CAPITAL SOUTHWEST CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS - JULY 15, 1996
The undersigned (1) acknowledges receipt of the Notice of Annual Meeting of
Shareholders of Capital Southwest Corporation, a Texas corporation, (the
"Corporation") to be held on Monday, July 15, 1996, at 10:00 a.m., Dallas time,
in the Meeting Room (1st floor) of the North Dallas Bank Tower, 12900 Preston
Road, Dallas, Texas, and the Proxy Statement in connection therewith; and (2)
appoints Graeme W. Henderson, William R. Thomas and John H. Wilson, and each of
them, his proxies with full power of substitution, for and in the name, place
and stead of the undersigned, to vote upon and act with respect to all of the
shares of Common Stock of the Corporation standing in the name of the
undersigned, or with respect to which the undersigned is entitled to vote and
act, at the meeting and at any adjournment thereof, and the undersigned directs
that this proxy be voted:
1. Election of Directors
[ ] FOR all nominees listed below (except as marked to the contrary
below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Graeme W. Henderson, Gary L. Martin, James M. Nolan, William R. Thomas and
John H. Wilson
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- --------------------------------------------------------------------------------
2. Proposal to approve the appointment of KPMG Peat Marwick LLP as independent
auditors of the Corporation.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
3. Proposal to amend the fundamental investment policies of the Corporation
and those of its subsidiary.
[ ]FOR [ ]AGAINST [ ]ABSTAIN
4. In the discretion of the proxies, on any other matter that may properly
come before the meeting or any adjournment thereof.
IMPORTANT: SIGN ON OTHER SIDE
CONTINUED FROM OTHER SIDE
This proxy when properly executed will be voted in the manner directed.
Unless otherwise marked, this proxy will be voted for the election of the
persons named on the reverse side hereof and for each of the proposals referred
to under (2) and (3) above.
If more than one of the proxies named herein shall be present in person or
by substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
The undersigned hereby revokes any proxy or proxies heretofore given to
vote upon or act with respect to such stock and hereby ratifies and confirms all
that the proxies, their substitutes, or any of them, may lawfully do by virtue
hereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE
CORPORATION.
Date: ________________________, 1996
----------------------------------------
Signature of Shareholder
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Signature of Shareholder
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Title, if applicable
Please date this proxy and sign your name exactly as it
appears hereon. Where there is more than one owner, each
should sign. When signing as an attorney, administrator,
executor, guardian or trustee, please add your title as
such. If executed by a corporation, the proxy should be
signed by a duly authorized officer. EACH JOINT TENANT
SHOULD SIGN. PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY
PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
June 3, 1996
To the Shareholders of Capital Southwest Corporation:
The Annual Meeting of Shareholders of our Corporation will be held on
Monday, July 15, 1996, at 10:00 a.m. in the North Dallas Bank Tower Meeting Room
(First Floor), 12900 Preston Road, Dallas, Texas.
A Notice of the meeting, a Proxy and a Proxy Statement containing
information about matters to be acted upon are enclosed. In addition, the
Capital Southwest Corporation Annual Report for the fiscal year ended March 31,
1996 is enclosed and provides information regarding the financial results of the
Corporation during the past year. Holders of Common Stock are entitled to vote
at the Annual Meeting on the basis of one vote for each share held. If you
attend the Annual Meeting in Dallas, you retain the right to vote in person even
though you previously mailed the enclosed Proxy.
It is important that your shares be represented at the meeting whether or
not you are personally in attendance, and I urge you to carefully review the
Proxy Statement and sign, date and return the enclosed Proxy at your earliest
convenience. I look forward to meeting you and, together with our Directors and
officers, reporting our activities and discussing the Corporation's business and
its prospects. I hope you will be present.
Very truly yours,
William R. Thomas
Chairman of the Board
and President
Preliminary Copy
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 15, 1996
To the Shareholders of Capital Southwest Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the Shareholders of
Capital Southwest Corporation, a Texas corporation (the "Corporation"), will be
held on Monday, July 15, 1996, at 10:00 a.m., Dallas time, in the Meeting Room
(First Floor) of the North Dallas Bank Tower, 12900 Preston Road, Dallas, Texas,
for the following purposes:
1. To elect five directors to serve until the next Annual Meeting of
shareholders or until their respective successors shall be elected and
qualified;
2. To approve the appointment of KPMG Peat Marwick LLP as independent
auditors;
3. To consider and vote upon a proposal to amend the fundamental
investment policies of the Corporation and its wholly-owned
subsidiary, Capital Southwest Venture Corporation, subject to
compliance with the terms of a pending exemptive order for which an
application has been submitted to the Securities and Exchange
Commission ("SEC"), as set forth in their respective filings with the
SEC under the Investment Company Act of 1940, as amended; and
4. To transact such other business as may properly come before the
meeting and any adjournment thereof.
Only holders of Common Stock of the Corporation of record at the close of
business on May 31, 1996 will be entitled to notice of, and to vote at, the
meeting and any adjournment thereof. By Order of the Board of Directors TIM
SMITH Secretary Dallas, Texas June 3, 1996
Your officers and directors desire that all shareholders be present or
represented at the Annual Meeting, and unless you can attend in person, please
date, sign and return the enclosed proxy in the enclosed postage-prepaid
envelope at your earliest convenience so that your shares may be voted. The
proxy must be signed by each registered holder exactly as the stock is
registered.
