1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant [ ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material under Rule 14a-12
Capital Pacific Holding, Inc.
--------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------------------
2
CAPITAL PACIFIC HOLDINGS, INC.
4100 MACARTHUR BOULEVARD
SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 12, 2001
The Annual Meeting of Stockholders (the "Meeting") of Capital Pacific
Holdings, Inc. (the "Company") will be held at the Radisson Hotel, 4545
MacArthur Boulevard, Newport Beach, California on July 12, 2001 at 9:00 a.m.
(Pacific Daylight Savings Time) for the following purposes:
1. To elect directors whose terms expire at the Meeting; and
2. To approve the Company's Performance Based Compensation Plan; and
3. To consider such other matters as may properly come before the Meeting
or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on June 8, 2001, will be entitled to notice of and to vote at the
Meeting or any adjournment thereof. The Company's stock transfer books will
remain open.
A Proxy Statement and Proxy solicited by the Board of Directors are
enclosed herewith. Please sign, date and return the Proxy promptly. All
stockholders are cordially invited to attend the Meeting.
By Order of the Board of Directors
/s/ STEVEN O. SPELMAN, JR.
STEVEN O. SPELMAN, JR.
Corporate Secretary
June 26, 2001
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE IN ORDER
TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING. NO POSTAGE NEED BE
AFFIXED IF MAILED IN THE UNITED STATES.
3
CAPITAL PACIFIC HOLDINGS, INC.
4100 MACARTHUR BOULEVARD
SUITE 200
NEWPORT BEACH, CALIFORNIA 92660
------------------------
PROXY STATEMENT
------------------------
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 12, 2001
------------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Capital Pacific Holdings, Inc. (the
"Company") for use at the Annual Meeting of Stockholders (the "Meeting") to be
held on July 12, 2001, and at any adjournment thereof, for the purposes set
forth herein. All properly completed proxies will be voted in the manner
specified therein, if no choice as to Proxy Item No. 1 (Election of Directors)
is specified, proxies will be voted for the election to the Board of Directors
of the nominees listed below under "ELECTION OF DIRECTORS," if no choice as to
Proxy Item No. 2 "PERFORMANCE BASED COMPENSATION PLAN" is specified, proxies
will be voted in favor of approving the plan. Any proxy given pursuant to this
solicitation may be revoked prior to the Meeting by delivering an instrument
revoking it or by delivering a duly executed proxy bearing a later date to the
Secretary of the Company. A stockholder may elect to attend the Meeting and vote
in person notwithstanding the fact that such stockholder has a proxy
outstanding.
The Board of Directors has established June 8, 2001, as the record date for
determining the stockholders entitled to notice of and to vote at the Meeting.
At the close of business on the record date, there were outstanding and entitled
to vote 13,697,111 shares of the Company's common stock, $.10 par value per
share (the "Common Stock"), with each share being entitled to one vote.
The Company intends to mail this Proxy Statement and the accompanying form
of proxy to stockholders on or about June 26, 2001. Copies of the Company's 2001
Annual Report will be mailed to the Company's stockholders along with this Proxy
Statement.
ELECTION OF DIRECTORS
(PROXY ITEM NO. 1)
The Company's Board of Directors is comprised of four directors, each of
whom are to serve until the next meeting at which directors are elected. At the
Meeting, four persons will be elected to serve as directors.
Each of the nominees listed below is currently a director and has been
nominated by the Board to serve as a director of the Company until the next
annual meeting of the stockholders of the Company following his election. When
properly executed and returned, the enclosed proxy will be voted in favor of the
election of each of the nominees, unless authority to vote for a nominee is
withheld. In the event that a nominee is unable to serve (an event which is not
anticipated) or does not receive sufficient votes to be elected, then the person
acting pursuant to the authority granted under the proxy will cast votes for the
remaining nominees and, in his best judgment, for such other person as he may
select in place of such nominee.
4
The following table sets forth the name, age, and background information
concerning the nominees. Information regarding the nominee's ownership of Common
Stock appears under the heading "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT" below.
DIRECTOR
NAME AGE SINCE INFORMATION ABOUT NOMINEES
---- --- -------- --------------------------
Hadi Makarechian..................... 53 1992 Mr. Makarechian has been Chairman of the
Board of the Company since August, 1992 and
served as Chief Executive Officer of the
Company from March, 1993 until May, 1996 and
since January 1998. Mr. Makarechian has also
served as President of the Company since
January 1999. Mr. Makarechian was the founder
and chairman of Capital Pacific Homes Inc., a
real estate development firm located in
Newport Beach, California, until it was
merged into the Company in 1994.
Karlheinz M. Kaiser.................. 43 1993 Mr. Kaiser is a principal with Christinger
Partner AG, a printing company in
Switzerland. From August of 1992 through
December 1994 Mr. Kaiser was a management
consultant with Friedli & Partner, a
management consulting firm in Switzerland.
Allan L. Acree....................... 58 1992 Mr. Acree holds the position of Senior
Mortgage Officer with Manulife Financial in
Washington, D.C. Manulife Financial
Corporation is the holding company for the
Manufacturers Life Insurance Company and its
Subsidiaries. Prior to joining Manulife in
July, 1999, Mr. Acree was a principal in A.L.
Acree & Associates, a real estate consulting
firm based in Rockville, Maryland.
William J. Hadaway................... 61 2001 Mr. Hadaway is the President of William J.
