SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
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[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MONTEREY HOMES CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement)
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[X] No fee required.
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MONTEREY HOMES CORPORATION
6613 NORTH SCOTTSDALE ROAD
SUITE 200
SCOTTSDALE, ARIZONA 85250
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NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 29, 1997
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To Our Stockholders:
The 1997 Annual Meeting of Stockholders (the "Annual Meeting") of
Monterey Homes Corporation (the "Company") will be held at 9:00 a.m., Arizona
Time, on July 29, 1997, at The Arizona Club, 7150 East Camelback Road, Suite
500, Scottsdale, Arizona 85251, for the following purposes:
1. To elect two Class II directors to serve for two-year terms;
2. To approve the adoption of the Monterey Homes Corporation
Stock Option Plan;
3. To approve an amendment to the Company's Bylaws to increase
the number of authorized directors of the Company from five to
up to nine; and
4. To transact such other business as may properly come before
the Annual Meeting. Management is presently aware of no other
business to come before the meeting.
Each outstanding share of the Company's Common Stock entitles the
holder of record at the close of business on June 20, 1997 (the "Record Date"),
to receive notice of and to vote at the Annual Meeting or any adjournment
thereof. Shares of Common Stock can be voted at the Annual Meeting only if the
holder is present at the meeting in person or by valid proxy. A copy of the
Company's 1996 Annual Report to Stockholders, which includes audited financial
statements, is enclosed. Management cordially invites you to attend the Annual
Meeting.
By Order of the Board of Directors
Scottsdale, Arizona Larry W. Seay
May ___, 1997 Vice President - Finance, Chief Financial Officer,
Secretary and Treasurer
IMPORTANT
STOCKHOLDERS ARE REQUESTED TO SIGN, DATE AND MAIL THE ENCLOSED PROXY. A
POSTAGE-PAID ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
MONTEREY HOMES CORPORATION
6613 NORTH SCOTTSDALE ROAD
SUITE 200
SCOTTSDALE, ARIZONA 85250
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PROXY STATEMENT
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This Proxy Statement is furnished to the stockholders of Monterey Homes
Corporation (the "Company") in connection with the solicitation of proxies to be
used in voting at the Annual Meeting of Stockholders to be held on July 29,
1997. The enclosed proxy is solicited by the Board of Directors of the Company.
The proxy materials relating to the Annual Meeting were mailed on or about June
27, 1997 to stockholders of record at the close of business on June 20, 1997
(the "Record Date"). A person giving the enclosed proxy has the power to revoke
it at any time before it is exercised by: (i) attending the Annual Meeting and
voting in person; (ii) duly executing and delivering a proxy bearing a later
date; or (iii) sending written notice of revocation to the Secretary of the
Company at 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85250.
The Company will bear the cost of solicitation of proxies, including
the charges and expenses of brokerage firms and others for forwarding
solicitation material to beneficial owners of the outstanding Common Stock of
the Company. In addition to the use of the mails, proxies may be solicited by
personal interview, telephone or telegraph.
VOTING SECURITIES OUTSTANDING
As of the Record Date, there were [4,580,611] shares of the Company's
Common Stock outstanding. Stockholders are entitled to one vote for each share
held of record on each matter of business to be considered at the Annual
Meeting. Only holders of record of Common Stock at the close of business on the
Record Date will be entitled to vote at the Annual Meeting, either in person or
by valid proxy. Ballots cast at the Annual Meeting will be counted by the
Inspector of Elections and determination of whether a quorum exists and whether
the proposals are approved will be announced at the Annual Meeting. The
Inspector of Elections will treat abstentions and broker non-votes received as
shares that are present and entitled to vote for purposes of determining a
quorum, but as unvoted for purposes of determining the approval of any matter.
If a broker indicates on the proxy that it does not have discretionary authority
as to certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
The information included herein should be reviewed in conjunction with
the audited financial statements, notes to consolidated financial statements,
independent auditors' reports and other information included in the Company's
1996 Annual Report to Stockholders that was mailed with this Proxy Statement to
all stockholders of record as of the Record Date.