Preliminary Copy
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 15, 1996
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Capital Southwest Corporation, a Texas corporation
(the "Corporation"), of proxies to be voted at the Annual Meeting of
Shareholders to be held on July 15, 1996 or any adjournment thereof. The date on
which this Proxy Statement and the enclosed form of proxy are first being sent
or given to shareholders of the Corporation is on or about June 3, 1996.
PURPOSES OF THE MEETING
The Annual Meeting of the Shareholders is to be held for the purposes of
(1) electing five persons to serve as directors of the Corporation until the
next Annual Meeting of Shareholders, or until their respective successors shall
be elected and qualified (see ELECTION OF DIRECTORS); (2) approving the
appointment by the Board of Directors of KPMG Peat Marwick LLP as independent
auditors (see APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS); (3) voting upon
the proposal to amend the fundamental investment policies of the Corporation and
CSVC (see AMENDMENT OF FUNDAMENTAL INVESTMENT POLICIES); and (4) transacting
such other business as may properly come before the meeting or any adjournment
thereof.
To be elected a director, each nominee must receive the favorable vote of
the holders of a majority of the shares of Common Stock entitled to vote and
represented at the Annual Meeting. In order to ratify the appointment of KPMG
Peat Marwick LLP as independent auditors for the Corporation for the year ending
March 31, 1997, the ratification proposal must receive the favorable vote of a
majority of the shares of Common Stock entitled to vote and represented at the
Annual Meeting.
The affirmative vote of the holders of a majority of the Corporation's
outstanding voting securities (Common Stock) is required to approve the
amendment of the fundamental investment policies of the Corporation and its
wholly-owned subsidiary, Capital Southwest Venture Corporation ("CSVC"). As
defined in the Investment Company Act of 1940, as amended (the "1940 Act"), the
term "majority of the [Corporation's] outstanding voting securities" means the
vote of (i) 67% or more of the [Corporation's] Common Stock present at the
meeting, if the holders of more than 50% of the outstanding Common Stock are
present or represented by proxy, or (ii) more than 50% of the [Corporation's]
outstanding Common Stock, whichever is less.
The Board of Directors unanimously recommends that the shareholders vote
FOR the election as directors of the persons named under ELECTION OF DIRECTORS,
FOR the approval of the appointment of KPMG Peat Marwick LLP as independent
auditors, and FOR the proposal to amend the fundamental investment policies of
the Corporation and CSVC.
VOTING AT THE MEETING
The record date for holders of Common Stock entitled to notice of, and to
vote at, the Annual Meeting of Shareholders is the close of business on May 31,
1996, at which time the Corporation had outstanding and entitled to vote at the
meeting 3,767,051 shares of Common Stock.
The presence, in person or by proxy, of the holders of a majority of the
shares of Common Stock outstanding and entitled to vote at the Annual Meeting is
necessary to constitute a quorum. In deciding all questions, a shareholder shall
be entitled to one vote, in person or by proxy, for each share of Common Stock
held in his name at the close of business on the record date.
Each proxy delivered to the Corporation, unless the shareholder otherwise
specifies therein, will be voted FOR the election as directors of the persons
named under ELECTION OF DIRECTORS, FOR the approval of the appointment by the
Board of Directors of KPMG Peat Marwick LLP as independent auditors, and FOR the
proposal to amend the fundamental investment policies of the Corporation and
CSVC. In each case where the shareholder has appropriately specified how the
proxy is to be voted, it will be voted in accordance with his specification. As
to any other matter or business which may be brought before the meeting, a vote
may be cast pursuant to the accompanying proxy in accordance with the judgment
of the person or persons voting the same, but neither management nor the Board
of Directors of the Corporation knows of any such other matter or business. Any
shareholder has the power to revoke his proxy at any time insofar as it is then
not exercised by giving notice of such revocation, either personally or in
writing, to the Secretary of the Corporation or by the execution and delivery to
the Corporation of a new proxy dated subsequent to the original proxy.
2
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock of the Corporation as of May 1, 1996 by (1)
each person, so far as is known to the management of the Corporation, who is the
beneficial owner (as that term is defined in the rules and regulations of the
Securities and Exchange Commission) of more than 5% of the outstanding Common
Stock, (2) each executive officer listed in the Summary Compensation Table, and
(3) all directors and executive officers of the Corporation as a group.
Name and Address Shares Owned Percent
of Beneficial Owner Beneficially of Class
------------------- ------------ --------
William R. Thomas
12900 Preston Rd., Suite 700
Dallas, Texas 75230......................... 1,177,955 31.2%
J. Bruce Duty
12900 Preston Rd., Suite 700
Dallas, Texas 75230......................... 646,867 17.2
David M. Smith
2830 Produce Row
Houston, Texas 77021....................... 247,226 6.6
U.S. Trust Corporation
114 West 47th Street
New York, New York 10036.................... 219,350 5.8
Gary L. Martin
930 Whitmore Dr.
Rockwall, Texas 75087....................... 200,736 5.3
Harris Associates L.P.
Two North LaSalle Street
Chicago, IL 60602.......................... 193,416 5.1
Tim Smith................................... 101,144 2.7
Patrick F. Hamner........................... 29,104 0.8
All directors and executive officers
as a group (9 persons)...................... 1,374,189 36.1
Messrs. Duty and Thomas constitute a majority of the trustees of certain
trusts pursuant to employee stock ownership plans for employees of the
Corporation and its wholly-owned subsidiaries owning 515,047 shares, with
the power as trustees to vote such shares. Messrs. Duty and Thomas also
participate in the power to direct the trustees in the voting of 88,144
shares owned by trusts pursuant to a pension plan for employees of the
Corporation and certain wholly-owned subsidiaries of the Corporation.
