<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 7, 1998
---------------------
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 7th day of May, 1998, at
10:30 a.m. (local time), for the following purposes:
(1) To elect a Board of Directors to serve until the next annual
meeting or until their successors are duly elected;
(2) To consider and vote upon a proposal to ratify the engagement of
the accounting firm of KPMG Peat Marwick LLP as independent
auditors for the current fiscal year; and
(3) 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 envelope
that is enclosed for your convenience.
The annual report of the Company for the fiscal year ended December 31,
1997, 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 11, 1998, 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
/s/ Richard M. Scrushy
Richard M. Scrushy
Chairman
Birmingham, Alabama
April 7, 1998
<PAGE> 3
CAPSTONE CAPITAL CORPORATION
1000 URBAN CENTER DRIVE, SUITE 630
BIRMINGHAM, ALABAMA 35242
---------------------
ANNUAL MEETING OF STOCKHOLDERS
MAY 7, 1998
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 7, 1998, at 10:30 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 April 7, 1998.
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, it will be voted (a) FOR the
election as directors of the nominees listed and described in this Proxy
Statement, (b) FOR the ratification of the engagement of the accounting firm of
KPMG Peat Marwick LLP as independent auditors for the current fiscal year, and
(c) 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.
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 Malcolm E. McVay,
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 11, 1998, has been fixed as the record date
for the purpose of determining the stockholders entitled to notice of 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 11, 1998, the Company had authorized
50,000,000 shares of common stock, par value $.001 per share (the "Common
Stock"), of which 22,377,594 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 ratify the engagement of the accounting firm of KPMG
Peat Marwick LLP as independent auditors for the current fiscal year; and
(3) 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 7, 1998, 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 seven (7) the 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
seven 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.) 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 Amended and Restated 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. If any nominee becomes unavailable for election, the
current Board of Directors will determine how the proxies will be voted.
2
<PAGE> 5
NOMINEES
The following table sets forth the name, age and principal occupation for
the previous five years of each nominee for Director and the year in which each
nominee became a Director:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATION SINCE
- ---- --- -------------------- --------
<S> <C> <C> <C>
Richard M. Scrushy........ 45 Chairman of the Board of the Company since 1994; 1994
Chairman of the Board and Chief Executive Officer
of HEALTHSOUTH Corporation ("HEALTHSOUTH") since
1983; Chairman of the Board of MedPartners, Inc.
("MedPartners") since January 1998.
John W. McRoberts......... 45 President and Chief Executive Officer of the Company 1994
since 1994; Senior Vice President of AmSouth Bank
from 1988 to 1993.
Michael D. Martin......... 37 Executive Vice President, Chief Financial Officer 1994
and Treasurer of HEALTHSOUTH since 1997; Director of
HEALTHSOUTH since March 1998; Director of
MedPartners since January 1998; Executive Vice
President -- Finance and Treasurer of HEALTHSOUTH
from 1996 to 1997; Senior Vice
President -- Finance and Treasurer of HEALTHSOUTH
from 1994 to 1996; Vice President and Treasurer of
HEALTHSOUTH from 1989 to 1994.
Eric R. Hanson............ 43 Chairman of the Board and Chief Executive Officer of 1994
U.S. Strategies Corp. since 1984.
Larry D. Striplin, Jr..... 68 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.............. 60 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........... 60 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
The Board of Directors held four meetings during 1997. All of the Directors
attended at least 75% of the aggregate of all meetings of the Board of Directors
and the committees on which they served during 1997, except that Robert N.
Elkins attended only 60% of such 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 1997.
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
3
<PAGE> 6
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 1997.
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 the Company's 1994 Stock Incentive
Plan, as amended (the "Incentive Plan"), and any 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 the terms and conditions under which benefits may be vested, received or
exercised. The Compensation Committee held one meeting during 1997.
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 1997 of $12,000 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 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 $200,000 to
Richard M. Scrushy and $150,000 to Michael D. Martin for consulting services
rendered to the Company during 1997.
