SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
Capital Southwest 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 14-a6(i)(4) 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:
------------------------------------------------------------------
June 8, 2001
To the Shareholders of Capital Southwest Corporation:
The Annual Meeting of Shareholders of our Corporation will be held on
Monday, July 16, 2001, at 10:00 a.m. in the North Dallas Bank Tower Meeting Room
(First Floor), 12900 Preston Road, Dallas, Texas.
A Notice of the Annual 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, 2001 is enclosed to provide information regarding the performance of the
Corporation during the past year. Holders of Common Stock are entitled to vote
on the basis of one vote for each share held. If you attend the Annual Meeting,
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. Please review the Proxy Statement and
sign, date and return the enclosed Proxy at your earliest convenience. I look
forward to meeting with you and, together with our directors and officers,
discussing the Corporation's business. I hope you will be present.
Very truly yours,
/s/ William R. Thomas
---------------------
William R. Thomas
Chairman of the Board
and President
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 16, 2001
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 16, 2001, 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 ratify the appointment of KPMG LLP as independent auditors for the
Corporation.
3. 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 June 1, 2001 will be entitled to notice of, and to vote at, the
meeting and any adjournment thereof.
If you do not expect to attend in person, please sign, date 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
/s/ Tim Smith
----------------
TIM SMITH
Secretary
Dallas, Texas
June 8, 2001
PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JULY 16, 2001
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 16, 2001 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 8, 2001.
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) ratifying the
appointment by the Board of Directors of KPMG LLP as independent auditors for
the Corporation (see APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS); and (3)
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
LLP as independent auditors for the Corporation for the year ending March 31,
2002, 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 Board of Directors unanimously recommends that the shareholders
vote FOR the election as directors of the persons named under ELECTION OF
DIRECTORS and FOR the ratification of the appointment of KPMG LLP as independent
auditors.
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 June
1, 2001, at which time the Corporation had outstanding and entitled to vote at
the meeting 3,815,051 shares of Common Stock.
1
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.
Shareholders who are present, in person or by proxy, but abstain from voting on
any item will be counted as present at the meeting, but not voting on any such
item. Similarly, nominees (such as broker-dealers) who are present, in person or
by proxy, but abstain or refrain from voting on any item, will be counted as
present at the meeting, but not voting on any such item.
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 (PROPOSAL 1) and FOR the ratification
of the appointment by the Board of Directors of KPMG LLP as independent auditors
(PROPOSAL 2). 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.
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, 2001 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, (3)
each director of the Corporation, and (4) all directors and executive officers
of the Corporation as a group. Unless otherwise indicated below, each of the
persons named in the table has sole voting and investment power with respect to
the shares indicated to be beneficially owned.
Name and Address Shares Owned Percent
of Beneficial Owner Beneficially of Class
------------------- ------------ --------
William R. Thomas
12900 Preston Rd., Suite 700
Dallas, Texas 75230....................... 942,183 (1)(2) 24.6%
2
Name and Address Shares Owned Percent
of Beneficial Owner Beneficially of Class
------------------- ------------ --------
Tim Smith
12900 Preston Rd., Suite 700
Dallas, Texas 75230...................... 353,186 (2)(3) 9.9
EQSF Advisers, Inc.
767 Third Avenue
New York, New York 10017.................. 329,809 (4) 8.6
Artisan Partners Limited Partnership
1000 North Water Street #1770
Milwaukee, Wisconsin 53202............... 288,600 (5) 7.6
First Manhattan Company
437 Madison Avenue
New York, New York 10022................. 229,207 (6) 6.0
Gary L. Martin............................ 146,568 (2)(3) 3.8
Patrick F. Hamner......................... 128,458 (2)(3) 3.3
Graeme W. Henderson....................... 4,700 (7) 0.1
James M. Nolan............................ 4,000 0.1
John H. Wilson............................ 1,000 -
All directors and executive officers
as a group (7 persons).................... 1,124,616 (8) 29.1
(1) Mr. Thomas has sole voting and investment power with respect to
585,397 shares, which include 49,685 shares owned by two of his children and
206,525 shares owned by Thomas Heritage Partners, Ltd., in which Mr. Thomas has
a 50.7% limited partnership interest. Mr. Thomas holds a majority interest in
and is President and sole manager of Thomas Heritage Company, LLC, the sole
general partner of Thomas Heritage Partners, Ltd.