Hadaway, P.A. in Orlando, Florida. He has
over 38 years of Public Accounting experience
and has been practicing as a sole
practitioner or partner in a public
accounting firm since 1971.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS; DIRECTORS' COMPENSATION
Each member of the Board of Directors of the Company who is not also an
officer of the Company is compensated at a rate of $10,000 per year, plus $1,500
for each meeting of the Board which he attends, and is reimbursed for the
expenses of attending meetings. The Board of Directors held nine meetings during
the fiscal year ended February 28, 2001.
The Board of Directors has a standing Audit Committee whose current members
are Allan L. Acree, Karlheinz M. Kaiser and William J. Hadaway. The members of
the Committee each receive $5,000 per year for participating on the Audit
Committee. The Audit Committee has the responsibility of (a) reviewing the scope
of, and the fees for, the annual audit of the Company and the independence of
the outside auditors, (b) reviewing with the independent auditors the Company's
accounting practices and policies, (c) reviewing with the independent auditors
their final report, (d) reviewing with internal and independent auditors overall
accounting and financial controls, and (e) being available to the independent
auditors for consultation purposes. The Audit Committee held four meetings
during the fiscal year ended February 28, 2001.
The Board of Directors has a standing Compensation Committee whose current
members are Allan L. Acree and Karlheinz M. Kaiser. Messrs. Acree and Kaiser
each receive $2,000 for each meeting attended. The primary function of the
Compensation Committee is to advise the Board of Directors with respect to all
matters relating to executive compensation. The Compensation Committee held one
meeting for the fiscal year ended February 28, 2001.
2
5
The Board of Directors does not have a standing nominating committee or
other standing committees performing similar functions.
Each current director who was a director at the time of such meetings
attended at least 75% of the total of the Board meetings and meetings of the
committees of the Board of which he is a member.
PERFORMANCE BASED COMPENSATION PLAN
(PROXY ITEM NO. 2)
The Compensation Committee has established a performance based compensation
plan (the "Plan") for the Company's Chief Executive Officer. The Compensation
Committee, which consists of outside directors, believes that the Plan provides
total compensation opportunities that are competitive with the opportunities
offered to executives in similar positions at competing companies and that
compensation with a strong link to the financial performance of the Company
enables the Company to attract and retain the key personnel necessary to fuel
continued growth and profitability. In order for compensation in excess of
$1,000,000 paid in any year to the Company's Chief Executive Officer to be
deductible by the Company, such compensation must qualify as "performance-based"
under section 162(m) of the Internal Revenue Code. The Company intends for the
Plan and compensation thereunder to the Company's Chief Executive to qualify for
the performance-based compensation exemption under section 162(m). However,
there can be no assurance that the Plan will satisfy the requirements for
deductibility under section 162(m).
Only Hadi Makarechian, the Chief Executive Officer of the Company, is
eligible to be compensated under the Plan.
The Compensation Committee has established the performance criteria under
the Plan to be the award of performance based compensation of four percent (4%)
of the pre-tax income of the Company in each fiscal year.
The Compensation Committee can adjust downward any compensation award under
the Plan on the basis of such quantitative and qualitative performance measures
and evaluations as it deems appropriate. The Compensation Committee, however,
may not adjust the performance based compensation for the Chief Executive in a
manner that would increase the value of the compensation award.
Prior to the payment of any compensation intended to qualify as performance
based compensation under section 162(m) of the Internal Revenue Code, the
Compensation Committee must certify in writing the attainment of the performance
criteria for the fiscal year.
The Compensation Committee has the full power to administer and interpret
the Plan and to establish rules for the administration of the Plan. Each of the
members of the Compensation Committee must qualify as an outside director under
section 162(m) of the Internal Revenue Code.
The Board of Directors may modify or terminate the Plan at any time,
provided that no modification or termination may, in the absence of written
consent of the Chief Executive Officer, adversely affect his rights to any
compensation award under the Plan established prior to the date of such
modification or termination.
This Plan will not prevent the Company from adopting, continuing, amending
or terminating such additional compensation arrangements as it deems desirable
for other employees of the Company. Additional compensation arrangements could
include generally any additional bonus, equity incentive or retirement plans.
Awards to employees under any additional compensation arrangements may or may
not qualify as performance-based compensation under section 162(m) of the
Internal Revenue Code.
No annual incentive compensation in excess of $1,000,000 will be paid to
the Chief Executive prior to approval of the Plan by the Company's stockholders.
The compensation award earned by the Chief Executive Officer under the
performance criteria adopted by the Compensation Committee based on the
Company's performance during the fiscal year ended February 28, 2001 (subject to
the Compensation Committee's discretion to adjust these amounts) is
approximately $1,100,000. The Compensation Committee has also decided to pay the
Chief Executive Officer, upon approval by the Company's stockholders, the
discounted
3
6
present value of a portion of his performance based compensation award for
fiscal year 2002 under the Plan based on the pre-tax income effect of the
Interest Exchange transaction in fiscal year 2002, which discounted award is
approximately $750,000.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" APPROVAL OF THE
PLAN.