Directors are eligible to receive awards of restricted stock under the
Company's Incentive Plan, which awards are intended to reward the grantees for
past service and provide incentives to the grantees to continue serving the
Company. On May 1, 1997, the Board of Directors approved the grant of shares of
restricted stock to its members in the following amounts: Richard M. Scrushy,
44,000; Michael D. Martin, 20,000; Robert N. Elkins, 6,000; Eric R. Hanson,
6,000; Larry D. Striplin, Jr., 6,000; Barry Morton, 6,000; George E. Bogle,
6,000; and Larry R. House, 6,000. Shares of restricted stock vest in 25%
increments based on the performance of the Company's Common Stock (as measured
by the total cumulative return on a share of the Common Stock). The grant of
restricted stock was divided into two series of equal number. The first series
is tied to a base price of $18.125 per share, and the second series is tied to a
base price of $20.875 per share. The shares of restricted stock are subject to a
risk of forfeiture if the service of the grantee as an employee or member of the
Board of Directors terminates prior to the date such shares become vested or the
Company suffers a "change in control" or prior to the date the grantee dies,
becomes disabled or retires. In addition, until the shares of restricted stock
have vested, the shares may not be sold, assigned, pledged or otherwise
transferred. The vesting of shares of restricted stock can be deferred at the
election of the grantee over a three year period by delivery to the Company of a
deferral notice prior to the date when the shares of restricted stock become
vested. Any grantee who elects to defer vesting will be entitled to receive
additional shares of restricted stock equal to 20% of the number of shares of
restricted stock that the grantee elects to defer. Such shares of restricted
stock on which vesting has been deferred, including the 20%, will vest and be
distributable in equal installments on each of the first, second and third
anniversaries of the date on which such shares would have vested normally.
Subject to the risk of forfeiture and transfer restrictions, a grantee who
elects to defer vesting with respect to shares of restricted stock will have all
of the rights as a shareholder of the Company with respect to such shares of
restricted stock, including the right to vote and the right to receive dividends
or other distributions on such shares.
4
<PAGE> 7
On May 1, 1997, the Board of Directors granted Larry R. House options to
purchase 5,000 shares of Common Stock at $18.375 per share.
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 John W. McRoberts
are designated in the Nominees chart appearing on page 3 of this Proxy
Statement. Malcolm E. McVay, age 36, has been employed by the Company since
April 1997, and was elected Chief Financial Officer, Secretary and Treasurer in
June 1997.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
ELECTION OF ALL OF THE PROPOSED NOMINEES TO THE BOARD OF DIRECTORS.
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 1998. KPMG Peat Marwick LLP
has served as independent auditor of the Company for the fiscal years ended
December 31, 1997, 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.
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 1998. 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.
5
<PAGE> 8
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, 1997 by (i) each of the
Company's directors; (ii) the Company's chief executive officer, the other
executive officer of the Company whose total annual salary and bonus exceeded
$100,000 in 1997 and two additional individuals who served as executive officers
of the Company during 1997 but were not serving in such capacity on December 31,
1997 (collectively, 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>
SHARES OF
COMMON STOCK
NAME BENEFICIALLY OWNED PERCENT OF CLASS
- ---- ------------------ ----------------
<S> <C> <C>
Salomon Smith Barney Holdings Inc........................... 1,204,791(1) 6.95%
Richard M. Scrushy.......................................... 429,136(2) 2.45
John W. McRoberts........................................... 312,536(3) 1.78
Malcolm E. McVay............................................ 54,200(4) *
Michael D. Martin........................................... 133,064(5) *
Robert N. Elkins............................................ 57,800(6) *
Eric R. Hanson.............................................. 53,800(7) *
Larry R. House.............................................. 51,800(8) *
Larry D. Striplin, Jr....................................... 51,800(9) *
Barry Morton................................................ 52,300(10) *
George E. Bogle............................................. 51,800(11) *
Andrew L. Kizer............................................. 121,553(12) *
William C. Harlan........................................... 0(13) *
All executive officers and directors as a group (12
persons).................................................. 1,369,789(14) 7.48
</TABLE>
- ---------------
* Less than 1%
(1) Salomon Smith Barney Holdings Inc. and Travelers Group Inc. reported their
holdings as a group on a Schedule 13G filed with the Securities and
Exchange Commission on February 6, 1998. The address of both parties is 388
Greenwich Street, New York, New York 10013, and the number of shares
reported assumes the conversion of certain securities held.