(2) Messrs. Smith 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 265,042 shares, with the
power as trustees to vote such shares. Messrs. Smith and Thomas also participate
in the power to direct the trustees in the voting of 88,144 shares owned by a
trust pursuant to a pension plan for employees of the Corporation and certain
wholly-owned subsidiaries of the Corporation. Accordingly, Messrs. Smith and
Thomas have shared voting and investment power with respect to the 353,186
shares, representing 9.3% 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. Smith and Thomas are both deemed to
be the beneficial owners of such 353,186 shares, which are included in the
shares beneficially owned by Messrs. Smith and Thomas.
3
Mr. Martin serves as trustee, with Messrs. Smith and Thomas, of one of
the aforementioned trusts owning 40,299 shares. Accordingly, Mr. Martin has
shared voting and investment power with respect to the 40,299 shares. Under the
rules and regulations of the Securities and Exchange Commission, Mr. Martin is
deemed to be the beneficial owner of such 40,299 shares, which are included in
the shares beneficially owned by Mr. Martin.
Of the shares owned by trusts pursuant to the aforementioned employee
stock ownership plans, 3,993 and 1,327 were allocated to Messrs. Martin and
Smith, respectively, all of which were vested.
Mr. Hamner, with Messrs. Smith and Thomas, participates in the power to
direct the trustees in the voting of 88,144 shares owned by one of the
aforementioned trusts. Under the rules and regulations of the Securities and
Exchange Commission, Mr. Hamner is deemed to be the beneficial owner of such
88,144 shares, which are included in the shares beneficially owned by Mr.
Hamner.
(3) Includes 15,250, 14,000, 15,250 and 3,600 shares subject to
immediately exercisable stock options held by Messrs. Hamner, Martin, Smith and
Thomas, respectively.
(4) As reported to the Corporation by EQSF Advisers, Inc., that
corporation or M. J. Whitman Advisers, Inc. or Martin J. Whitman, individually,
had shared voting and dispositive power with respect to none of such shares,
sole voting power with respect to 235,054 such shares and sole dispositive power
with respect to 329,809 shares by reasons of advisory and other relationships
with the persons who own the shares. EQSF Advisers, Inc. and M. J. Whitman
Advisers, Inc. beneficially own 139,111 and 190,698, respectively, of such
shares. Martin J. Whitman, individually, disclaims beneficial ownership of these
shares.
(5) As reported to the Corporation by Artisan Partners Limited
Partnership ("Artisan Partners"), that partnership or Artisan Investment
Corporation ("Artisan Corp.") or Andrew A. Ziegler, individually, or Carlene
Murphy Ziegler, individually, had sole voting and dispositive power with respect
to none of such shares and shared voting and dispositive power with respect to
288,600 shares by reasons of advisory and other relationships with the persons
who own the shares. Artisan Partners is an investment adviser; Artisan Corp. is
the General Partner of Artisan Partners; and Mr. Ziegler and Ms. Ziegler are the
principal stockholders of Artisan Corp.
(6) As reported to the Corporation by First Manhattan Co., that
partnership had sole voting and dispositive power with respect to 2,000 shares,
shared voting power with respect to 217,282 shares and shared dispositive power
with respect to 229,207 shares by reasons of advisory and other relationships
with the persons who own the shares.
4
(7) Includes 1,500 shares held by a retirement trust for the benefit of
Mr. Henderson.
(8) Includes (a) the shares owned by the partnership and trusts
referred to in Notes (1) and (2), respectively, to the above table, (b) 48,100
shares subject to immediately exercisable stock options (including those
referred to in Note (3) to the above table), (c) 1,500 shares held in a
retirement trust for the benefit of Mr. Henderson and (d) 49,685 shares owned by
immediate family members of Mr. Thomas.
ELECTION OF DIRECTORS (PROPOSAL 1)
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.
GRAEME W. HENDERSON
Mr. Henderson, age 67, 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 five years. He served as a director of Starwood Hotels and Resorts
Worldwide, Inc. from 1986 to February 1999.
*GARY L. MARTIN
Mr. Martin, age 54, 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.