EXECUTIVE OFFICERS
In addition to Mr. Hadi Makarechian, the Company's executive officers are
as follows:
NAME AND POSITION WITH COMPANY AGE INFORMATION ABOUT EXECUTIVE OFFICERS
------------------------------ --- ------------------------------------
Stephen P. Couig....................... 35 Mr. Couig joined the Company in January 1997 as
Chief Operating Officer Senior Vice President. He was promoted to Executive
Vice President in July 2000 and assumed his current
position in May 2001. Prior to joining the Company
he served as Executive Vice President in charge of
acquisitions for Troon Golf, a Scottsdale, AZ based
golf course owner and operator. After receiving his
MBA from Dartmouth College in 1993 he was, until
1996, an Associate at Morgan Stanley in the Equity
Capital Markets department focusing on business
development opportunities.
Steven O. Spelman, Jr. ................ 40 Mr. Spelman joined the Company in November 1997 as
Chief Financial Officer and Vice President, Finance and assumed the Chief
Corporate Secretary Financial Officer position in January 1998. He was
named Corporate Secretary in September 1998. Prior
to joining the Company, Mr. Spelman served with
Arthur Andersen LLP for thirteen years, most
recently as a Senior Audit Manager, after receiving
his MBA from the University of Southern California
in 1984.
Sherry S. Irani........................ 39 Ms. Irani joined the Company in November 1996 as
Treasurer and Director of Human Director of Banking. In 1997, She assumed additional
Resources responsibilities of Director of Human Resources. She
was named the Corporate Treasurer in July of 2000.
Previously, she worked for First Interstate Bank for
a period of 12 years in various assignments. Her
last position was Senior Financial Services Manager.
She has a Bachelor of Science degree in Economics
from Simmons College in Boston with advanced studies
at London School of Economics.
All executive officers serve at the pleasure of the Board of Directors.
4
7
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid during the fiscal
years ended February 28, 2001, February 29, 2000 and February 28, 1999 to each
of the five most highly compensated executive officers of the Company in all
capacities in which they served, and such other individuals as are required to
be disclosed.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
FISCAL ---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(C)
--------------------------- ------ -------- ---------- ------------ ---------------
Hadi Makarechian............... 2001 $316,969 $1,083,000(a) -- $ 160
Chairman and Chief 2000 301,875 598,000(b) -- 160
Executive Officer 1999 284,896 312,560(b) -- 180
Stephen P. Couig............... 2001 243,750 240,000(d) 40,000 2,306
Chief Operating Officer 2000 212,500 105,000(g) 24,000 910
1999 175,000 67,500(g) 15,000 180
Steven O. Spelman, Jr. ........ 2001 214,167 240,000(d) 40,000 5,527
Chief Financial Officer and 2000 178,750 115,000(g) 24,000 1,931
Corporate Secretary 1999 157,500 57,500(g) 15,000 180
Paul P. Makarechian............ 2001 206,628 265,000(d)(e) -- 1,726
Senior Vice President 2000 143,333 105,000(g) 24,000 1,077
1999 75,000 57,500(g) 15,000 180
William A. Funk................ 2001 205,077 50,000(d)(e) -- 4,262
Senior Vice President 2000 200,000(f) 20,000(g) 8,000 1,327
1999 -- -- -- --
Sherry S. Irani................ 2001 79,601 45,000(d) 5,000 160
Treasurer and Director of 2000 73,083 21,500(g) 4,000 160
Human Resources 1999 60,875 19,250(g) 3,500 180
---------------
(a) Bonus was earned in fiscal year 2001 but will be paid conditioned upon
stockholder approval in fiscal year 2002 (see Compensation Committee
Determination on Executive Compensation). In addition, in the event Item 2
is approved by the stockholders, Mr. Makarechian will be paid approximately
$750,000 in fiscal 2002 in respect of a transaction which closed in fiscal
year 2001.
(b) Bonus was earned in the fiscal year indicated but was paid in the
subsequent fiscal year (see Compensation Committee Determination on
Executive Compensation).
(c) Represents premiums paid by the Company for term life insurance for the
benefit of the insured and employer matching contributions to the Company's
401(k) Plan which began in October, 1999.
(d) The bonus amounts shown for fiscal 2001 reflect the discretionary bonuses
actually paid to each officer in such period, with the exception of the
amounts discussed in (e) below. Included in these amounts for Messrs.
Couig, Spelman, P. Makarechian and Funk and Ms. Irani are $180,000,
$180,000, $180,000, $30,000 and $30,000, respectively, which related to and
were accrued for by the Company in fiscal year 2000, but which were not
granted and paid until fiscal 2001. Excluded from these amounts are
$340,000, $340,000, $340,000, $60,000 and $50,000, respectively, which were
related to and accrued for by the Company in fiscal 2001, but with the
exception of the amounts discussed in (e) below not granted and paid until
fiscal 2002.
(e) Messrs. P. Makarechian and W. Funk terminated their employment with the
Company effective February 23, 2001. In connection therewith, they were
paid the discretionary bonuses earned in fiscal 2001 which would normally
be paid in fiscal 2002, in the amounts of $340,000 and $60,000,
respectively, on that date. These amounts are not included in the table.
(f) Mr. Funk began employment with the Company on March 1, 1999.
(g) Bonuses shown for fiscal 2000 and fiscal 1999 include amounts related to
and accrued for by the Company in the previous fiscal year.