(2) Includes 158,000 shares underlying exercisable options, 13,200 shares of
restricted stock over which Mr. Scrushy had beneficial ownership and 71,280
shares owned by HEALTHSOUTH of which Mr. Scrushy is Chairman of the Board
and Chief Executive Officer and as to which he shares voting and investment
power.
(3) Includes 250,000 shares underlying exercisable options and 30,000 shares of
restricted stock over which Mr. McRoberts had beneficial ownership.
(4) Includes 50,000 shares underlying options exercisable by Mr. McVay within
60 days under the Company's Incentive Plan and 4,200 shares of restricted
stock over which Mr. McVay had beneficial ownership.
(5) Includes 110,000 shares underlying exercisable options and 6,000 shares of
restricted stock over which Mr. Martin had beneficial ownership.
(6) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. Elkins had beneficial ownership.
(7) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. Hanson had beneficial ownership.
(8) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. House had beneficial ownership.
6
<PAGE> 9
(9) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. Striplin had beneficial ownership.
(10) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. Morton had beneficial ownership.
(11) Includes 50,000 shares underlying exercisable options and 1,800 shares of
restricted stock over which Mr. Bogle had beneficial ownership.
(12) Includes 105,000 shares underlying exercisable options and 2,700 shares of
restricted stock over which Mr. Kizer had beneficial ownership.
(13) Mr. Harlan resigned as an employee of the Company on October 13, 1997.
(14) Includes 923,000 shares underlying exercisable options, 50,000 shares
underlying options exercisable within 60 days and 66,900 shares of
restricted stock over which the Named Executive Officers and Directors as a
group had beneficial ownership.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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 Securities and Exchange
Commission ("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 1997.
Based upon a review of these filings, the Company believes that the
reporting and filing requirements relating to ownership of Common Stock were
complied with during 1997, except as follows: (i) each Director and Named
Executive Officer has not filed the required Form 5 with respect to an award of
restricted stock on May 1, 1997, which awards were exempt from Section 16(b)
pursuant to Rule 16b-3 and which forms are expected to be filed prior to the
annual meeting; (ii) Mr. McVay was late in filing his initial statement of
beneficial ownership; and (iii) Mr. House has not filed one report with respect
to a grant of 5,000 options to buy Common Stock, although it is expected that
such report will be filed prior to the annual meeting.