Accordingly, Messrs. Duty and Thomas have shared voting and investment
power with respect to the 603,191 shares, representing 16.0% of the
outstanding Common Stock of the Corporation, owned by the aforementioned
trusts. Under the rules and regulations of the Securities and Exchange
Commission, Messrs. Duty and Thomas are both deemed to be the beneficial
owners of such 603,191 shares which are included in the shares beneficially
owned by Messrs. Duty and Thomas.
Mr. Martin serves as trustee, with Messrs. Duty and Thomas, of one of the
aforementioned trusts owning 104,082 shares. Under the rules and
regulations of the Securities and Exchange Commission, Mr. Martin is deemed
to be the beneficial owner of such 104,082 shares which are included in the
shares beneficially owned by Mr. Martin.
3
Mr. D. Smith, President of The RectorSeal Corporation, a wholly-owned
subsidiary of the Corporation, serves as trustee, with Messrs. Duty and
Thomas, of one of the aforementioned trusts owning 240,501 shares. Under
the rules and regulations of the Securities and Exchange Commission, Mr. D.
Smith is deemed to be the beneficial owner of such 240,501 shares which are
included in the shares beneficially owned by Mr. D. Smith.
Of the shares owned by trusts pursuant to the aforementioned employee stock
ownership plans, 15,316, 3,286 and 16,924 were allocated to Messrs. Duty,
Martin and D. Smith, respectively, all of which were vested.
Mr. T. Smith, with Messrs. Duty and Thomas, participates in the power to
direct the trustees in the voting of 88,144 shares owned by trusts pursuant
to a pension plan for employees of the Corporation and certain wholly-owned
subsidiaries of the Corporation. Under the rules and regulations of the
Securities and Exchange Commission, Mr. T. Smith is deemed to be the
beneficial owner of such 88,144 shares which are included in the shares
beneficially owned by Mr. T. Smith.
Includes 8,400, 5,600, 4,385, 3,000 and 10,040 shares subject to
immediately exercisable stock options held by Messrs. Thomas, Duty, Martin,
T. Smith and Hamner, respectively.
Mr. Thomas has sole voting and investment power with respect to 290,000
shares, and shared voting and investment power with respect to 276,364
shares which include 69,839 shares owned by his children, as to which he
disclaims beneficial ownership, and 206,525 shares owned by Thomas Heritage
Partners, Ltd., in which Mr. Thomas has a 65.7% limited partnership
interest. Mr. Thomas holds a majority membership interest in and is
President and sole manager of Thomas Heritage Company, LLC, the sole
general partner of Thomas Heritage Partners, Ltd.
As reported to the Corporation by U.S. Trust Corporation, that corporation
has shared dispositive power and shared voting power with respect to
219,350 shares via either a trust/fiduciary capacity and/or a portfolio
management/agency relationship with the persons who own the shares.
As reported to the Corporation by Harris Associates L.P., that partnership
has sole dispositive power with respect to 105,316 shares, shared
dispositive power with respect to 88,100 shares and shared voting power
with respect to 193,416 shares by reasons of advisory and other
relationships with the persons who own the shares.
Includes (i) the shares owned by the trusts and partnership referred to in
Notes (1) and (3), respectively, to the above table, (ii) 37,025 shares
subject to immediately exercisable stock options (including those referred
to in Note (2) to the above table), (iii) 1,500 shares held in a retirement
trust for the benefit of a director of the Corporation and (iv) 69,839
shares owned by immediate family members of Mr. Thomas (as to which shares
he disclaims beneficial ownership). If the 52,975 shares subject to stock
options became exercisable pursuant to terms of the stock option plan
related to a "change in control" of the Corporation (see COMPENSATION OF
DIRECTORS AND EXECUTIVE OFFICERS - Incentive Stock Option Plan), all
executive officers and directors as a group would, upon exercise of such
options, beneficially own 37.4% of the outstanding Common Stock of the
Corporation.
4
ELECTION OF DIRECTORS
Five directors are proposed to be elected at the meeting to serve until the
next Annual Meeting of Shareholders or until their respective successors shall
be elected and qualified. The persons named in the accompanying form of proxy
intend to vote such proxy for the election of the nominees named below as
directors of the Corporation to serve until the next Annual Meeting of
Shareholders or until their respective successors shall be elected and
qualified, unless otherwise properly indicated on such proxy. If any nominee
shall become unavailable for any reason, the persons named in the accompanying
form of proxy are expected to consult with the Board of Directors of the
Corporation in voting the shares represented by them at the Annual Meeting. The
Board of Directors has no reason to doubt the availability of any of the
nominees and no reason to believe that any of the nominees will be unable or
unwilling to serve the entire term for which election is sought.
The names of the nominees, along with certain information concerning them,
are set forth below.
5
GRAEME W. HENDERSON
Mr. Henderson, age 62, has been a director of the Corporation since 1976
and previously served as a director of the Corporation from 1962 to 1964. Mr.
Henderson has been self-employed as a private investor and consultant for more
than six years. Mr. Henderson also serves as a director of Starwood Lodging
Corporation.