MERGER
On December 23, 1996 the stockholders of the Company (formerly Homeplex
Mortgage Investments Corporation), approved the merger (the "Merger") of
Monterey Homes Construction II, Inc., an Arizona corporation ("MHC II"), and
Monterey Homes Arizona II, Inc., an Arizona corporation ("MHA II"), with and
into the Company. MHC II and MHA II were privately owned homebuilders with
operations in Phoenix, Scottsdale and Tucson, Arizona. MHC II and MHA II and
their respective predecessors in interest are referred to herein collectively as
the "Monterey Entities." The Merger was effective on December 31, 1996, and was
completed pursuant to the terms of an Agreement and Plan of Reorganization,
dated September 13, 1996, by and among the Company, MHC II, MHA II and William
W. Cleverly and Steven J. Hilton, the stockholders of MHC II and MHA II (the
"Merger Agreement").
Concurrently with the Merger, William W. Cleverly was elected to serve
as Chairman of the Board of Directors and Co-Chief Executive Officer of the
Company and Steven J. Hilton was elected to serve as a Director, President and
Co-Chief Executive Officer of the Company. In addition, all of the Company's
directors, except Alan D. Hamberlin, and executive officers resigned their
positions with the Company. The Company's Board of Directors now consists of
William W. Cleverly, Steven J. Hilton, Alan D. Hamberlin, the former Chairman of
the Board of Directors of the Company, and two new outside directors, Robert G.
Sarver and C. Timothy White.
Upon consummation of the Merger, the Company's name was changed to
Monterey Homes Corporation and the Company's New York Stock Exchange ticker
symbol was changed to "MTH." In addition, a one-for-three reverse stock split of
the Company's issued and outstanding Common Stock, $.01 par value per share, was
effected. Except as otherwise indicated, the share information contained herein
reflects the one-for-three reverse stock split.
ELECTION OF DIRECTORS
(Proposal No. 1)
The Articles of Incorporation of the Company divide the Board of
Directors into two classes serving staggered two-year terms. Class I consists of
three directors whose terms expire at the 1998 Annual Meeting of Stockholders.
Class II consists of two directors whose terms expire at the 1997 Annual Meeting
of Stockholders. The Board of Directors has nominated Robert G. Sarver and C.
Timothy White, the incumbent Class II Directors, for re-election. Unless
otherwise noted thereon, the shares represented by the enclosed proxy will be
voted for the election of Messrs. Sarver and White. If either of them become
unavailable for any reason or if a vacancy should occur before election (which
events are not anticipated), the shares represented by the enclosed proxy may be
voted for such other person or persons as may be determined by the holders of
such proxy. Each director elected will serve for two years and until his
successor is duly elected and qualified.
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THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. SARVER AND WHITE AS CLASS II DIRECTORS OF THE COMPANY.
INFORMATION CONCERNING DIRECTORS, NOMINEES AND OFFICERS
Information concerning the Company's current directors, director
nominees and executive officers is set forth below.
Name Age Position with the Company
- ---- --- -------------------------
William W. Cleverly 41 Chairman of the Board, Class I Director
and Co-Chief Executive Officer
Steven J. Hilton 35 President, Co-Chief Executive Officer and
Class I Director
Larry W. Seay 41 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
Anthony C. Dinnell 45 Vice President-Marketing and Sales
Irene Carroll 41 Vice President-Land Acquisition and
Development
Christopher T. Graham 33 Vice President-Construction Operations
Jeffrey R. Grobstein 37 Vice President-Tucson Division
Alan D. Hamberlin(2) 48 Class I Director
Robert G. Sarver(1) 35 Class II Director
C. Timothy White(1)(2) 36 Class II Director
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(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
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William W. Cleverly has served as Chairman of the Board and Co-Chief
Executive Officer of the Company since the Merger on December 31, 1996. Mr.
Cleverly co-founded the Monterey Entities in 1986 and served as President and
director of the Monterey Entities until the Merger on December 31, 1996. From
1983 to 1986, Mr. Cleverly was the President and founder of a real estate
development company which developed and marketed multi-family projects. Mr.
Cleverly received his undergraduate degree from the University of Arizona, and
is a member of the Central Arizona Homebuilders' Association of Arizona and the
National Homebuilders' Association.
Steven J. Hilton has served as President, Co-Chief Executive Officer
and Director of the Company since the Merger on December 31, 1996. Mr. Hilton
co-founded the Monterey Entities in 1986 and served as Treasurer, Secretary and
director of the Monterey Entities until the Merger on December 31, 1996. From
1985 to 1986, Mr. Hilton served as a project manager for Premier Community
Homes, a residential homebuilder. From 1984 to 1985, Mr. Hilton served as a
project manager for Mr. Cleverly's real estate development company. Mr. Hilton
received his undergraduate degree from the University of Arizona, and is a
member of the Central Arizona Homebuilders' Association, the National
Homebuilders' Association, the National Board of Realtors and the Scottsdale
Board of Realtors.