7
<PAGE> 10
EXECUTIVE COMPENSATION
The following tables and narrative text discuss the compensation of the
Named Executive Officers for fiscal years ending December 31, 1997, 1996 and
1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------ -----------------------
RESTRICTED SECURITIES
STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS AWARDS(1) OPTIONS(#) COMPENSATION(2)
- --------------------------- ---- ---------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John W. McRoberts.......... 1997 $ 325,000 $300,000 $2,432,188 0 $ 21,571
President and Chief 1996 281,083 250,000 0 0 15,345
Executive Officer 1995 239,583 168,000 0 125,000 15,073
Malcolm E. McVay........... 1997 $ 75,104(3) $ 70,000 $ 334,850 50,000 $ 6,466
Chief Financial Officer, 1996 0 0 0 0 0
Secretary and 1995 0 0 0 0 0
Treasurer
William C. Harlan(4)....... 1997 $ 126,667 $ 85,000 $ 0 0 $226,243
1996 144,167 85,000 0 0 15,661
1995 124,583 60,000 0 55,000 13,771
Andrew L. Kizer(5)......... 1997 $ 145,000 $ 70,000 $ 219,463 0 $ 23,215
1996 130,292 70,000 0 0 16,614
1995 110,208 60,000 0 55,000 15,399
</TABLE>
- ---------------
(1) Restricted stock awards are valued in the table above at their fair market
value based on the per share closing price of the Company's Common Stock on
the New York Stock Exchange, Inc. on the date of grant. Restricted stock
holdings as of December 31, 1997, which include additional grants of
restricted stock received upon the election to defer vesting, and their fair
market value based on the per share closing price of $25.5625 on December
31, 1997 were as follows:
<TABLE>
<CAPTION>
NUMBER OF VALUE ON
NAME RESTRICTED SHARES DECEMBER 31, 1997
- ---- ----------------- -----------------
<S> <C> <C>
John W. McRoberts..................................... 107,500 $2,747,969
Malcolm E. McVay...................................... 14,800 378,325
Andrew L. Kizer....................................... 9,700 247,956
</TABLE>
The shares of restricted stock are subject to performance-based
restrictions on vesting and to a risk of forfeiture if the service of the
grantee as an employee or member of the Board of Directors terminates prior
to the date such shares become vested or the Company suffers a "change in
control" or prior to the date the grantee dies, becomes disabled or
retires. The vesting of shares of restricted stock can be deferred at the
election of the grantee over a three year period by delivery to the Company
of a deferral notice prior to the date when the shares of restricted stock
become vested. Any grantee who elects to defer vesting will be entitled to
receive additional shares of restricted stock equal to 20% of the number of
shares of restricted stock that the grantee elects to defer. Subject to the
risk of forfeiture and transfer restrictions, a grantee who elects to defer
vesting with respect to shares of restricted stock will have all of the
rights as a shareholder of the Company with respect to such shares of
restricted stock, including the right to vote and the right to receive
dividends or other distributions on such shares.
(2) The amounts listed in this column represent (i) the Company's contribution
under the Capstone Capital of Alabama, Inc. 401(k) Retirement Plan ("KPlan")
for the benefit of the following executives for 1997, 1996 and 1995: John W.
McRoberts $6,175, $14,467 and $13,384; Malcolm E. McVay $2,519, $0 and $0;
William C. Harlan $6,175, $14,667 and $13,384; and Andrew L. Kizer $6,175,
$14,667 and $13,384; (ii) the Company's contribution under the Capstone
Capital of Alabama, Inc. Money Purchase Pension Plan (the "Money Purchase
Plan") for the benefit of the following executives for 1997: John W.
8
<PAGE> 11
McRoberts $14,512, Malcolm E. McVay $3,882, William C. Harlan $14,512; and
Andrew L. Kizer $14,512; (iii) annual premiums paid by the Company for group
term life insurance for executives for 1997, 1996 and 1995: John W.
McRoberts $259, $285 and $238; Malcolm E. McVay $65, $0 and $0; William C.
Harlan $336, $395 and $238; Andrew L. Kizer $252, $153 and $128; and (iv)
annual premiums paid by the Company for permanent life insurance for
executives for 1997, 1996 and 1995: John W. McRoberts $625, $593 and $1,451;
Malcolm E. McVay $0, $0 and $0; William C. Harlan $636, $599 and $149; and
Andrew L. Kizer $2,276, $1,794 and $1,887; and (v) payments of $204,583 to
Mr. Harlan in connection with his resignation as an employee of the Company.
See "Severance Agreement."
(3) Annualized salary for year ended December 31, 1997 was $125,000.
(4) Mr. Harlan resigned as an employee of the Company on October 13, 1997.
(5) In June 1997, Mr. McVay replaced Mr. Kizer as Chief Financial Officer,
Secretary and Treasurer of the Company.