5
JAMES M. NOLAN
Mr. Nolan, age 67, 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 and served as a director of DSC
Communications Corporation from 1981 to 1996.
*WILLIAM R. THOMAS
Mr. Thomas, age 72, 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,
Mail-Well, Inc. and Palm Harbor Homes, Inc.
JOHN H. WILSON
Mr. Wilson, age 58, 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 1983 and President of Whitehall Corporation from 1995 to
1998. Mr. Wilson also serves as a director of Encore Wire Corporation and Palm
Harbor Homes, Inc.
* Messrs. Martin and Thomas are "interested persons" as that term is defined
in Section 2(a)(19) of the Investment Company Act of 1940.
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 monitors the Company's financial reports and
accounting practices to ascertain that they are within acceptable limits of
sound practice; reviews audit reports submitted by the Corporation's independent
auditors; 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. The Corporation does not have a Nominating Committee.
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, 2001, seven meetings (including
three telephone meetings) of the Board of Directors were held. In addition, two
meetings (including one telephone meeting) of the Compensation Committee and two
meetings of the Audit Committee were held. Each of the directors attended at
least 75% 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.
6
REPORT OF THE AUDIT COMMITTEE
The Audit Committee consists of the three independent members of the
Corporation's Board of Directors. The duties and responsibilities of the Audit
Committee are set forth in the Audit Committee Charter, which the Board of
Directors adopted on April 17, 2000. A copy of the Audit Committee Charter is
attached as Exhibit "A" to this Proxy Statement.
The Audit Committee has discharged its duties and responsibilities
pursuant to the Audit Committee Charter and has:
o Reviewed and discussed the audited financial statements for
the fiscal year ended March 31, 2001 with the management and
with the independent auditors;
o Discussed with the independent auditors the matters required
to be discussed by SAS 61 (Codification for Statements on
Auditing Standards); and,
o Received and discussed the written disclosures from the
independent auditors required by Independence Standards Board
Statement No. 1 (Independence Discussions with Audit
Committee).
Based on such review and discussions with management and the
independent auditors, the Audit Committee recommends to the Board of Directors
that the audited financial statements be included in the Annual Report on Form
10-K for the fiscal year ended March 31, 2001, for filing with the Securities
and Exchange Commission.
Audit Committee
Graeme W. Henderson, Chairman
James M. Nolan
John H. Wilson
REPORT OF THE COMPENSATION COMMITTEE
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 and business development 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 Stock Option Plan and
contributions pursuant to the Employee Stock Ownership Plan.
Base salaries were determined by the Committee in July 2000 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, compensation levels for comparable positions and internal
equities among positions. In addition to base salaries, certain executive
officers received bonus payments in March 2001, the amounts of which were
determined by the Committee on a discretionary basis, taking into consideration
individual performance, with particular emphasis on contributions to the
Corporation's achievement of long-term investment objectives.
7
In July 2000, the Committee established the base salary of the
Corporation's chief executive officer, William R. Thomas, at $250,000 per annum,
a continuation of the level established in July 1993. The compensation level for
Mr. Thomas was determined on the basis of the factors cited above, 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 and Mr.
Thomas' role in defining and accomplishing the Corporation's long-term
investment objectives and administering its investment management activities. At
Mr. Thomas' request, he was not awarded a year-end bonus in March 2001.
An additional equity incentive is provided by the Corporation's
Employee Stock Ownership Plan, to which the Corporation contributed 7.5% of each
participating employee's covered compensation for the fiscal year ended March
31, 2001.
Compensation Committee
James M. Nolan, Chairman
Graeme W. Henderson
John H. Wilson
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 $16,000 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.
Compensation Committee Interlocks and Insider Participation
None of the Corporation's executive officers served as a member of the
Compensation Committee of the Board of Directors or as a director of any other
entity, one of whose executive officers served as a member of the Compensation
Committee of the Corporation's Board of Directors.
8
Summary Compensation Table
The following table sets forth summary information regarding the
compensation (excluding retirement benefits) earned by or paid to William R.
Thomas, Chairman of the Board and 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, 2001 exceeded $100,000.