Larry W. Seay has served as the Vice President-Finance and Chief
Financial Officer of the Company since the Merger on December 31, 1996 and as
Secretary and Treasurer of the Company since January 1997. Mr. Seay was
appointed Vice President-Finance and Chief Financial Officer of the Monterey
Entities in April 1996 and served in that capacity until the Merger on December
31, 1996. From 1990 to 1996, Mr. Seay served as the Vice President- Treasurer of
UDC Homes, Inc., a homebuilding company based in Phoenix, Arizona. In May 1995,
while Mr. Seay served as Vice President-Treasurer, UDC Homes, Inc. filed for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code. UDC Homes,
Inc. emerged from reorganization proceedings in November 1995. From 1986 to
1990, Mr. Seay served as Treasurer and Chief Financial Officer of Emerald Homes,
Inc., also a Phoenix, Arizona-based homebuilding company. Prior to 1986, Mr.
Seay worked as a staff accountant and audit manager at Deloitte & Touche LLP.
Mr. Seay graduated with undergraduate degrees in finance and accounting and with
a Masters in Business Administration from Arizona State University. Mr. Seay is
a certified public accountant and a member of the American Institute of
Certified Public Accountants.
Anthony C. Dinnell has served as the Vice President-Marketing and Sales
of the Company since the Merger on December 31, 1996. Mr. Dinnell served as Vice
President-Marketing and Sales of the Monterey Entities from 1992 until the
Merger. From 1991 to 1992, Mr. Dinnell was Regional Sales Manager for M/I
Schottenstein Homes and from 1988 to 1991 he was Division Manager for NV Homes,
both of which are Maryland-based, national homebuilding companies. Prior to
1988, Mr. Dinnell served as Vice President of Sales and Marketing with Coscan
Homes, a residential homebuilder in Phoenix, Arizona, and as Director of
Marketing for Dell Trailer Homes, a builder of manufactured housing, also in
Phoenix, Arizona. He is on the Sales and
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Marketing Council for the Central Arizona Homebuilders' Association and a member
of the National Homebuilders' Association.
Irene Carroll has served as the Vice President-Land Acquisition and
Development of the Company since the Merger on December 31, 1996. Ms. Carroll
served as Vice President-Land Acquisition and Development of the Monterey
Entities from 1994 until the Merger on December 31, 1996. From 1992 to 1994, Ms.
Carroll served as a Division Manager for Richmond American Homes, a residential
homebuilder in Phoenix, Arizona. From 1983 to 1992, Ms. Carroll held a number of
other positions with Richmond American Homes and its predecessor, Wood Brothers
Homes, including Vice President of Operations (1992-1994), Vice President of
Finance (1987-1992), Division Controller (1984-1987), and Corporate Cash Manager
(1983- 1984). Ms. Carroll graduated from the University of Texas, is a certified
public accountant, and is a member of the Central Arizona Homebuilders'
Association and the National Homebuilders' Association.
Christopher T. Graham has served as the Vice President-Construction
Operations of the Company since the Merger on December 31, 1996. Mr. Graham was
appointed Vice President- Construction Operations of the Monterey Entities in
1996 and served in that capacity until the Merger on December 31, 1996. From
1993 to 1996, Mr. Graham served as a Project Manager in Phoenix, Arizona, and as
Director of Construction in Salt Lake City, Utah, for Pulte Home Corporation, a
residential homebuilder. Prior to 1993, Mr. Graham worked in various positions
of increasing responsibility with Continental Homes, a residential homebuilder,
most recently as Purchasing Manager. Mr. Graham is a member of the Greater Salt
Lake Homebuilders' Association.
Jeffrey R. Grobstein has served as the Vice President-Tucson Division
of the Company since the Merger on December 31, 1996. Mr. Grobstein joined the
Monterey Entities in 1988 as Community Manager in Monterey's Sales and Marketing
Department. From 1995 to 1996, Mr. Grobstein served as Vice President-Marketing
and Sales for Monterey's Tucson Division, and in 1996 was promoted to Vice
President-Tucson Division and served in that capacity until the Merger on
December 31, 1996. From 1984 to 1988, Mr. Grobstein was employed in the sales
and marketing department of the Dix Corporation, a residential homebuilder. Mr.
Grobstein is a member of the Southern Arizona Homebuilders' Association, the
Tucson Association of Realtors and the National Homebuilders' Association.