5
8
STOCK OPTIONS
Effective February 28, 1995, the Company, as approved by the stockholders
of the Company in July 1995, adopted the 1995 Stock Incentive Plan (the "1995
Plan"). The 1995 Plan permits a committee designated by the Board of the Company
to make awards to key employees and directors of the Company and its
subsidiaries. Subject to various restrictions, awards could be in the form of
stock options, restricted or unrestricted stock, stock appreciation rights or a
combination of the above. The maximum number of shares or share equivalents that
may be awarded under the 1995 Plan is 1,500,000. In February 1999, the Board of
Directors approved a grant of 256,000 stock options under the Plan, effective on
February 8, 1999. In addition, stock options to purchase 250,000 shares were
granted with effective dates of both September 30, 1999 and September 1, 2000.
The stock underlying all of the option grants is the Company's Non-Voting Common
Stock, par value $.10 per share. As of June 8, 2001, there are 1,235,000 shares
of the Non-Voting Common Stock outstanding. Since there has been no trading
activity for the Non-Voting Common Stock, the value of such Non-Voting Common
Stock for purposes of calculating the value of the options (solely for purposes
of this Proxy Statement) is assumed to be the market price of the Company's
publicly traded voting common stock.
OPTIONS GRANTS IN LAST FISCAL YEAR
POTENTIAL
INDIVIDUAL GRANTS(1) REALIZABLE VALUE AT
-------------------------------- ASSUMED ANNUAL
NUMBER OF PERCENT OF RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM(2)
OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION --------------------
NAME (#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- -------------- ----------- ---------- ------- --------
Hadi Makarechian............. -- -- -- -- -- --
Stephen P. Couig............. 40,000 16.0 2.50 9/1/10 62,889 159,374
Steven O. Spelman, Jr. ...... 40,000 16.0 2.50 9/1/10 62,889 159,374
Paul P. Makarechian.......... -- -- -- -- -- --
William A. Funk.............. -- -- -- -- -- --
Sherry S. Irani.............. 5,000 2.0 2.50 9/1/10 7,861 19,922
---------------
(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 33 1/3% per year over the first three years and to lapse after ten
years unless sooner exercised or forfeited. All stock options will vest
immediately in the event of either (i) a merger in which the Company does
not survive or (ii) a sale of all or substantially all of the Company's
assets. All stock options were granted at the closing market price of the
Company's voting shares on the date of grant.
(2) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC, and therefore are not intended to forecast
possible future appreciation of the Company's stock price. In all cases the
appreciation is calculated from the award date to the end of the option
term.
6
9
FISCAL YEAR END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(#)(1) AT FISCAL YEAR END($)(2)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
Hadi Makarechian....... -- -- -- -- -- --
Stephen P. Couig....... -- -- 18,000 61,000 18,700 63,650
Steven O. Spelman,
Jr. ................. -- -- 18,000 61,000 18,700 63,650
Paul P. Makarechian.... -- -- -- -- -- --
William A. Funk........ -- -- -- -- -- --
Sherry S. Irani........ -- -- 3,666 8,834 3,549 9,326
---------------
(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 33 1/3% per year over the first three years and to lapse after ten
years unless sooner exercised or forfeited. All stock options will vest
immediately in the event of either (i) a merger in which the Company does
not survive or (ii) a sale of all or substantially all of the Company's
assets. All stock options were granted at the closing market price of the
Company's voting shares on the date of grant.
(2) Calculated per share by subtracting the exercise price from the market price
of the Company's voting shares on February 29, 2000.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
None of the executive officers is currently working under an employment
contract.
COMPENSATION COMMITTEE DETERMINATION ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company's Board of
Directors establishes the Company's general compensation policies, compensation
plans, and specific compensation levels for the Company's Chief Executive
Officer and any other executive officer which may in the future be specifically
designated by the Board of Directors. The Compensation Committee also reviews
the design, administration and effectiveness of compensation programs for other
key executives. The general policy and philosophy of the Compensation Committee
is to provide total compensation opportunities that are competitive with the
opportunities offered to executives in similar positions at competing companies
and that compensation with a strong link to the financial performance of the
Company enables the Company to attract and retain the key personnel necessary to
fuel continued growth and profitability.
The Committee has examined the compensation of the executives of
comparatively placed homebuilders to determine whether or not the compensation
of the Company's Chief Executive Officer is within the range of his peers. In
undertaking such examination, the Committee has sought publicly available
information regarding homebuilders which are at a similar stage in their growth
and development to that of the Company and therefore compete for the same
executive personnel.
Performance Based Compensation
The Committee has reviewed the Company's performance in Fiscal 2001 under
the direction of the Chief Executive Officer in homebuilding, in commercial and
real estate development activities and in effecting strategic transactions.
Based upon the Committee's review of the compensation of chief executives of
similarly placed homebuilders the Committee applied the existing performance
bonus structure of four percent (4%) of pre-tax income to the Company's results
in Fiscal 2001 and compared the expected results of that formula to the cash
compensation of the peer group. The Committee noted that, unlike many of the
members of the peer group, the Company's CEO receives no non-cash compensation
because of his substantial shareholdings in the Company. The Committee found
that, taking into account the absence of non-cash compensation, the performance
based compensation derived from application of the existing formula put the
compensation of the CEO well within the range of the peer group.
7
10
The Committee next considered compensation to the CEO based upon his
performance in negotiating and consummating the Exchange Transaction. The
Committee noted the substantial benefits to the Company of the Exchange
Transaction and that all of the steps required for the Company to ultimately
recognize the income benefits of the Exchange had been completed and that
therefore there was no reason to delay payment of any appropriate compensation
in order to incentivize future performance. The Committee determined that the
existing formula for performance based compensation, four percent (4%) of
pre-tax income, should be applied now to the expected income benefits of the
Exchange Transaction. The Committee specified that such expected income benefits
should be discounted to present value (as of the date of payment) at an
appropriate discount rate as determined by the Company's Chief Financial
Officer.