GARY L. MARTIN
Mr. Martin, age 49, has been a director of the Corporation since July 1988
and has served as Vice President of the Corporation since July 1984. He
previously served as Vice President of the Corporation from 1978 to 1980. Since
1980, Mr. Martin has served as President of The Whitmore Manufacturing Company,
a wholly-owned subsidiary of the Corporation.
JAMES M. NOLAN
Mr. Nolan, age 62, has been a director of the Corporation since July 1980.
He has been self-employed as a private investor and consultant to the
telecommunications industry since 1978. Mr. Nolan also serves as a director of
DSC Communications Corporation.
WILLIAM R. THOMAS
Mr. Thomas, age 67, has served as Chairman of the Board of Directors of the
Corporation since July 1982 and President of the Corporation since 1980. In
addition, he has been a director of the Corporation since 1972 and was
previously Senior Vice President of the Corporation from 1969 to 1980. Mr.
Thomas also serves as a director of Alamo Group Inc., Encore Wire Corporation
and Palm Harbor Homes, Inc.
JOHN H. WILSON
Mr. Wilson, age 53, has been a director of the Corporation since July 1988.
He has been President of U. S. Equity Corporation, a venture capital investment
firm, since April 1983. Mr. Wilson also serves as a director of Whitehall
Corporation, Norwood Promotional Products, Inc., Encore Wire Corporation and
Palm Harbor Homes, Inc.
The following table sets forth the name of each nominee for election to the
Board of Directors of the Corporation and the amount and percentage of Common
Stock of the Corporation beneficially owned (as that term is defined in the
rules and regulations of the Securities and Exchange Commission) by each nominee
as of May 1, 1996.
6
Shares Owned Percent
Name of Nominee Beneficially of Class
--------------- --------------- --------
Graeme W. Henderson.......................... 4,700 *
Gary L. Martin........................... 200,736 5.3%
James M. Nolan............................... 2,500 *
William R. Thomas........................ 1,177,955 31.2%
John H. Wilson............................... 1,000 *
* Less than 1%.
Unless otherwise indicated below, each of the persons named in the above
table has sole voting and investment power with respect to the shares
indicated to be beneficially owned.
Includes 1,500 shares held by a retirement trust for the benefit of Mr.
Henderson.
Includes an aggregate of 104,082 shares owned on May 1, 1996 by a trust
pursuant to an employee stock ownership plan for employees of The Whitmore
Manufacturing Company, a wholly-owned subsidiary of the Corporation. Mr.
Martin is deemed the beneficial owner of the 104,082 shares, and has shared
voting and investment power with respect to such shares. See Note (1) of
the table under STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS for additional
information about such trust and beneficial ownership.
Also includes 4,385 shares subject to immediately exercisable stock options
held by Mr. Martin.
Includes an aggregate of 603,191 shares owned on May 1, 1996 by certain
trusts pursuant to benefit plans for employees of the Corporation and its
wholly-owned subsidiaries. Mr. Thomas is deemed the beneficial owner of the
603,191 shares, and has shared voting and investment power with respect to
such shares. See Note (1) of the table under STOCK OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS for additional information about such trust and
beneficial ownership.
Mr. Thomas has sole voting and investment power with respect to 290,000
shares, and shared voting and investment power with respect to 276,364
shares which include 69,839 shares owned by his children, to which he
disclaims beneficial ownership, and 206,525 shares owned by Thomas Heritage
Partners, Ltd., in which Mr. Thomas has a 65.7% limited partnership
interest. Mr. Thomas holds a majority membership interest in and is
President and sole manager of Thomas Heritage Company, LLC, the sole
general partner of Thomas Heritage Partners, Ltd.
Messrs. Martin and Thomas are "interested persons" as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940.
7
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the officers and directors of the Corporation and persons who beneficially own
more than ten percent of the Corporation's common stock to file reports of
securities ownership and changes in such ownership with the Securities and
Exchange Commission (the "SEC"). Officers, directors and greater than ten
percent beneficial owners also are required by rules promulgated by the SEC to
furnish the Corporation with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to the
Corporation, or written representations that no Form 5 filings were required,
the Corporation believes that each of its officers, directors and greater than
ten percent beneficial owners complied with all Section 16(a) filing
requirements applicable to them during the year ended March 31, 1996.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Corporation has established an Audit
Committee and a Compensation Committee to assist the Board in carrying out its
duties. The Audit Committee makes recommendations to the Board of Directors
regarding the engagement of the independent auditors for audit and non-audit
services; evaluates the independence of the auditors; and reviews with the
independent auditors the fee, scope and timing of audit and non-audit services.
The Compensation Committee periodically reviews the compensation, employee
benefit plans and other fringe benefits paid to or provided for officers and
directors of the Corporation and approves the annual salaries and bonuses of
officers of the Corporation.
Messrs. Graeme W. Henderson, James M. Nolan and John H. Wilson are
presently members of both the Audit and Compensation Committees. During the
fiscal year of the Corporation ended March 31, 1996, nine meetings (including
five telephone meetings) of the Board of Directors were held. In addition, two
meetings of the Compensation Committee and two meetings of the Audit Committee
were held. Each of the directors attended at least 75 percent of the aggregate
of (1) the total number of meetings of the Board of Directors and (2) the total
number of meetings held by all committees on which he served, except Mr. Nolan,
who attended 54 percent of such meetings.