Alan D. Hamberlin has served as a director of the Company since the
Company's organization in July 1988. Mr. Hamberlin served as Chief Executive
Officer of the Company from July 1988 until the Merger on December 31, 1996, and
as Chairman of the Board of Directors from January 1990 until the Merger. He
also served as the President of the Company from its organization until
September 1995. Mr. Hamberlin served as the President and Chief Executive
Officer of the managing general partner of the Company's former Manager and has
been President of Courtland Homes, Inc., a Phoenix, Arizona single-family
residential homebuilder, since July 1983. Mr. Hamberlin has served as a director
of American Southwest Financial Corporation and
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American Southwest Finance Co., Inc. since their organization in September 1982,
as a Director of American Southwest Affiliated Companies since its organization
in March 1985 and of American Southwest Holdings, Inc. since August 1994.
Robert G. Sarver has served as a director of the Company since the
Merger on December 31, 1996. Mr. Sarver has served as the Chairman and Chief
Executive Officer of GB BankCorporation, a bank holding company for Grossmont
Bank, San Diego's largest community bank, since 1995. Mr. Sarver currently
serves as a director of Zion's BankCorporation, a publicly held bank holding
company. In 1990, Mr. Sarver was a co-founder and currently serves as the
Executive Director of Southwest Value Partners and Affiliates, a real estate
investment company. In 1984, Mr. Sarver founded National Bank of Arizona, Inc.
and served as President until it was acquired by Zion's BankCorporation in 1993.
Mr. Sarver received his undergraduate degree from the University of Arizona and
is a certified public accountant.
C. Timothy White has served as a director of the Company since the
Merger on December 31, 1996. Mr. White served as a director of the Monterey
Entities from February 1995 until the Merger on December 31, 1996. Since 1989,
Mr. White has been an attorney with the law firm of Tiffany & Bosco, P.A. in
Phoenix, Arizona. During 1996 and 1995, the Monterey Entities paid Tiffany &
Bosco, P.A. approximately $100,000 and $206,000, respectively, for legal
services rendered. Mr. White received his undergraduate degree from the
University of Arizona and his law degree from Arizona State University.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
Board of Directors. During the year ended December 31, 1996, the
Company's Board of Directors met on five occasions. Each of the directors
attended all of the meetings of the Board of Directors and of the committees of
the Board on which he served.
Compensation Committee. In 1996, the Compensation Committee of the
Board of Directors consisted of the entire Board of Directors. Since the Merger
on December 31, 1996 the Compensation Committee has consisted of Messrs.
Hamberlin and White. The Compensation Committee reviews all aspects of
compensation of executive officers of the Company and makes recommendations on
such matters to the full Board of Directors. The Report of the Compensation
Committee for 1996 is set forth below.
Audit Committee. The Audit Committee, which met once during 1996, makes
recommendations to the Board concerning the selection of outside auditors,
reviews the financial statements of the Company and considers such other matters
in relation to the external audit of the financial affairs of the Company as may
be necessary or appropriate in order to facilitate accurate and timely financial
reporting.
Other Committees. The Company does not maintain a standing nominating
committee or other committee performing similar functions.
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Compensation Committee Interlocks and Insider Participation. Prior to
the Merger, the Compensation Committee of the Board of Directors consisted of
the entire Board of Directors. After the Merger, Mr. Hamberlin and Mr. White,
neither of whom are employees of the Company, were appointed to the Compensation
Committee.
DIRECTOR COMPENSATION
Prior to the Merger, directors who were not employees of the Company
received an annual retainer of $20,000, plus $1,000 per meeting of the Board of
Directors attended by the director. Currently, non-employee directors of the
Company receive an annual retainer of $10,000 and are not additionally
compensated for attendance at Board or Committee meetings. Subject to the
approval of the Monterey Homes Corporation Stock Option Plan (Proposal No. 2),
it is currently anticipated that each of the non-employee directors also will be
granted an option to purchase 5,000 shares of the Company's Common Stock as
additional consideration for their service as directors. These options shall
vest in equal 2,500 share increments on each of the first two anniversary dates
of the date of grant and shall have an exercise price equal to the closing price
of the Company's Common Stock on the date of grant.
