. Based upon the
Company's criteria for determining bonuses described above, Mr. McRoberts
received a bonus for 1996 of $250,000.
The Committee remains committed to establishing and maintaining a
compensation program that appropriately aligns the Company's executive
compensation with corporate performance and the interests of the stockholders
and which offers competitive opportunities in the executive marketplace. As
such, the Committee periodically reviews the compensation program in order to
make such changes as it considers necessary to achieve such objectives.
Compliance with Internal Revenue Code Section 162(m). Section 162(m) of
the Internal Revenue Code, enacted in 1993, generally disallows a tax deduction
to public companies for compensation in excess of $1 million paid to the
Company's chief executive officer and the four other most highly compensation
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain requirements are met. The Company currently
intends to structure the performance-based portion of the compensation of its
executive officers in a manner that complies with this statute.
Members of the Compensation Committee:
Richard M. Scrushy
John W. McRoberts
Michael D. Martin
Eric R. Hanson
COMPARATIVE PERFORMANCE GRAPH
The SEC requires the Company to include in this Proxy Statement a line
graph which compares the yearly percentage change in cumulative total
stockholder return on the Company's Common Stock with (a) the performance of a
broad equity market indicator and (b) the performance of a published industry
index or peer group. The following graph compares the monthly percentage change
in the return on the Company's Common Stock since June 30, 1994, with the
cumulative total return on the SNL Healthcare REIT Index published by SNL
11
<PAGE> 14
Securities L.P. and the Standard & Poor's 500 Index. The graph assumes the
investment on June 30, 1994, of $100 and that all dividends were reinvested at
the time they were paid.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
MEASUREMENT PERIOD CAPSTONE CAPITAL SNL HEALTHCARE
(FISCAL YEAR COVERED) CORPORATION S&P 500 REIT INDEX
<S> <C> <C> <C>
6/28/94 100.00 100.00 100.00
12/31/94 89.06 104.82 95.92
3/31/95 95.01 114.64 98.92
6/30/95 107.31 125.58 107.96
9/30/95 116.17 135.56 113.80
12/31/95 120.54 143.72 120.12
3/31/96 137.68 153.37 124.16
6/30/96 133.25 159.48 127.35
9/30/96 141.33 163.53 133.27
12/31/96 153.77 176.58 149.36
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Seventeen of the Company's leased properties (the "Leased Properties") are
leased to HEALTHSOUTH or its subsidiaries, and the leases for such Leased
Properties are guaranteed by HEALTHSOUTH. The Company believes that the terms of
the leases to HEALTHSOUTH are as favorable as those which the Company could have
obtained from unaffiliated parties. The Company realized a total of $11.6
million in rental income in 1996 from HEALTHSOUTH under the leases for the
HEALTHSOUTH properties. Richard M. Scrushy, Larry R. House and Michael D.
Martin, directors of the Company, are officers, directors and/or stockholders of
HEALTHSOUTH.
Nine of the Company's Leased Properties are leased to MedPartners, Inc.
("MedPartners") or its subsidiaries, and the leases for such Leased Properties
are guaranteed by MedPartners. The Company paid $2.5 million to MedPartners in
1996 for one of the Leased Properties. The Company believes that the terms of
the purchase from and the terms of the leases to MedPartners are as favorable as
those which the Company could have obtained from unaffiliated parties. The
Company realized a total of $6.8 million in rental income in 1996 from
MedPartners under the Leases for the MedPartners properties. Richard M. Scrushy,
Larry R. House and Larry D. Striplin, Jr., directors of the Company, are
directors and/or stockholders of MedPartners.
Robert N. Elkins, a director of the Company, is Chairman, Chief Executive
Officer and a stockholder of Integrated Health Services, Inc. ("Integrated
Health"), and Integrated Living Communities, Inc. The Company realized a total
of $3.2 million in rental income in 1996 from Integrated Health under the leases
for the Integrated Health properties. The Company believes that the terms of the
leases to Integrated Health are as favorable as those which the Company could
have obtained from unaffiliated parties.
The Company has funded loans to John W. McRoberts, William C. Harlan and
Andrew L. Kizer for the purpose of acquiring the Company's Common Stock. As of
December 31, 1996, the balance of these loans to Messrs. McRoberts, Harlan and
Kizer from the Company were $95,327, $96,180 and $95,437, respectively. Interest
on these loans is payable quarterly at the prime rate, and the principal is
payable on demand.
12
<PAGE> 15
GENERAL INFORMATION
STOCKHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
In order to be included in the proxy statement and proxy for the 1998
annual meeting of stockholders, stockholder proposals intended to be presented
at such meeting must be received by the Company at its executive offices at 1000
Urban Center Drive, Suite 630, Birmingham, Alabama 35242, not later than January
31, 1998.