OPTION GRANTS IN FISCAL YEAR 1997
The following table contains information about option awards made to the
Named Executive Officers on May 1, 1997 under the Incentive Plan. See
"Compensation Committee Report on Executive Compensation" below.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES
SECURITIES OPTIONS OF STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERMS(2)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ---------------------------
NAME GRANTED(#)(1) FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ---- ------------- ------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Malcolm E. McVay....... 50,000 91% $22.6250 May 1, 2007 $1,842,687 $2,934,171
</TABLE>
- ---------------
(1) All options outstanding were issued under the Incentive Plan. Options
granted in 1997 are exercisable in full twelve months after the grant date.
(2) Based upon the market price on the date of grant and an annual appreciation
at the rate stated of such market price through the expiration date of such
options. The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the SEC and, therefore, are not
intended to forecast possible future appreciation, if any, of the Company's
stock price.
OPTION EXERCISES AND YEAR-END VALUES
The following table provides certain information with respect to the Named
Executive Officers in 1997 concerning the exercise of options during 1997 and
with respect to unexercised options at December 31, 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL MONEY OPTIONS AT FISCAL
SHARES YEAR-END(#) YEAR-END($)
ACQUIRED ON VALUE --------------------------- -----------------------------
NAME EXERCISE($) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
John W. McRoberts....... 0 0 250,000 0 $2,031,250 0
Malcolm E. McVay........ 0 0 0 50,000 0 $146,875
William C. Harlan....... 140,000 $946,875(1) 0 0 0 0
Andrew L. Kizer......... 0 0 105,000 0 $ 848,438 0
</TABLE>
- ---------------
(1) Mr. Harlan resigned as an employee of the Company on October 13, 1997.
Represents the net amount paid by the Company in redemption of 140,000
shares of Common Stock of the Company acquired by Mr. Harlan upon exercise
of his vested stock options. See "Severance Agreement."
9
<PAGE> 12
RETIREMENT PLANS
The Company adopted the KPlan effective July 1, 1994. 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
$32,950.10 to the KPlan for the plan year ended December 31, 1997.
The Company adopted the Money Purchase Plan, effective January 1, 1997,
which was amended and restated effective January 1, 1998. The Money Purchase
Plan is a defined contribution plan in which all employees of the Company are
eligible to participate and to which the Company contributes a percentage of the
compensation of each participant. An individual must participate in the Money
Purchase Plan for at least four years in order for the contributions to vest. If
an individual leaves employment with the Company within four years of plan
participation, all or a part of any funds contributed up to the date of
termination will be forfeited. The Company contributed a total of $76,728.88 to
the Money Purchase Plan for the plan year ended December 31, 1997.
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 thereafter 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, 1997, of $325,000 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. 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.
10
<PAGE> 13
SEVERANCE AGREEMENT
On October 13, 1997, the Company and William C. Harlan entered into a
Severance Agreement and General Release (the "Severance Agreement") relating to
resignation of Mr. Harlan as Senior Vice President and Head of Acquisitions of
the Company. Pursuant to the Severance Agreement, Mr. Harlan agreed to release
the Company from certain claims arising out of or relating to Mr. Harlan's
employment or termination of employment in exchange for the following payments
by the Company to Mr. Harlan: (a) $83,000 payable to Mr. Harlan in twelve
bi-monthly installments commencing on November 1, 1997, (b) $85,000 payable on
the execution of the Severance Agreement, (c) $946,875 in redemption of 140,000
shares of Common Stock of the Company acquired by Mr. Harlan upon exercise of
his vested stock options, and (d) $85,000 as a bonus for services rendered
during 1997. These amounts were offset by $183,564.77 representing repayment to
the Company by Mr. Harlan of loans and advances. Mr. Harlan also agreed not to
disclose certain confidential information of the Company or to solicit certain
business or investments from certain healthcare operators, or to solicit
employees of the Company, for a period of two years from October 13, 1997.
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 and Chairman of the Board of MedPartners. Michael D.