In connection with the Merger, the Company's stockholders approved an
extension of certain of the Company's stock options. The Company's former
directors are parties to stock option agreements (collectively, the "Existing
Stock Option Agreements") pursuant to which such former directors were issued
stock options to purchase shares of the Company Common Stock under the stock
plan of the Company existing prior to the Merger (the "Existing Stock Option
Plan"). The Existing Stock Option Plan and Existing Stock Option Agreements
provide for an exercise period after an optionee ceases to be an employee or
director of the Company of three months after cessation of employment or service
as a director. To facilitate the Merger, and in consideration thereof and in
light of their past service to the Company, the stockholders approved an
extension of the post-termination exercise period from three months to two
years.
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EXECUTIVE COMPENSATION
The table below sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal years ended December 31, 1996, 1995 and 1994, of those persons who were,
at December 31, 1996 (i) the Chief Executive Officers of the Monterey Entities
and the Company and (ii) the other most highly compensated executive officer of
the Company (collectively, the "Named Officers"). Information with respect to
the Company's current Co-Chief Executive Officers and other executive officers
is not provided as such persons did not serve the Company in those capacities
during 1996.
SUMMARY COMPENSATION TABLE
Long-Term
Compensation
------------
Annual Compensation Awards
------------------- ------
All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation
--------------------------- ---- ------ ----- ---------- ------------
Alan D. Hamberlin(1) Chairman of 1996 $1 --- 861 ---
the Board and Chief Executive 1995 $240,000 --- 273,338 ---
Officer 1994 $250,000 $2,100 1,547 ---
Jay R. Hoffman(2) 1996 $200,016 $100,000 178 $200,000(3)
President, Secretary, Treasurer 1995 $183,000 $25,000 413 ---
and Chief Financial Officer 1994 $175,000 $15,000 405 ---
- ------------------------
(1) Mr. Hamberlin resigned all positions with the Company, other than director,
in conjunction with the Merger on December 31, 1996.
(2) Mr. Hoffman resigned his positions with the Company in conjunction with the
Merger on December 31, 1996.
(3) Represents change of control payment made to Mr. Hoffman upon consummation
of the Merger.
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OPTION GRANTS IN LAST FISCAL YEAR
The table below sets forth information with respect to the granting of
stock options during the fiscal year ended December 31, 1996, to the Named
Officers and to Messrs. Cleverly and Hilton, who became the Company's Co-Chief
Executive Officers on December 31, 1996.
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term(1)
----------------- -------
Percentage of
Total Options Exercise
Granted to or Base
Options Employees In Price Expiration
Name Granted # Last Fiscal Year ($/Share) Date 0% 5% 10%
---- --------- ---------------- --------- ---- -- -- ---
Alan D. Hamberlin 861(2) * --- 12/31/98 $3,900 $4,300 $4,700
Jay R. Hoffman 178(2) * --- 12/31/98 $800 $900 $1,000
William W. Cleverly 166,667(3) 49.8% $5.25 12/31/02 $297,600 $675,100
Steven J. Hilton 166,667(3) 49.8% $5.25 12/31/02 $297,600 $675,100
- -----------------
* Represents less than 1% of total options granted to employees in 1996.
(1) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option terms. The
potential realizable value is calculated by assuming that the market
price of the underlying security appreciates in value from the date of
grant to the end of the option term at certain specified rates, and
that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price. These gains are based on
assumed rates of stock appreciation of 0%, 5% and 10% compounded
annually from the date the respective options were granted to their
expiration date, and are not presented to forecast future appreciation,
if any, in the price of the Common Stock.
(2) Represents dividend equivalent rights earned in 1996, all of which are
currently exercisable.
(3) Represents options granted in connection with the Merger. These options
vest in equal one-third increments on December 31, 1997, 1998 and 1999.
Excludes 266,667 shares of contingent stock in which Messrs. Cleverly
and Hilton each have a one-half interest and which will be issued only
if certain stock price goals are achieved.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
OPTION VALUE AS OF DECEMBER 31, 1996
The table below sets forth information with respect to the exercise of
stock options during the fiscal year ended December 31, 1996 to the Named
Officers and to Messrs. Cleverly and Hilton, who became the Company's Co-Chief
Executive Officers on December 31, 1996. The Company does not have a long-term
incentive plan or a defined benefit or actuarial plan and has never issued any
stock appreciation rights.