The Committee also determined that the existing four percent (4%) of
pre-tax income formula for performance based compensation will remain in effect
for Fiscal Year 2002, with any income effects of the Exchange Transaction
already compensated under the above analysis (and assuming shareholder approval)
to be excluded in such calculation.
Section 162(m) of the Internal Revenue Code of 1986 limits deductions for
certain executive compensation in excess of $1 million. The Code permits
deduction of compensation in excess of $1 million only if it is performance
based, the criteria for award are specified in detail, and stockholder approval
is obtained prior to payment. The policy of the Company is to maintain the tax
deductibility of all compensation paid to its executives. The annual performance
bonus of the CEO has been structured to meet the requirements for deductibility.
Any payments exceeding $1 million under the compensation structure it has
approved will be contingent upon shareholder approval.
Base Salary
The annualized base salary of the Chief Executive Officer was $316,969 for
Fiscal Year 2001. The Committee noted that due to now-expired contractual
restrictions the CEO's base salary had only increased five percent (5%) per year
for several years despite the Company's increased size and financial performance
and as a result had fallen behind the range of his peers. The Committee
determined to increase the CEO's base salary to $435,000 effective March 1,
2001.
/s/ KARLHEINZ M. KAISER /s/ ALLAN L. ACREE
--------------------------------------------- ---------------------------------------------
Karlheinz M. Kaiser Allan L. Acree
Dated: May 16, 2001
8
11
PERFORMANCE GRAPH
The following graph shows a five year comparison of cumulative total
returns for Capital Pacific Holdings Inc., American Stock Exchange Market Value
Index and Dow Jones Home Construction Industry Group.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
OF COMPANY, INDUSTRY INDEX AND BROAD MARKET
[PERFORMANCE GRAPH]
--------------------------------------------------------------------------------
1996 1997 1998 1999 2000 2001
--------------------------------------------------------------------------------
Capital Pacific
Holdings, Inc. 100.00 70.00 96.67 80.00 76.67 90.67
Peer Group Index 100.00 106.80 175.85 142.20 95.28 182.97
AMEX Market Index 100.00 106.54 126.96 124.13 172.89 154.70
--------------------------------------------------------------------------------
---------------
(1) The above graph compares the performance of Capital Pacific Holdings, Inc.
with that of the American Stock Exchange Market Value Index and the Dow
Jones Home Construction Industry Group.
(2) The comparison of total return on investment (change in year end stock price
plus reinvested dividends) for each of the periods assumes that $100 was
invested on March 1, 1996 in each of Capital Pacific Holdings, Inc., the
American Stock Exchange Market Value Index and the Dow Jones Home
Construction Industry Group.
9
12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth as of June 8, 2001, the number of shares of
Common Stock beneficially owned by each person known to the Company to own more
than five percent (5%) of the outstanding shares of Common Stock, by each
director of the Company or nominee who owned shares of Common Stock on that
date, by each of the officers that are among the five most highly compensated
officers of the Company, and by all directors and officers of the Company as a
group.
COMMON STOCK PERCENT OF
NAME AND ADDRESS BENEFICIALLY OWNED(1) CLASS(1)
---------------- --------------------- ----------
CPH2, L.L.C............................................ 4,113,657 27.5%
4100 MacArthur Boulevard, Suite 200,
Newport Beach, California 92660
CPH3, L.L.C............................................ 4,640,694 32.1%
4100 MacArthur Boulevard, Suite 200
Newport Beach, California, 92660
Hadi Makarechian....................................... 7,079,614(2) 47.4%
4100 MacArthur Boulevard, Suite 200,
Newport Beach, California 92660
California Housing Finance, L.P. ...................... 4,044,851(3) 27.1%
One Maritime Plaza, Suite 1325
San Francisco, California 94111
Dale Dowers............................................ 1,674,737(4) 11.2%
4270 South Decatur, Suite A-7,
Las Vegas, Nevada 89103
All Directors and Officers of the Corporation as a
Group
(7 persons).......................................... 8,794,017 58.6%
---------------
(1) Unless otherwise indicated, the Company believes the beneficial owner has
sole voting and investment power over such shares. The percentage of shares
of Common Stock is calculated assuming that the beneficial owner has
exercised any options or other rights to subscribe held by such beneficial
owner that are currently exercisable or exercisable within 60 days, and that
no other warrants, options or rights to subscribe have been exercised by
anyone else.
(2) Includes 2,438,920 shares of Common Stock held by CPH2, L.L.C., in which Mr.
Makarechian may be deemed to have a beneficial ownership interest due to his
ownership interest in CPH2, L.L.C. (Mr. Makarechian owns a 59.3% controlling
interest in CPH2, L.L.C.) and 4,640,694 shares of Common Stock held by CPH3,
L.L.C. in which Mr. Makarechian may be deemed to have a beneficial interest
due to his ownership in CPH3, L.L.C.
(3) Included in this amount are 1,235,000 non-voting shares of Common Stock
issued to California Housing Finance, L.P. in connection with the Exchange
Transaction.