Martin is a director of HEALTHSOUTH and MedPartners. 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, the
Incentive Plan and the Money Purchase 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 restricted 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 1997, on the recommendation of the Compensation
Committee, the Board increased the salaries of the
11
<PAGE> 14
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 his own) 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 1997, the Board of Directors, on the recommendation of the
Compensation Committee, increased the salaries paid to each of the executive
officers of the Company. These salary increases were based on cost-of-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. 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 February 6,
1998, 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, 1997. 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 1997 and generally compared favorably to or exceeded its peer group's
corresponding results. The bonuses paid to executive officers in 1997 were based
in large part on these results. All of the Company's goals for 1997 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 1997 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. During
1997, the Company granted options to purchase 50,000 shares of Common Stock to
Mr. McVay upon his employment with the Company.
During 1997, the Compensation Committee determined that the grant of
performance based restricted stock awards under the Incentive Plan would be a
more suitable means of delivering long-term incentive to the
12
<PAGE> 15
Company's executives to induce them to direct their efforts to maximizing
returns to stockholders as measured by the total return on the Company's Common
Stock. The Compensation Committee has established long-term target objectives
measured by the cumulative total return on the Company's Common Stock, which
includes increases in the market price over a base price, plus the cumulative
dividends paid to date on a share of Common Stock. Shares of restricted stock
vest upon the attainment of these target objectives. In 1997, the Compensation
Committee granted restricted stock awards of 137,000 shares of Common Stock to
the executive officers of the Company.
Future grants of stock options or restricted stock of the Company to its
executive officers will be designed to provide material incentives to focus
officers on maximizing total returns to stockholders measured over an extended
period of time. The Compensation Committee, excluding Mr. McRoberts, is solely
responsible for determining any stock option or incentive stock award for Mr.
McRoberts.
Chief Executive Officer Compensation
Under John W. McRoberts' employment agreement, Mr. McRoberts' annual base
salary ("Base Salary") is subject to annual increases at the discretion of the
Compensation Committee but not less than the increase in the cost-of-living. The
Compensation Committee increased Mr. McRoberts' Base Salary from $285,000 for
1996 to $325,000 for 1997 based upon the performance of the Company in 1996 and
the Compensation Committee's assessment of Mr. McRoberts' contribution to that
performance. 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, the Money Purchase
Plan 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 on the same basis
as all other executive officers of the Company. Mr. McRoberts received a bonus
for 1997 of $300,000 based upon the Company's achievement of its financial goals
for 1997, including increases over 1996 of 58.9%, 101.9% and 49% in the
Company's revenues, investments and funds from operations on a per share basis,
respectively.
The long term incentive component of Mr. McRoberts' compensation was
provided by the grant of 100,000 shares of restricted stock.
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 compensated
executive officers. Qualifying performance-based compensation is not subject to
the deduction limit if certain
13
<PAGE> 16
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 (Chairman)
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 annual 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
Securities L.P. and the Standard & Poor's 500 Index. The graph assumes the
investment on June 28, 1994 of $100 and that all dividends were reinvested at
the time they were paid.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURNS
<TABLE>
<CAPTION>
[GRAPH APPEARS HERE]
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
12/31/95 120.54 143.72 120.12
12/31/96 153.77 176.58 149.36
12/31/97 190.39 235.50 175.61
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Nineteen of the Company's leased properties (the "Leased Properties") are
leased to HEALTHSOUTH or one of its subsidiaries. Leases between the Company and
a subsidiary of HEALTHSOUTH are guaranteed by HEALTHSOUTH. The Company has also
made one mortgage loan to HEALTHSOUTH. The Company believes that the terms of
the leases and the mortgage loan to HEALTHSOUTH and its subsidiaries are as
favorable as those which the Company could have obtained from unaffiliated
parties with similar credit characteristics. The Company realized a total of
$15.5 million in revenue in 1997 from HEALTHSOUTH and
14
<PAGE> 17
its subsidiaries under the leases and the mortgage loan. Richard M. Scrushy and
Michael D. Martin, directors of the Company, are officers, directors and
stockholders of HEALTHSOUTH. Larry R. House, a current director of the Company
not standing for reelection, is a director and stockholder of HEALTHSOUTH.