Number of Unexercised Value of Unexercised In-the-
Options at Fiscal Money Options at Fiscal Year
Year End (#) End ($)(1)
------------ ----------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
Alan D. --- --- 261,435 91,667 $724,600 $275,000
Hamberlin
Jay R. Hoffman --- --- 21,268 --- $25,700 ---
William W. --- --- --- 166,667 --- $375,000
Cleverly
Steven J. Hilton --- --- --- 166,667 --- $375,000
- ------------------------
(1) Calculated based on the closing price of the Company's Common Stock on
December 31, 1996 of $7.50 per share less the exercise price per share,
multiplied by the number of applicable shares in the money (including
dividend equivalent rights).
EMPLOYMENT AGREEMENTS
In connection with the Merger, the Company and each of William W.
Cleverly and Steven J. Hilton executed employment agreements (the "Employment
Agreements"). The Employment Agreements each have a term ending on December 31,
2001, and provide for an initial base salary of $200,000 per year (increasing by
5% of the prior year's base salary per year) and an annual bonus for the first
two years of the lesser of 4% of the pre-tax consolidated net income of the
Company or $200,000. Thereafter, the bonus percentage payout of consolidated net
income will be determined by the Compensation Committee of the Board of
Directors, provided that in no event will the bonus payable in any year exceed
$200,000 per employee. Mr. Cleverly serves as the Company's Co-Chief Executive
Officer and Chairman of the Board of Directors, and Mr. Hilton serves as the
Company's Co-Chief Executive Officer, Director and President. If either Mr.
Cleverly or Mr. Hilton voluntarily terminates his employment or is discharged
for "Cause," the Company will have no obligation to pay him his current annual
salary or bonus. If either Mr. Cleverly or Mr. Hilton is terminated during the
term of the Employment Agreement without "Cause" or as a result of his death or
permanent disability, the Company will be obligated to pay him (a) his current
annual salary through the term of the Employment Agreement if terminated without
"Cause," or for six months after termination in the event of
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death or disability, plus (b) a pro rated bonus. "Cause" is defined to mean only
an act or acts of dishonesty constituting a felony and resulting or intended to
result directly or indirectly in substantial personal gain or enrichment at the
expense of the Company.
The Employment Agreements with Messrs. Cleverly and Hilton contain
non-compete provisions that until December 31, 2001, restrict them from, except
in connection with their performance of their duties under the Employment
Agreements, (i) engaging in the homebuilding business, (ii) recruiting, hiring
or discussing employment with any person who is, or within the past six months
was, an employee of the Company, (iii) soliciting any customer or supplier of
the Company for a competing business or otherwise attempting to induce any
customer or supplier to discontinue its relationship with the Company, or (iv)
except solely as a limited partner with no management or operating
responsibilities, engaging in the land banking or lot development business;
provided, however, the foregoing provisions shall not restrict (A) the ownership
of less than 5% of a publicly-traded company, or (B) in the event the employment
of either Mr. Cleverly or Mr. Hilton is terminated under the Employment
Agreement, engaging in the custom homebuilding business, engaging in the
production homebuilding business outside a 100 mile radius of any project of the
Company or outside Northern California or engaging in the land banking or lot
development business. The non-compete provisions will survive the termination of
the Employment Agreement unless either Mr. Cleverly or Mr. Hilton is terminated
by the Company without Cause.
CHANGE OF CONTROL ARRANGEMENTS
In the event there is a change of control of the Company that is not
unanimously approved by the Company's Board of Directors, all unvested options
granted to Alan D. Hamberlin will vest in full and be immediately exercisable by
Mr. Hamberlin. The Company currently does not have any other change of control
agreements or arrangements.
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BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
Prior to the Merger, the Board of Directors was responsible for
reviewing and determining the Company's compensation policies and the
compensation paid to executive officers. There was no compensation committee
that reviewed and made recommendations to the Board of Directors on cash
compensation, stock option awards and other compensation for the Company's
executive officers.
During 1996, the Company's executive officers, Alan D. Hamberlin and
Jay R. Hoffman, were compensated pursuant to the terms of their employment
agreements with the Company. The Board paid a bonus to Mr. Hoffman in light of
his significant contributions to the Company during 1996, especially his efforts
in connection with the Merger. Mr. Hoffman also received a $200,000 change of
control payment upon consummation of the Merger pursuant to the terms of his
employment agreement. The Board did not award a bonus to Mr. Hamberlin and Mr.
Hamberlin agreed to waive his $500,000 change of control payment that may have
been triggered by the Merger. No stock options were granted to Messrs. Hamberlin
and Hoffman during 1996 except for those granted in connection with their
dividend equivalent rights.