(4) Includes 1,674,737 shares of Common Stock owned by CPH2, L.L.C., in which
Mr. Dowers may be deemed to have a beneficial ownership interest due to his
40.7% ownership interest in CPH2, L.L.C. Mr. Makarechian owns a 59.3%
controlling interest in CPH2, L.L.C. Mr. Dowers is the former President and
Chief Operating Officer of the Corporation.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that the
Company's directors, executive officers and persons who own more than 10 percent
of the Company's Common Stock file initial reports of ownership of the Company's
Common Stock and changes in such ownership with the Securities and Exchange
Commission. To the Company's knowledge, based solely on a review of copies of
forms submitted to the
10
13
Company during and with respect to fiscal 2001 and on written representations
from the Company's directors and executive officers, all required reports were
filed on a timely basis during fiscal 2001.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS WITH
OFFICERS, DIRECTORS AND AFFILIATES
The Company's policy is that all transactions between the Company and its
officers, directors and principal stockholders, and their respective affiliates,
must be on terms no less favorable to the Company than terms with unaffiliated
parties for similar transactions. All such transactions that are not in the
ordinary course of the Company's business must be approved by a majority of
independent directors who do not have a financial interest in the transaction.
Paul Makarechian was, until the termination of his employment on February
23, 2001, Executive Vice President of the Commercial Division for the Company
and is the son of Hadi Makarechian, the Company's Chairman and CEO.
In February 2001, the Company exchanged its interests in certain joint
ventures with an investment company, California Housing Finance, L.P. ("CHF") in
return for CHF's interest in Capital Pacific Holdings, LLC and certain other
joint ventures. CHF then contributed its interest in joint ventures to Makallon,
LLC ("Makallon"). Makallon is beneficially owned by CHF which is a beneficial
owner of approximately 27% of the Company's common equity, not, Paul
Makarechian, a former director and officer of the Company, and the son of the
Chairman of the Board and Chief Executive Officer of the Company, is an
executive and has a contingent minority interest in Makallon. In connection with
the Exchange Transaction, Capital Pacific Homes, Inc., a subsidiary of the
Company, has entered or expects to enter into construction, management and
marketing agreements with Makallon relating to certain projects owned by the
divested joint ventures whereby the Company will be compensated for performing
such services through a management fee arrangement. In addition, the Company has
entered into lease agreements with Makallon for office space in two buildings
owned by certain joint ventures controlled by Makallon. Further information
regarding the Exchange Transaction is included in the Annual Report mailed with
this proxy statement.
During fiscal 2001, Everett Pfeiff, Regional President for the Arizona,
Nevada and Colorado divisions of the Company, purchased an improved lot from the
Company for $153,600.
In April, 2000, Mr. Couig, an officer of the Company, purchased a home from
one of the Company's joint ventures for $1,450,000.
During fiscal 2001, a company controlled by Paul Makarechian provided
certain management services for one of the Company's joint ventures. The service
fees paid by the Company to this enterprise for the fiscal year were
approximately $20,000.
INDEPENDENT AUDITORS
Arthur Andersen LLP served as the Company's independent auditors for the
fiscal year ended February 28, 2001, and it is anticipated that Arthur Andersen
LLP will be approved to serve as such for the current fiscal year.
Representatives of Arthur Andersen LLP will be present at the Meeting to
respond to appropriate questions and will have the opportunity to make a
statement if they desire to do so.
AUDITOR FEES
The following is a description of the fees billed to the Company by Arthur
Andersen LLP during the fiscal year ended February 28, 2001:
Audit Fees: Audit fees paid by the Company to Arthur Andersen LLP in
connection with Arthur Andersen LLP's review and audit of the Company's
annual financial statements for the fiscal year ended
11
14
February 28, 2001, and the reviews of the financial statements included in
the Company's Forms 10-Q for that year totaled $280,000.
Financial Information Systems Design and Implementation Fees: The
Company did not engage Arthur Andersen LLP to provide advice to the Company
regarding financial information systems design and implementation during
the fiscal year ended February 28, 2001.
All Other Fees: Fees billed to the Company by Arthur Andersen LLP
during the fiscal year ended February 28, 2001, for all other non-audit
services rendered to the Company totaled $181,000.
The Audit Committee has considered the services rendered by the Company's
principal accountant for the most recent fiscal year as described above and has
concluded that the provision of such services is compatible with maintaining the
principal accountant's independence.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee is appointed by the Board of Directors and operates
pursuant to a written charter that was adopted by the Audit Committee on July
13, 2000 and amended March 8, 2001. A copy of the Audit Committee Charter is
attached as Exhibit A to this Proxy Statement.
In fulfilling its duties for the 2001 fiscal year, the Audit Committee has
done each of the following:
- reviewed fees paid by the Company to its independent auditors;
- reviewed the Company's audited financial statements for fiscal year 2001
and discussed the financial statements with the Company's management;
- discussed with Arthur Andersen LLP the matters required to be discussed
with the auditor by the Auditing Standards Board Statement on Auditing
Standards No. 61 (Codification of Statements on Auditing Standards,
AU380) as may be modified or supplemented;
- received written disclosure from Arthur Andersen LLP about any
relationship between Arthur Andersen LLP and the Company which it
believes may affect its independence;
- received a confirmation letter from Arthur Andersen LLP that it is
independent of the Company;
- discussed with Arthur Andersen LLP its independence from the Company.
Based on the review and discussions above, the Audit Committee recommended
to the Board of Directors that the audited financial statements be included in
the Company's 10-K filed with the SEC.