Annual Compensation
------------------------------------
Name and Fiscal Other Annual All Other
PrincipalPosition Year Salary Bonus Compensation(1) Compensation(2)
- ----------------- ---- ------ ----- --------------- ---------------
William R. Thomas 2001 $250,000 $10,417 $12,750 $ -
Chairman of the 2000 250,000 10,417 16,000 -
Board and President 1999 250,000 85,417 12,000 -
Gary L. Martin 2001 172,500 16,683 - -
Vice President 2000 169,500 22,380 - 3,200
1999 157,000 42,279 - 1,600
Patrick F. Hamner 2001 145,000 42,250 - 12,750
Vice President 2000 126,252 50,417 2,027 13,973
1999 112,248 44,792 3,180 8,598
Tim Smith 2001 131,250 29,625 - 12,066
Vice President and 2000 116,250 35,000 1,916 13,209
Secretary-Treasurer 1999 103,750 39,375 2,898 7,836
- -------------
(1) Amounts accrued for each 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").
(2) Amounts contributed to the ESOP accounts of each executive officer.
The aggregate amount of perquisites and other personal benefits provided to
Messrs. Thomas, Martin, Hamner and Smith was less than 10% of the total of
annual salary and bonus of such officers.
In accordance with the Corporation's established policy, its officers and
employees are required to remit to the Corporation all compensation received for
serving as a director of any portfolio company of the Corporation.
9
Additional Compensation Information
The following table sets forth additional compensation information for the
fiscal year ended March 31, 2001 for each of the three highest-paid executive
officers whose compensation exceeded $60,000 (William R. Thomas and Gary L.
Martin, both of whom are directors of the Corporation, and Patrick F. Hamner)
and for all other directors (Graeme W. Henderson, James M. Nolan and John H.
Wilson), none of whom are employees of the Corporation.
Pension or Retirement
Aggregate Benefits Accrued as Estimated Annual
Compensation from Part of Corporation's Benefits Upon
Name and Position the Corporation Expenses Retirement
- ----------------- ----------------- --------------------- ----------------
William R. Thomas (1) $273,167 (3) (4)
Director, Chairman
and President
Gary L. Martin (1) 189,183 (3) (4)
Director and Vice
President
Patrick F. Hamner (1) 200,000 (3) (4)
Vice President
Graeme W. Henderson (2) 28,000 None None
Director
James M. Nolan (2) 27,000 None None
Director
John H. Wilson (2) 22,000 None None
Director
(1) See Option Exercises and Fiscal Year End Values for information regarding
stock options exercised during or held at the end of the fiscal year ended
March 31, 2001. See Retirement Plans for information on the Corporation's
Retirement Plan and Retirement Restoration Plan. See Stock Ownership Plan
for a description of the Corporation's Employee Stock Ownership Plan and
Summary Compensation Table for amounts contributed to each officer's ESOP
account.
(2) Directors who are not employees of the Corporation are compensated as
described under Compensation of Directors and are not participants in the
Corporation's Retirement Plan or Employee Stock Ownership Plan.
10
(3) As described in Note 8 to the Corporation's Consolidated Financial
Statements, the Retirement Plan was overfunded and therefore generated a
benefit for the year ended March 31, 2001. After deducting the expense of
the unfunded Retirement Restoration Plan, the Corporation's net benefit
attributable to both plans was $486,174 for the year ended March 31, 2001.
The Corporation's net benefit is not allocated to individual plan
participants.
(4) Individual retirement benefits are based on formulas relating benefits to
average final compensation and years of credited service. See Retirement
Plans which includes both a table of estimated annual retirement benefits
and a description of the retirement benefits currently payable to Mr.
Thomas.
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 2001.
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired on Value Options at 3/31/01 at 3/31/01 (2)
Name Exercise (#) Realized (1) Exercisable(#) Unexercisable(#) Exercisable Unexercisable
- ---- ------------ ------------ -------------- ---------------- ----------- -------------
William R. Thomas - - 3,600 2,400 $ - $ -
Gary L. Martin - - 14,000 - 411,250 -
Patrick F. Hamner - - 15,250 8,750 411,250 -
Tim Smith - - 15,250 8,750 411,250 -
- ---------
(1) 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.
(2) Value of unexercised options is calculated as the closing market price on
March 31, 2001 ($65.00) net of the option exercise price, but before any
tax liabilities or transaction costs.
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. 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").