In connection with the Merger, the Company's stockholders approved an
extension of certain of the Company's stock options. The Company's former
executive officers are parties to the Existing Stock Option Agreements pursuant
to which they were issued stock options to purchase shares of the Company Common
Stock under the Existing Stock Option Plan. The Existing Stock Option Plan and
Existing Stock Option Agreements provide for an exercise period after an
optionee ceases to be an employee or director of the Company of three months
after cessation of employment or service as a director. To facilitate the
Merger, and in consideration thereof and in light of their past service to the
Company, the stockholders approved an extension of the post-termination exercise
period from three months to two years.
FORMER BOARD OF DIRECTORS
Alan D. Hamberlin
Jay R. Hoffman
Larry E. Cox
Mark A. McKinley
Gregory K. Norris
12
STOCK PRICE PERFORMANCE GRAPH
The following chart compares the cumulative total stockholder return on
the Company Common Stock during the five years ended December 31, 1996, with a
cumulative total return on the Standard & Poor's 500 Stock Index and an industry
index (the "Index") prepared by the National Association of Real Estate
Investment Trusts ("NAREIT"). The Index consists of Mortgage Real Estate
Investment Trusts as compiled by NAREIT. The comparison assumes $100 was
invested on December 31, 1991 in the Company's Common Stock and in each of the
foregoing indices and assumes reinvestment of dividends.
As a result of the Merger and the concurrent termination of the
Company's REIT status, the Company will select new comparisons for the stock
price performance graph in next year's Proxy Statement.
As of December 31,
--------------------------------------
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
The Company 100 38 20 16 25 43
NAREIT Index 100 102 117 88 144 218
S & P 500 100 108 118 120 165 203
13
SECURITY OWNERSHIP OF PRINCIPAL STOCKHOLDERS
AND MANAGEMENT
The following table sets forth, as of April 30, 1997, the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by each person known by the Company to beneficially own more than 5% of
such stock, by each director and executive officer of the Company and by all
directors and executive officers of the Company as a group.
Name and Address of Shares Beneficially Percent
Beneficial Owner(1) Owned(2) Owned(3)
------------------- -------- --------
William W. Cleverly 647,696 14.31%
Steven J. Hilton 644,363 14.23%
Alan D. Hamberlin 286,701(4) 5.97%
Robert G. Sarver 61,666 1.36%
C. Timothy White -- --
Larry W. Seay -- --
Irene Carroll 6,666 *
Anthony Dinnell 500 *
Christopher T. Graham 500 *
Jeffrey R. Grobstein 1,020 *
All Directors and Executive Officers 1,649,113 36.06%
as a group (10 persons)
- --------------------
* Represents less than 1% of the Company's outstanding Common Stock.
(1) The address for each director and officer is c/o Monterey Homes
Corporation, 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona
85250.
(2) Includes, where applicable, shares of Common Stock owned of record by such
person's minor children and spouse and by other related individuals and
entities over whose shares of Common Stock such person has custody, voting
control or the power of disposition.
(3) The percentages shown include the shares of Common Stock actually owned as
of April 30, 1997 and the shares of Common Stock which the person or group
had the right to acquire within 60 days of such date. In calculating the
percentage of ownership, all shares of Common Stock which the identified
person or group had the right to acquire within 60 days of April 30, 1997
upon the exercise of options are deemed to be outstanding for the purpose
of computing the percentage of the shares of Common Stock owned by such
person or group, but are not deemed to be outstanding for the purpose of
computing the percentage of the shares of Common Stock owned by any other
person.
(4) Includes 12,633 shares of Common Stock indirectly beneficially owned by
Mr. Hamberlin through a partnership and 274,068 shares of Common Stock
which Mr. Hamberlin had the right to acquire within 60 days of April 30,
1997 upon the exercise of stock options (including dividend equivalent
rights).
14
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers, directors and persons who own more than 10% of a registered
class of the Company's equity securities to file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC").
Officers, directors and greater than 10% stockholders are required by SEC
regulations to furnish the Company with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that all required forms were filed, the
Company believes that during the Company's preceding fiscal year all Section
16(a) filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Alan D. Hamberlin, the former Chairman of the Board of Directors, and
Chief Executive Officer of the Company, is also a director of American Southwest
Financial Corporation, American Southwest Finance Co., Inc., American Southwest
Affiliated Companies and American Southwest Holdings, Inc. and a member of the
management committee of American Southwest Financial Group, L.L.C. ("ASFG").