8
PERFORMANCE GRAPH
The following graph compares the Corporation's cumulative total stockholder
return during the last five years (based on the market price of the common stock
and assuming reinvestment of all dividends and tax credits on retained long-term
capital gains) with the Total Return Index for the Nasdaq Stock Market (U.S.
Companies) and with the Total Return Index for Nasdaq Financial Stocks, both of
which indices have been prepared by the Center for Research in Security Prices
at the University of Chicago.
[The following table replaces performance data normally displayed in graph
format]
Nasdaq Total Nasdaq Financial Capital Southwest
Returns (U.S.) Stocks Corporation
-------------- ------ -----------
1991 100 100 100
1992 127.466 139.067 129.583
1993 146.532 197.893 202.958
1994 158.144 206.108 215.392
1995 175.921 230.875 218.221
1996 238.875 317.980 369.773
9
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of Directors
- -------------------------
In addition to reimbursement of travel expenses for attendance at board
meetings, a director who is not an employee of the Corporation receives an
annual fee of $12,000 for service as a director and $6,000 for service as
chairman of a committee of the Board of Directors. In addition, a director who
is not an employee of the Corporation receives $1,000 for each directors'
meeting (excluding telephone meetings) and $500 for each committee meeting
attended, subject to a maximum of $6,000 per year in aggregate meeting fees.
Directors' meetings are normally held on a quarterly basis.
Report of the Compensation Committee
- ------------------------------------
The following paragraphs constitute the report of the Compensation Committee of
the Board of Directors (the "Committee") on executive compensation policies. In
accordance with rules promulgated by the Securities and Exchange Commission,
this report shall not be deemed to be incorporated by reference into any
statements or reports filed by the Corporation with the SEC that do not
specifically incorporate this report by reference.
The goals of the Corporation's compensation program are to attract, retain and
motivate competent executive officers who have the experience and ability to
contribute materially to the success of the Corporation's venture capital
investment activities. The individual judgments made by the Compensation
Committee are subjective and are based largely on the Committee's perception of
each executive's contribution to both the past performance and the long-term
growth potential of the Corporation. The principal elements of compensation for
executive officers are base salary, discretionary bonus payments, stock options
granted under the Incentive Stock Option Plan and contributions pursuant to the
Employee Stock Ownership Plan.
Base salaries were determined by the Committee in July 1995 for each of the
executive officers on an individual basis, taking into consideration individual
contributions to the Corporation's performance, length of tenure with the
Corporation, surveys of compensation levels for comparable positions and
internal equities among positions. In addition to base salaries, executive
officers received bonus payments in March 1996, the amounts of which were
determined by the Committee on a discretionary basis, taking into consideration
individual performance and the Corporation's overall performance, with
particular emphasis on the achievement of long-term investment objectives.
10
Under the terms of the Corporation's 1984 Incentive Stock Option Plan, which
expired in 1994, the Committee from time to time granted stock options to
executive officers to reinforce the alignment of their long-term interests with
those of the shareholders. Stock options were granted at exercise prices not
less than the fair market value of the stock on the date of grant and thus have
no value unless the value of the Corporation's stock appreciates. During the ten
years of the 1984 Incentive Stock Option Plan, the Committee granted options on
a total of 294,000 shares, of which 204,000 were exercised and 90,000 are
currently unexercised. The Committee granted no incentive stock options during
the fiscal year of the Corporation ended March 31, 1996. An important additional
equity incentive is provided by the Corporation's Employee Stock Ownership Plan,
to which the Corporation contributed 12% of each participating employee's
covered compensation for the fiscal year ended March 31, 1996.
The Committee established the base salary of the Corporation's chief executive
officer, William R. Thomas, in July 1995 and his discretionary bonus in March
1996. Compensation levels for Mr. Thomas were determined on the basis of the
factors cited in the preceding paragraph, all of which are applicable to him as
well as other executive officers. Other relevant factors considered by the
Committee were the Corporation's performance compared with similar investment
companies and Mr. Thomas' role in defining and accomplishing the Corporation's
long-term investment objectives and administering its investment management
activities.
Compensation Committee
James M. Nolan, Chairman
Graeme W. Henderson
John H. Wilson
Summary Compensation Table
- --------------------------
The following table sets forth summary information regarding the
compensation earned by or paid to William R. Thomas, Chairman of the Board and
President; J. Bruce Duty, Senior Vice President; Gary L. Martin, Vice President;
Patrick F. Hamner, Vice President; and Tim Smith, Vice President and
Secretary-Treasurer, officers of the Corporation whose total compensation earned
during the fiscal year ended March 31, 1996 exceeded $100,000.
11
Annual Compensation
-------------------
Other
Name and Fiscal Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
- ------------------ ---- ------ ----- ---------------- ----------------
William R. Thomas 1996 $250,000 $150,417 $18,000 $ -
Chairman of the 1995 250,000 30,417 15,000 -
Board and President 1994 246,000 80,417 18,867 -
J. Bruce Duty 1996 $142,375 $71,000 $ - $18,000
Senior Vice President 1995 135,625 25,729 9,885 5,115
1994 127,400 35,417 8,141 4,885
Gary L. Martin 1996 147,000 26,423 - -
Vice President 1995 143,000 27,701 - 5,115
1994 140,000 31,796 - 5,087
Patrick F. Hamner 1996 90,250 43,833 - $16,090
Vice President 1995 83,750 33,542 7,730 4,000
1994 78,720 18,333 4,853 2,912
Tim Smith 1996 84,500 38,583 - 14,770
Vice President and 1995 78,750 28,333 7,057 3,652
Secretary-Treasurer 1994 73,410 18,125 4,577 2,746
Amounts paid to the executive officer in lieu of a contribution to his
account in an employee stock ownership plan for employees of the
Corporation and one of its wholly-owned subsidiaries (the "ESOP").