11
The following table sets forth, for purposes of illustration, the
estimated annual retirement benefit payable under the Retirement Plan as a
straight life annuity upon retirement to participants of specified Covered
Compensation and years of credited service who are fully vested (five years of
service). Messrs. Hamner, Martin, Smith and Thomas had 19, 28, 11 and 39 years,
respectively, of credited service under the plan as of May 1, 2001. All
calculations assume retirement in 2001 at age 65 (normal retirement age).
Total Covered Estimated Annual Benefits
Compensation Based on Service of:
15 Years 20 Years 25 Years 30 Years 35 Years
-------- -------- -------- -------- --------
$125,000............. $ 31,997 $ 42,662 $ 53,328 $ 63,994 $ 74,659
150,000............. 39,122 52,162 65,203 78,244 91,284
175,000............. 46,247 61,662 77,078 92,494 107,909
200,000............. 53,372 71,162 88,953 106,744 124,534
225,000............ 60,497 80,662 100,828 120,994 141,159
250,000............ 67,622 90,162 112,703 135,244 157,784
300,000............ 81,872 109,162 136,453 163,744 191,034
350,000............. 96,122 128,162 160,203 192,244 224,284
400,000............. 110,372 147,162 183,953 220,744 257,534
Certain of the amounts in the above table are subject to reduction
because applicable federal regulations limit the amount of annual benefits
payable to certain higher-paid participants under a tax-qualified retirement
plan such as the Retirement Plan. The extent of such reductions will vary in
individual cases according to circumstances existing at the time pension
payments commence. 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.
Mr. Thomas is entitled to a substantially increased annual retirement
benefit as a result of his service beyond the normal retirement age and 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. Although
Mr. Thomas is a full-time employee of the Corporation, Section 401(a)(9) of the
Internal Revenue Code required that he begin receiving monthly retirement
benefit payments on April 1, 2000 because of his age and ownership of more than
5% of the Corporation's common stock. Retirement benefits payable (for life
only) to Mr. Thomas under the Retirement Plan and Retirement Restoration Plan
total $440,342 per annum.
12
Stock Ownership Plan
The Corporation maintains an employee stock ownership plan ("ESOP") for
employees of the Corporation and one of its wholly-owned subsidiaries in which
Messrs. Hamner and 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. 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 (2) to the table under STOCK OWNERSHIP
OF CERTAIN BENEFICIAL OWNERS.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires 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, 2001.
AUDIT AND OTHER FEES
The aggregate fees billed for professional services rendered by KPMG
LLP for the audit of the Corporation's annual financial statements for the year
ended March 31, 2001, and the reviews of the financial statements included in
the quarterly Reports on Forms 10-Q for the year ended March 31, 2001, were
$41,700. The aggregate fees billed for tax and other services rendered by KPMG
LLP during the year ended March 31, 2001, were $11,275. The Audit Committee has
considered whether the provision by KPMG LLP of all other services are
compatible with maintaining KPMG LLP's independence.
13
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.
Comparison of Five Year Cumulative Total Returns
[Graph omitted]
Nasdaq Total Return (U.S) Nasdaq Financial Stocks Capital Southwest Corporation
1996 100.000 100.000 100.000
1997 111.146 128.790 116.802
1998 168.468 200.114 166.098
1999 227.622 180.327 129.940
2000 423.365 170.895 100.019
2001 169.463 189.050 120.088
14
APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL 2)
The Board of Directors has appointed the firm of KPMG LLP as
independent auditors for the fiscal year ending March 31, 2002, subject to
ratification by the shareholders. A representative of KPMG 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.
In order to approve the appointment of KPMG LLP as independent auditors
for the Corporation for the year ending March 31, 2002, the proposal must
receive the favorable vote of a majority of the shares entitled to vote and
represented at the Annual Meeting.
SHAREHOLDER PROPOSALS FOR 2002 ANNUAL MEETING
Any shareholder proposal to be considered by the Corporation for
inclusion in the proxy material for the 2002 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, 2002. Mere submission of a
proposal for consideration does not guarantee its inclusion in the proxy
material or presentation at the meeting. All shareholder proposals are subject
to the rules under the federal securities laws.
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, 2001 accompanies this proxy statement, but is not deemed a part of the proxy
soliciting material.
A copy of the fiscal 2001 Form 10-K report to the Securities and
Exchange Commission 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.