Sixteen of the Company's Leased Properties are leased to MedPartners or one
of its subsidiaries. Leases between the Company and a subsidiary of MedPartners
are guaranteed by MedPartners. The Company paid $28.9 million to MedPartners in
1997 for five of the Leased Properties. The Company believes that the terms of
the purchase from and the terms of the leases to MedPartners and its
subsidiaries are as favorable as those which the Company could have obtained
from unaffiliated parties with similar credit characteristics. The Company
realized a total of $5.4 million in revenue in 1997 from MedPartners and its
subsidiaries under the leases for the MedPartners properties. Richard M.
Scrushy, Michael D. Martin and Larry D. Striplin, Jr., directors of the Company,
are directors and/or stockholders of MedPartners. Richard M. Scrushy is also
Chairman of the Board of MedPartners. Larry R. House served as an executive
officer and director of MedPartners until January 1998.
Three of the Company's Leased Properties are leased to Integrated Health
Services, Inc. ("Integrated Health"). 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 third parties with similar credit
characteristics. The Company realized a total of $3.3 million in revenue in 1997
from Integrated Health under the three leases. Robert N. Elkins, a current
director of the Company not standing for reelection, is an executive officer,
director and stockholder of Integrated Health.
Six of the Company's Leased Properties are leased to Integrated Living
Communities, Inc. ("Integrated Living"), a wholly owned subsidiary of Whitehall
Street Real Estate Limited Partnership VII ("Whitehall"). Whitehall acquired
Integrated Living by merger in July 1997. Mr. Elkins was the Chairman of the
Board and a stockholder of Integrated Living prior to the merger. The Company
believes that the terms of the leases with Integrated Living are as favorable as
those which the Company could have obtained from unaffiliated third parties with
similar credit characteristics. The Company realized a total of $629,000 in
revenue in 1997 and anticipates realizing a total of $3.3 million in revenue in
1998 under the six leases.
The Company has funded loans to John W. McRoberts and Andrew L. Kizer for
the purpose of acquiring the Company's Common Stock. As of December 31, 1997,
the balance of these loans to Messrs. McRoberts and Kizer from the Company were
$95,327 and $95,437, respectively. Interest on these loans is payable quarterly
at the prime rate, and the principal is payable on demand.
GENERAL INFORMATION
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
In order to be included in the proxy statement and proxy for the 1999
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 March
7, 1999.
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
15
<PAGE> 18
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
/S/ RICHARD M. SCRUSHY
Richard M. Scrushy
Chairman
16
<PAGE> 19
APPENDIX
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 7TH DAY OF MAY, 1998.
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 11, 1998, at the annual meeting of the Stockholders to be held at the
Richard M. Scrushy Conference Center, Two HEALTHSOUTH Parkway, Birmingham,
Alabama 35243, on May 7, 1998, at 10:30 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 [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary below) 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.
<TABLE>
<S> <C> <C> <C>
Richard M. Scrushy John W. McRoberts Michael D. Martin Eric R. Hanson
Larry D. Striplin, Jr. Barry Morton George E. Bogle
</TABLE>
(2) 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
(3) In their discretion, upon such other matters as may properly come before the
meeting or any adjournment thereof.
[ ] 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 AND 3.
To help our preparations for the meeting, please check here if you plan to
attend. [ ]
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
AS SOON AS POSSIBLE, EVEN THOUGH YOU PLAN TO ATTEND THIS MEETING.
Dated:
----------------------------
SIGN HERE EXACTLY AS NAME(S)
APPEAR(S) ABOVE
----------------------------------
(Signature)
----------------------------------
(Signature if held jointly)
When shares are held by joint
tenants, both should sign. When
signing as attorney, executor,
administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in 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
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