Amounts contributed to the ESOP accounts of each executive officer.
The aggregate amount of perquisites and other personal benefits provided to
Messrs. Thomas, Duty, Martin, Hamner and Smith was less than 10% of the total of
annual salary and bonus of such officers.
Option Exercises and Fiscal Year End Values
- -------------------------------------------
The following table discloses, for the named executive officers,
information regarding stock options exercised during, or held at the end of,
fiscal 1996.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at 3/31/96 at 3/31/96
Name Exercise(#) Realized Exercisable(#) Unexercisable(#) Exercisable Unexercisable
- ---- ----------- ------------ -------------- ---------------- ----------- -------------
William R. Thomas - $ - 8,400 5,600 $174,825 $116,550
J. Bruce Duty 10,000 220,000 5,600 8,400 136,500 204,750
Gary L. Martin 2,000 $39,500 4,385 9,615 $106,884 $234,366
Patrick F. Hamner 10,000 311,250 10,040 9,960 318,975 242,775
Tim Smith 10,000 182,500 3,000 11,000 73,125 268,125
Value realized is calculated as the fair market value on the date of
exercise net of the option exercise price, but before any tax liabilities
or transaction costs.
Value of unexercised options is calculated as the closing market price on
March 31, 1996 ($60.00) net of the option exercise prices, but before any
tax liabilities or transaction costs.
12
Incentive Stock Option Plan
- ---------------------------
The Corporation's 1984 Incentive Stock Option Plan (the "Stock Option
Plan"), which expired on April 16, 1994, provided for the grant of options,
intended to qualify as incentive stock options. All regular salaried employees
of the Corporation or officers of the Corporation who were regular salaried
employees of the Corporation or one of its subsidiaries were eligible to receive
options. No options were granted during the fiscal year ended March 31, 1996.
The Stock Option Plan was administered by the Corporation's Board of
Directors, which approved the officers or employees to whom options were
granted, the number of options granted to each officer or employee, the dates of
grant, the terms and provisions of the respective option agreements (which need
not be identical) and certain other terms and conditions governing the options.
The exercise price was not less than the fair market value of the Common Stock
on the date the option was granted, and the term of any option did not exceed
ten years. The Stock Option Plan provided that outstanding options become
immediately exercisable if (i) a person who has not owned 5% or more of the
Common Stock for five years acquires 25% or more of the outstanding Common
Stock, (ii) there is a change of a majority of the directors of the Corporation
if such new directors have not been approved by the incumbent directors, or
(iii) a duly called meeting of shareholders is held for the purpose of either
electing an opposing majority of the Board of Directors or voting upon a merger,
liquidation or sale of all the assets of the Corporation. The potential cost of
the benefits afforded option holders could discourage attempts to acquire the
Corporation.
13
Retirement Plans
- ----------------
The foregoing Summary Compensation Table does not include any contribution,
payment or accrual under a qualified non-contributory retirement plan (the
"Retirement Plan") maintained by the Corporation and certain of its wholly-owned
subsidiaries as such amounts cannot readily be separately or individually
calculated. Messrs. Duty, Hamner, Martin, Smith and Thomas participate in the
Retirement Plan. An eligible employee or his survivor will be entitled under the
Retirement Plan to receive, upon retirement, death or disability, monthly
payments based upon formulas relating benefits to salary and years of credited
service, which is generally determined by averaging the five consecutive years
of highest compensation prior to retirement. Salaries and bonuses (excluding
other annual compensation) reported in the foregoing Summary Compensation Table
are substantially identical to compensation covered by the Retirement Plan
("Covered Compensation").
The following table sets forth, for purposes of illustration, the estimated
annual retirement benefit payable under the Retirement Plan as a straight life
annuity, after deduction of certain projected Social Security benefits, upon
retirement to participants of specified Covered Compensation and years of
credited service who are fully vested (five years of service). Messrs. Duty,
Hamner, Martin, Smith and Thomas had 16, 14, 23, 6 and 34 years, respectively,
of credited service under the plan as of May 1, 1996. All calculations assume
retirement at age 65 (normal retirement age) and are based on the Social
Security law in effect on January 1, 1996.
Total Covered Estimated Annual Benefits
Compensation Based on Service of:
15 Years 20 Years 25 Years 30 Years 35 Years
---------------------------------------------------------
$125,000..............$ 34,811 $ 46,415 $ 58,019 $ 69,623 $ 81,226
150,000.............. 42,311 56,415 70,519 84,623 98,726
175,000.............. 49,811 66,415 83,019 99,623 116,226
200,000.............. 57,311 76,415 95,519 114,623 133,726
225,000.............. 64,811 86,415 108,019 129,623 151,226
250,000.............. 72,311 96,415 120,519 144,623 168,726
300,000.............. 87,311 116,415 145,519 174,623 203,726
350,000.............. 102,311 136,415 170,519 204,623 238,726
400,000.............. 117,311 156,415 195,519 234,623 273,726
Certain of the amounts shown in the above table are subject to reduction
because of the annual pension limitations imposed under applicable federal
regulations; however, the extent of any reduction will vary in individual cases
according to circumstances existing at the time pension payments commence.