15
Exhibit A
Charter of the Audit Committee of the Board of Directors
of Capital Southwest Corporation
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit Committee's
primary duties and responsibilities are to:
o Monitor the integrity of the Company's financial reporting process and
systems of internal controls regarding finance, accounting, and legal
compliance.
o Monitor the independence and performance of the Company's independent
auditors.
o Provide an avenue of communication among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and has direct access to
the independent auditors as well as all books, records, facilities and
management personnel of the Company. The Audit Committee has the ability to
retain, at the Company's expense, special legal, accounting, or other
consultants or experts it deems necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq Stock
Market. The Audit Committee shall be composed of three directors as
determined by the Board, each of whom shall be independent nonexecutive
directors, free from any relationship that would interfere with the
exercise of his or her independent judgment. All members of the Committee
shall have a basic understanding of finance and accounting and be able to
read and understand fundamental financial statements, and at least one
member of the Committee shall have accounting or related financial
management expertise.
Audit Committee members shall be appointed by the Board of Directors. If an
Audit Committee Chairman is not designated or present, the members of the
Committee may designate a Chairman by majority vote of the Committee
membership.
The Committee shall meet at least two times annually, or more frequently as
circumstances dictate. The Committee should meet privately in executive
session at least annually with management, the independent auditors, and as
a committee to discuss any matters that the Committee or each of these
groups believe should be discussed. In addition, the Committee, or at least
its Chairman, should communicate with management and the independent
auditors quarterly to review the Company's financial statements and
significant findings based upon the auditors limited review procedures.
A - 1
III. Audit Committee Responsibilities and Duties
1. Review and reassess the adequacy of this Charter at least annually.
Submit the Charter to the Board of Directors for approval and have the
document published at least every three years in accordance with SEC
regulations.
2. In consultation with the management and the independent auditors,
consider the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such
exposures. Review significant findings prepared by the independent
auditors together with management's responses.
3. Prior to releasing the year-end net-asset value, discuss the results
of the audit with the independent auditors and discuss those matters
required to be communicated to audit committees by independent
auditors including their judgments about the quality and
appropriateness of the Company's accounting principles as applied in
its financial reporting.
4. Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgments.
5. Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of net
asset value and/or the Company's quarterly financial statements prior
to filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors including their judgments of
the quality of the Company's accounting principles and underlying
estimates in its financial statements. The Chairman of the Committee
may represent the entire Audit Committee for purposes of this review.
6. The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall review
the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the independent
auditors or approve any discharge of auditors when circumstances
warrant.
7. Approve the fees and other significant compensation to be paid to the
independent auditors.
8. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
A - 2
9. Review the independent auditors audit plan - discuss scope, staffing,
locations, reliance upon management, and general audit approach.
10. On at least an annual basis, review any legal matters that could have
a significant impact on the organization's financial statements, the
Company's compliance with applicable laws and regulations, and
inquiries received from regulators or governmental agencies.
11. Annually, prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in
the Company's annual proxy statement.
12. Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board of
Directors deems necessary or appropriate.
13. Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
A - 3
Appendix A
Capital Southwest Corporation
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- JULY 16, 2001
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF THE CORPORATION.
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 16, 2001, 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 James M. Nolan, 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:
IMPORTANT: SIGN ON OTHER SIDE
FOR all nominees WITHHOLD AUTHORITY
listed at right to vote for
(except as marked all nominees
to the contrary below) listed at right Nominees: Graeme W. Henderson
1. Election of Gary L. Martin
Directors _________ _________ James M. Nolan
William R. Thomas
(INSTRUCTION: To withhold authority to vote for John H. Wilson
any individual nominee, write that nominee's name
in the space provided below.)
_________________________________________________
FOR AGAINST ABSTAIN
2. Proposal to ratify the appointment of
KPMG LLP as independent auditors for the
Corporation. _____ _____ _____
3. In the discretion of the proxies, on any other matter that may
properly come before the meeting or, subject to the conditions in
the Proxy Statement, any adjournment thereof.
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 at the left hereof and for the proposal
described in (2) 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.
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE
ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED.
________________________ ________________________ ____________________
Signature of Shareholder Signature of Shareholder Title, if applicable
Date: ________________, 2001
NOTE: 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.