AUDIT COMMITTEE
Allan L. Acree
Karlheinz M. Kaiser
William J. Hadaway
MISCELLANEOUS
STOCKHOLDER PROPOSALS
Any stockholder who wishes to present a proposal for action at the next
annual meeting of stockholders of the Company, and who wishes to have such
proposal included in the proxy statement and form of proxy prepared by the
management of the Company for that meeting, must notify the Company in writing
not later than February 28, 2002. The notice should be directed to Capital
Pacific Holdings, Inc., 4100 MacArthur Boulevard, Suite 200, Newport Beach,
California 92660, Attention: Corporate Secretary.
12
15
SOLICITATION OF PROXIES
Proxies may be solicited on behalf of the Company by its officers and
employees, who will receive no additional compensation for such services,
through the mail, in person, and by telephone and by other telecommunication
methods. The cost of such solicitation will be borne by the Company. Brokers,
custodians, and other fiduciaries will be required to forward the Company's
proxy solicitation materials to the beneficial owners of Common Stock held in
their names, and the Company will reimburse such fiduciaries for the out-
of-pocket expenses incurred by them in connection with such activities.
The Company's Annual Report for the fiscal year ended February 28, 2001 is
being delivered to shareholders together with this Proxy Statement. Copies of
the annual report on Form 10-K for the fiscal year ended February 28, 2001 as
filed with the Securities and Exchange Commission (except for the Exhibits
thereto) may be obtained, free of charge, upon written request by any
stockholder delivered to Capital Pacific Holdings, Inc., 4100 MacArthur
Boulevard, Suite 200, Newport Beach, California 92660, Attention: Steven O.
Spelman, Jr., Chief Financial Officer and Corporate Secretary. Copies of all
exhibits to the annual report on Form 10-K are available upon a similar request,
subject to payment of a $.15 per page charge to reimburse the Company for its
expenses in supplying any exhibit.
THE COMPANY'S MANAGEMENT HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE, SIGN, AND
RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
The Board of Directors knows of no matters other than the election of
directors to be brought before the Meeting. However, if any other matter should
be presented for consideration, it is the intention of the persons named as
proxies in the enclosed form of Proxy to vote the Proxy in accordance with their
judgment.
By Order of the Board of Directors
/s/ STEVEN O. SPELMAN, JR.
STEVEN O. SPELMAN, JR.
Corporate Secretary
Dated: June 26, 2001
13
16
APPENDIX A
CAPITAL PACIFIC HOLDINGS, INC.
AUDIT COMMITTEE CHARTER
The Audit Committee ("the Committee"), of the Board of Directors ("the
Board") of Capital Pacific Holdings, Inc. ("the Company"), will have the
oversight responsibility, authority and specific duties as described below.
COMPOSITION
The Committee will be comprised of directors designated by the Board in a
number which meets the applicable requirements of the American Stock Exchange
(AMEX). The members of the Committee will meet the independence and experience
requirements of AMEX. The members of the Committee will be elected annually at
the organizational meeting of the full Board held in May and will be listed in
the annual report to shareholders. One of the members of the Committee will be
elected Committee Chair by the Board.
RESPONSIBILITY
The Committee is part of the Board. Its primary function is to assist the
Board in fulfilling its oversight responsibilities with respect to (i) the
annual financial information to be provided to shareholders and the Securities
and Exchange Commission (SEC); (ii) the system of internal controls that
management has established; and (iii) the internal and external audit process.
In addition, the Committee provides an avenue for communication between internal
audit, the independent accountants, financial management and the Board. The
Committee should have a clear understanding with the independent accountants
that they must maintain an open and transparent relationship with the Committee,
and that the ultimate accountability of the independent accountants is to the
Board and the Committee. The Committee will make regular reports to the Board
concerning its activities.
While the Audit Committee has the responsibilities and powers set forth in
this Charter, it is not the duty of the Audit Committee to plan or conduct
audits or to independently ascertain that generally accepted accounting
principles have been utilized in generating Company financial statements. This
is the responsibility of management and the independent auditor.
AUTHORITY
The Committee is granted the authority to investigate any matter or
activity involving financial accounting and financial reporting, as well as the
internal controls of the Company. In that regard, the Committee will have the
authority to approve the retention of external professionals to render advice
and counsel in such matters. All employees will be directed to cooperate with
respect thereto as requested by members of the Committee.
MEETINGS
The Committee is to meet at least four times annually and as many
additional times as the Committee deems necessary. Content of the agenda for
each meeting should be cleared by the Committee Chair. The Committee is to meet
in separate executive sessions with the chief financial officer, independent
accountants and internal audit at least once each year and at other times when
considered appropriate.
ATTENDANCE
Committee members will strive to be present at all meetings. As necessary
or desirable, the Committee Chair may request that members of management,
representatives of the independent accountants and internal audit staff and
other advisors be present at Committee meetings.
A-1
17
SPECIFIC DUTIES
In carrying out its oversight responsibilities, the Committee will:
1. Review and reassess the adequacy of this charter annually and
recommend any proposed changes to the Board for approval. This should be
done in compliance with applicable AMEX Audit Committee Requirements.
2. Review with the Company's management, internal audit and
independent accountants the Company's accounting and financial reporting
controls. Obtain annually in writing from the independent accountants their
letter to management including their recommendations on the system of
internal controls.
3. Review with the Company management, internal audit staff and
independent accountants significant accounting and reporting principles,
practices and procedures applied by the Company in preparing its financial
statements. Discuss with the independent accountants their judgments about
the quality, not just the acceptability, of the accounting principles used
by the Company in financial reporting.