COUNTING OF VOTES
All matters specified in this Proxy Statement to be voted on at the annual
meeting will be by written ballot. Inspectors of election will be appointed,
among other things, to determine the number of shares outstanding, to determine
the shares represented at the annual meeting, to determine the existence of a
quorum and the authenticity, validity and effect of proxies, to receive votes of
ballots, to hear and determine all challenges and questions in any way arising
in connection with the right to vote, and to count and tabulate all votes and to
determine the result. Each item presented herein to be voted on at the annual
meeting must be approved by the affirmative vote of the holders of the number of
shares described under each such item. The inspectors of election will treat
shares represented by proxies that reflect abstentions as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum. Abstentions, however, do not constitute a vote "for" or "against" any
matter and thus will be disregarded in the calculation of a plurality or of
"votes cast."
Inspectors of election will treat shares referred to as "broker non-votes"
(i.e., shares held by a broker, or other fiduciary, holding shares for a
beneficial owner with authority to vote on one proposal but lacking authority to
vote on another proposal) as shares that are present and entitled to vote for
purposes of determining the presence of a quorum. However, for purposes of
determining the outcome of any matter as to which the broker has physically
indicated on the proxy that it does not have discretionary authority to vote,
those shares will be treated as not present and not entitled to vote with
respect to that matter (even though those shares are considered entitled to vote
for quorum purposes and may be entitled to vote on other matters).
MISCELLANEOUS
The Company will bear the cost of printing, mailing and other expenses in
connection with this solicitation of proxies and will also reimburse brokers and
other persons holding shares in their names or in the names of nominees for
their expenses in forwarding this proxy material to the beneficial owners of
such shares. Certain of the directors, officers and employees of the Company
may, without any additional compensation, solicit proxies in person or by
telephone.
Management of the Company is not aware of any matters other than those
described above which may be presented for action at the meeting. If any other
matters properly come before the meeting, it is intended that the proxies will
be voted with respect thereto in accordance with the judgment of the person or
persons voting such proxies subject to the direction of the Board of Directors.
A copy of the Company's Annual Report has been mailed to all stockholders
entitled to notice of and to vote at the annual meeting.
CAPSTONE CAPITAL CORPORATION
RICHARD M. SCRUSHY SIG
Richard M. Scrushy
Chairman
13
<PAGE> 16
APPENDIX A
CAPSTONE CAPITAL CORPORATION
BIRMINGHAM, ALABAMA
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON THE 1ST DAY OF MAY, 1997
The undersigned hereby appoints Richard M. Scrushy and John W. McRoberts, and
each of them, with the power to appoint his substitute, attorneys with the
powers the undersigned would possess if personally present to vote all of the
Common Stock of Capstone Capital Corporation held of record by the undersigned
on March 14, 1997, at the annual meeting of the Stockholders to be held on the
1st day May, 1997, at the Richard M. Scrushy Conference Center, Two HEALTHSOUTH
Parkway, Birmingham, Alabama 35243, at 10:00 o'clock a.m. (local time), and at
any adjournments thereof, upon the matters set forth below and described in the
notice and proxy statement for said meeting, copies of which have been received
by the undersigned, and, in their discretion, upon all other matters which may
come before the meeting. Without otherwise limiting the general authorization
hereby given, said attorneys are instructed to vote as follows on the matters
set forth below:
(1) ELECTION OF DIRECTORS
<TABLE>
<S> <C>
[ ] FOR all nominees listed below
(except as marked to the contrary below)
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for
(except as marked to the contrary below) all nominees listed below
</TABLE>
INSTRUCTION To withhold authority to vote for any individual nominee, strike
a line through the nominee's name in the list below.
John W. McRoberts, Richard M. Scrushy, Michael D. Martin, Robert N. Elkins,
Eric R. Hanson, Larry D. Striplin, Jr., W. Barry Morton, George E. Bogle, and
Larry R. House.
(2) Proposal to amend the Company's 1994 Stock Incentive Plan to (a) increase
the number of shares of Common Stock reserved for issuance thereunder to
1,750,000, and (b) to amend certain provisions of the Plan to permit the
exercise of options within a specified time after termination of employment
or association with the Company.
[ ] FOR [ ] AGAINST [ ]ABSTAIN
(3) Proposal to ratify the engagement of the accounting firm of KPMG Peat
Marwick LLP as independent auditors for the current fiscal year.
[ ] FOR [ ] AGAINST [ ]ABSTAIN
(4) In their discretion, upon such other matters as may properly come before the
meeting.
AUTHORIZED [ ] NOT AUTHORIZED [ ]
The shares represented by this proxy will be voted in accordance with the
specifications made by the undersigned herein. IF NO SPECIFICATION IS MADE,
THIS PROXY WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4.
Please mark, sign, date and return this proxy in the enclosed envelope as
soon as possible, even though you plan to attend this meeting.
To help our preparations for the annual meeting, please check here if you
plan to attend.
------------
SIGN HERE EXACTLY AS NAME(S)
APPEAR(S) ABOVE:
------------------------------
Date:
------------------------------
------------------------------
Date:
------------------------------
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.
If your address has changed, please note new address:
Zip Code
- ------------------------------------------------------ ----------------