14
Mr. Thomas will be entitled to an additional annual retirement benefit as a
result of his credited service prior to April 1972 under a retirement benefit
formula of the Corporation's Retirement Plan which was modified for credited
service subsequent to April 1972. Assuming Mr. Thomas had retired on March 31,
1996, the annual retirement benefit payable to Mr. Thomas under the Retirement
Plan and the Retirement Restoration Plan described below would have been
$304,854.
Certain federal regulations limit the amount of annual benefits payable to
any participant under a tax-qualified retirement plan such as the Retirement
Plan. Consequently, the Corporation and certain of its wholly-owned subsidiaries
have adopted an unfunded benefit equalization plan (the "Retirement Restoration
Plan") to compensate employees of the Corporation and chief executive officers
of certain of the Corporation's wholly-owned subsidiaries for the loss of
retirement benefits resulting from such limitations. This Retirement Restoration
Plan provides for the payment, upon retirement, of the difference between the
maximum annual payment permissible under the Retirement Plan pursuant to federal
limitations and the amount which would otherwise have been payable.
Stock Ownership Plan
- --------------------
The Corporation participates in an employee stock ownership plan for
employees of the Corporation and one of its wholly-owned subsidiaries in which
Messrs. Duty, Hamner and T. Smith participate. The Whitmore Manufacturing
Company maintains an employee stock ownership plan for its employees, in which
Mr. Martin participates. Employees who have completed one year of credited
service, as defined in the plan, are eligible to participate in the ESOP.
Contributions to the ESOP are discretionary, within limits established by the
Internal Revenue Code of 1986. Funds contributed to the trust established under
the ESOP are applied by the trustees to the purchase, in the open market at
prevailing market prices, of Common Stock of the Corporation. A participant's
interest in contributions to the ESOP fully vests after five years of credited
service, and such vested interest is distributed to a participant at retirement,
death or total disability, or after a one year break in service resulting from
termination of employment for any other reason. See Note (1) to the table under
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed the firm of KPMG Peat Marwick LLP as
independent auditors for the fiscal year ending March 31, 1997, subject to
approval by the shareholders. A representative of KPMG Peat Marwick LLP is
expected to be present at the Annual Meeting with an opportunity to make a
statement, and will be available to respond to appropriate questions.
15
In order to approve the appointment of KPMG Peat Marwick LLP as independent
auditors for the Corporation for the year ending March 31, 1997, the proposal
must receive the favorable vote of a majority of the shares entitled to vote and
represented at the Annual Meeting.
AMENDMENT OF FUNDAMENTAL INVESTMENT POLICIES
Amendment of Fundamental Investment Policies of the Corporation
- ---------------------------------------------------------------
The existing fundamental investment policies of the Corporation were
approved by the shareholders in 1984 in conjunction with authorizing the
Corporation to elect to become a business development company ("BDC"). The
Corporation made this election in 1988.
The Corporation has adopted a number of investment policies, which policies
are filed with the Securities and Exchange Commission in accordance with the
1940 Act. Certain of such investment policies of the Corporation, the
fundamental investment policies, may be amended only with the required approval
of the shareholders of the Corporation; others, the non-fundamental investment
policies, may be changed by the Board of Directors of the Corporation without
such approval.
To enlarge the Corporation's ability to obtain borrowed funds for its
investment activities and other purposes, the management of the Corporation
proposes that the fundamental investment policies of the Corporation be amended
to enable the Corporation:
1) To borrow money from banks, insurance companies, other institutional
lenders and/or other sources of capital, on a secured or unsecured
basis. (The existing policy does not encompass other sources of
capital or permit borrowing on a secured basis).
2) To reduce its required asset coverage (defined in the 1940 Act as the
ratio which the value of the total assets less all liabilities and
indebtedness not represented by senior securities, bears to the
aggregate amount of senior securities representing indebtedness of
such issuer) to 200% for the Corporation individually and for the
Corporation and its wholly-owned subsidiary (CSVC) on a consolidated
basis. (The existing policy requires 300% asset coverage).
16
The proposed amendments outlined above affect only paragraph A.(2) of the
Corporation's fundamental investment policies. This paragraph as it would be
amended is set forth below with a line drawn through deletions (---deletions---)
and a line drawn below additions (additions):
---------
A.(2) The Corporation may borrow money from banks, insurance companies,
- ---and/or--- other institutional investors and/or other sources of capital on a
------------------------------- -
secured or unsecured basis, and issue senior debt securities when and as, in the
- ----------
opinion of the Board of Directors, such action will serve the best interests of
the Corporation. Such securities may be in series, with such interest rates and
sinking or purchase funds and other terms and provisions, including conversion
rights and conversion prices, as may be deemed advisable by the Board of
Directors. Borrowings and issuance of senior debt securities by the Corporation
will be subject to the limitations of the 1940 Act and rules and regulations
thereunder. Borrowings and senior debt securities of the Corporation,
individually, and the Corporation and its wholly-owned subsidiary, Capital
Southwest Venture Corporation ("CSVC" ---formerly named CSC Capital
Corporation)--- on a consolidated basis, will be limited to amounts which will
have an asset coverage of at least ---300%--- 200%.