4. Review the scope of internal audit's work plan for the year and
receive a summary report of major findings by internal auditors and how
management is addressing the conditions reported.
5. Review the scope and general extent of the independent accountants'
annual audit. The Committee's review should include an explanation from the
independent accountants of the factors considered by the accountants in
determining the audit scope, including the major risk factors. The
independent accountants should confirm to the Committee that no limitations
have been placed on the scope or nature of their audit procedures. The
Committee will review annually with management the fee arrangement with the
independent accountants.
6. Inquire as to the independence of the independent accountants and
obtain from the independent accountants, at least annually, a formal
written statement delineating all relationships between the independent
accountants and the Company as contemplated by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees.
7. Have a predetermined arrangement with the independent accountants
that they will advise the Committee through its Chair and management of the
Company of any matters identified through procedures followed for interim
quarterly financial statements, and that such notification as required
under standards for communication with Audit Committees is to be made prior
to the related press release or, if not practicable, prior to filing the
relevant Forms 10-Q.
8. At the completion of the annual audit, review with management,
internal audit and the independent accountants the following:
-- The annual financial statements and related footnotes and financial
information to be included in the Company's annual report to
shareholders and on Form 10-K.
-- Results of the audit of the financial statements and the related
report thereon and, if applicable, a report on changes during the
year in accounting principles and their application.
-- Significant changes to the audit plan, if any, and any serious
disputes or difficulties with management encountered during the
audit. Inquire about the cooperation received by the independent
accountants during their audit, including access to all requested
records, data and information. Inquire of the independent
accountants whether there have been any disagreements with
management which, if not satisfactorily resolved, would have caused
them to issue a nonstandard report on the Company's financial
statements.
-- Other communications as required to be communicated by the
independent accountants by Statement of Auditing Standards (SAS) 61
as amended by SAS 90 relating to the conduct of the audit. Further,
receive a written communication provided by the independent
accountants
A-2
18
concerning their judgment about the quality of the Company's
accounting principles, as outlined in SAS 61 as amended by SAS 90, and
that they concur with management's representation concerning audit
adjustments.
If deemed appropriate after such review and discussion, recommend to the Board
that the financial statements be included in the Company's annual report on Form
10-K.
9. After preparation by management and review by internal audit and
independent accountants, approve the report required under SEC rules to be
included in the Company's annual proxy statement. The charter is to be
published as an appendix to the proxy statement every three years.
10. Discuss with the independent accountants the quality of the
Company's financial and accounting personnel. Also, elicit the comments of
management regarding the responsiveness of the independent accountants to
the Company's needs.
11. Meet with management, internal audit and the independent
accountants to discuss any relevant significant recommendations that the
independent accountants may have, particularly those characterized as
"material" or "serious". Typically, such recommendations will be presented
by the independent accountants in the form of a Letter of Comments and
Recommendations to the Committee. The Committee should review responses of
management to the Letter of Comments and Recommendations from the
independent accountants and receive follow-up reports on action taken
concerning the aforementioned recommendations.
12. Recommend to the Board the selection, retention or termination of
the Company's independent accountants.
13. Review the appointment and replacement of the senior internal
audit executive.
14. Review with management, internal audit and the independent
accountants the methods used to establish and monitor the Company's
policies with respect to unethical or illegal activities by Company
employees that may have a material impact on the financial statements.
15. Generally as part of the review of the annual financial
statements, receive an oral report(s), at least annually, from the
Company's general counsel concerning legal and regulatory matters that may
have a material impact on the financial statements.
16. As the Committee may deem appropriate, obtain, weigh and consider
expert advice as to Audit Committee related rules of AMEX, Statements on
Auditing Standards and other accounting, legal and regulatory provisions.
A-3
19
PROXY
CAPITAL PACIFIC HOLDINGS, INC.
This Proxy is solicited by the Board of Directors for the Annual
Meeting of Stockholders to be held on July 12, 2001.
The undersigned hereby appoints Steven O. Spelman, Jr. and Sherry S. Irani,
or either of them with individual power of substitution, proxies to vote all
shares of Common Stock of Capital Pacific Holdings, Inc. which the undersigned
may be entitled to vote at the Annual Meeting of Stockholders to be held on
July 12, 2001, and at all adjournments thereof, as follows:
(Continued and to be signed on reverse side.)
SEE REVERSE
SIDE
20
[X] Please mark your
votes as in this
example
FOR WITHHOLD
all nominees listed AUTHORITY
(except as marked to for all nominees
the contrary below) listed
1. Election of [ ] [ ]
Directors
Nominees: Hadi Makarechain, Allan L. Acree,
Karlheinz M. Kaiser, William J. Hadaway
(Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name on the space provided below.)
__________________________________________________________________________
If no preference is indicated, this proxy will be voted "FOR" the nominees.
FOR AGAINST
2. Approval of Performance Based Compensation Plan [ ] [ ]
3. In accordance with their best judgment upon such other matters as may
properly come before the Meeting.
SIGNATURE(S) _________________________________________________ DATED ____, 2001
IMPORTANT: Please sign this Proxy exactly as your name or names appear hereon.
If shares are held by more than one owner, each must sign. Executors,
administrators, trustees, guardians, and others signing in a
representative capacity should give their full titles. BE SURE TO
DATE THIS PROXY