----
Amendment to Investment Policies of CSVC
- ----------------------------------------
As a registered investment company under the 1940 Act, CSVC has its own
investment policies which contemplate the operation of CSVC as an SBIC subject
to the Small Business Investment Act of 1958. Those policies of CSVC identified
as fundamental investment policies may not be changed without the approval of
the shareholders of the Corporation. The non-fundamental policies of CSVC may be
changed by the Board of Directors without approval of the shareholders of the
Corporation.
To enhance CSVC's ability to obtain borrowed funds for its investment
activities and other purposes, the management of the Corporation proposes that
the fundamental investment policies of CSVC be amended as follows:
1) To eliminate the existing limitation against the Corporation
guaranteeing CSVC's borrowing. (The existing policy's limitation of
such guarantees by the Corporation is deemed to be unnecessary and
unduly restrictive).
2) To eliminate the existing limitation that CSVC's borrowing be limited
to four times the amount of its paid-in capital and surplus. (The
existing policy's limitation is, in the opinion of management of the
Corporation, an unnecessary restriction of CSVC's potential borrowing,
which is governed by both the SBA and the 1940 Act).
17
The proposed amendments outlined above affect only paragraph A.(2) of
CSVC's fundamental investment policies. This paragraph as it would be amended is
set forth below with a line drawn through deletions (---deletions---) and a line
drawn below additions (additions):
---------
A.(2) CSVC may borrow from Capital Southwest Corporation ("CSC"), from
----
other sources of capital, and from the Small Business Administration ("SBA")
- -------------------------
and/or institutional lenders whose loans are guaranteed by SBA, on whatever
basis SBA may from time to time establish for lending or providing guarantees
for indebtedness of small business investment companies ---provided that CSC
will not guarantee any such borrowing---. However, CSVC may not borrow from any
person other than CSC, if CSC has outstanding publicly distributed senior
securities. ---In no event will CSVC borrowing in the aggregate exceed four
times the amount of its paid in capital and surplus.---
The introductory paragraph which preceded the fundamental investment
policies of CSVC set forth in the 1984 Proxy Statement of the Corporation and
non-fundamental investment policy B.(6) in the same 1984 Proxy Statement
indicated that CSVC would elect to be a BDC as soon as it becomes possible to do
so without loss of status as a regulated investment company pursuant to
Subchapter M of the Internal Revenue Code. Because of an ambiguity in Subchapter
M, CSVC's classification as a BDC could adversely affect both its ability and
the Corporation's ability to qualify to be taxed as a regulated investment
company; therefore, CSVC will not elect to become a BDC in the forseeable
future. However, in accordance with paragraph A.(9) of its fundamental
investment policies, CSVC, upon any future election to be a BDC, will at all
times operate within the limits and restrictions imposed upon a BDC by the 1940
Act and the rules and regulations thereunder, as amended from time to time.
Shareholder Vote Required
- -------------------------
The affirmative vote of the holders of a majority of the Corporation's
outstanding voting securities (Common Stock), as such term is defined in the
1940 Act (see definition on pages 1 and 2 of this Proxy Statement), is required
to approve the proposed amendments to the fundamental investment policies of the
Corporation and CSVC. The proposed amendment of the fundamental investment
policies of the Corporation and CSVC will become effective upon shareholder
approval, subject to compliance with the terms of a pending exemptive order for
which an application has been submitted to the SEC.
The proposed amendments to the fundamental investment policies of the
Corporation and CSVC will be submitted for shareholder vote as a single
proposal.
The Board of Directors of the Corporation recommends that shareholders vote
FOR the proposal for the Corporation and CSVC to amend their fundamental
investment policies.
18
SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Any shareholder proposal to be considered by the Corporation for inclusion
in the proxy material for the 1997 Annual Meeting of Shareholders must be
received by the Secretary of the Corporation, 12900 Preston Road, Suite 700,
Dallas, Texas 75230, no later than February 3, 1997.
EXPENSES OF SOLICITATION OF PROXIES
In addition to the use of the mails, proxies may be solicited by personal
interview and telephone by directors, officers and other employees of the
Corporation, who will not receive additional compensation for such services. The
Corporation will also request brokerage houses, nominees, custodians and
fiduciaries to forward soliciting materials to the beneficial owners of stock
held of record by them and will reimburse such persons for forwarding materials.
The cost of soliciting proxies will be borne by the Corporation.
ANNUAL REPORT
The Annual Report to Shareholders covering the fiscal year ended March 31,
1996 accompanies this proxy statement, but is not deemed a part of the proxy
soliciting material.
A copy of the fiscal 1996 Form 10-K report to the Securities and Exchange
Commission, excluding exhibits, will be mailed to shareholders without charge
upon written request to Tim Smith, Secretary, Capital Southwest Corporation,
12900 Preston Road, Suite 700, Dallas, Texas 75230. Such requests must set forth
a good faith representation that the requesting party was either a holder of
record or a beneficial owner of Common Stock of the Corporation on May 31, 1996.
Exhibits to the Form 10-K will be mailed upon similar request and payment of
specified fees.
Please date, sign and return the proxy at your earliest convenience in the
enclosed envelope. No postage is required for mailing in the United States. A
prompt return of your proxy will be appreciated as it will save the expense of
further mailings.
By Order of the Board of Directors
TIM SMITH
Secretary
Dallas, Texas
June 3, 1996
19