Mr. Hamberlin directly and indirectly owns a total of 25% of the voting
stock of American Southwest Holdings, Inc., American Southwest Holdings, Inc.
directly or indirectly owns 100% of the voting stock of, among other entities,
American Southwest Financial Services, Inc. ("ASFS"), American Southwest
Financial Corporation and Westam Mortgage Financial Corporation. Mr. Hamberlin
also directly and indirectly owns up to 25% of the capital interest held by the
common members of ASFG and indirectly owns up to 25% of the capital interest of
the preferred members of ASFG.
The Company is a party to a Subcontractor Agreement pursuant to which
ASFG, as assignee of ASFS, performs certain services for the Company in exchange
for administration fees. ASFS received administration fees of approximately
$133,000 during 1996, $144,000 during 1995 and $165,000 during 1994. The
Subcontractor Agreement renews on an annual basis and the Company has the right
to terminate the Subcontractor Agreement upon the happening of certain events.
ADOPTION OF THE
MONTEREY HOMES CORPORATION STOCK OPTION PLAN
(Proposal No. 2)
General
The Board of Directors of the Company has approved and recommends that
the stockholders approve adoption of the Monterey Homes Corporation Stock Option
Plan for executives, directors and consultants of the Company. The Plan
authorizes grants of incentive
15
stock options ("ISOs") and non-qualified stock options ("NQSOs") to individuals
and entities as the Company's Compensation Committee (the "Committee") in its
discretion should be awarded such incentives in light of the best interests of
the Company. The total number of shares of Common Stock available for awards
under the Plan is 225,000. The maximum number of shares of Common Stock that can
be issued to any one person under the Plan is 50,000 shares. The closing price
for the Common Stock on May 27, 1997, as reported on the New York Stock
Exchange, was $5.00 per share.
The Board of Directors believes that the Plan will promote the success
and enhance the value of the Company by (i) tying the personal interests of
participants to those of the Company's stockholders, and (ii) providing
participants with an incentive for outstanding performance. The following
summary of the Plan is qualified in its entirety by reference to the Plan, a
copy of which is attached as Exhibit A.
The Plan will be administered by the Compensation Committee (the
"Committee") of the Board of Directors and will consist entirely of directors
qualifying as non-employee directors. The Committee has the exclusive authority
to administer the Plan, including the power to determine eligibility, the types
of awards to be granted, the timing of awards and the exercise price of awards.
Description of the Available Awards
Incentive Stock Options. An ISO is a stock option that satisfies the
requirements specified in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). Under the Code, ISOs may only be granted to employees. In
order for an option to qualify as an ISO, the price payable to exercise the
option must equal or exceed the fair market value of the stock at the date of
the grant, the option must lapse no later than 10 years from the date of the
grant, and the stock subject to ISOs that are first exercisable by an employee
in any calendar year must not have a value of more than $100,000 as of the date
of grant. Certain other requirements must also be met. The Committee determines
the amount of consideration to be paid to the Company upon exercise of any
options. The form of payment may include cash, Common Stock or other property.
An optionee is not treated as receiving taxable income upon either the
grant of an ISO or upon the exercise of an ISO. However, the difference between
the exercise price and the fair market value of the stock at the time of
exercise is an item of tax preference at the time of exercise in determining
liability for the alternative minimum tax, assuming that the Common Stock is
either transferrable or is not subject to a substantial risk of forfeiture under
Section 83 of the Code. If at the time of exercise, the Common Stock is both
nontransferable and is subject to a substantial risk of forfeiture, the
difference between the exercise price and the fair market value of the Common
Stock (determined at the time the Common Stock becomes either transferrable or
not subject to a substantial risk of forfeiture) will be a tax preference item
in the year in which the Common Stock becomes either transferrable or not
subject to a substantial risk of forfeiture.
16
If Common Stock acquired by the exercise of an ISO is not sold or
otherwise disposed of within two years from the date of its grant and is held
for at least one year after the date such Common Stock is transferred to the
optionee upon exercise, any gain or loss resulting from its disposition is
treated as long-term capital gain or loss. If such Common Stock is disposed of
before the expiration of the above-mentioned holding periods, a "disqualifying
disposition" occurs. If a disqualifying disposition occurs, the optionee
realizes ordinary income in the year of the disposition in an amount equal to
the difference between the fair market value of the Common Stock on the date of
exercise and the exercise price, or the selling price of the Common Stock and
the exercise price, whichever is less. The balance of the optionee's gain on a
disqualifying disposition, if any, is taxed as capital gain.
The Company is not entitled to any tax deduction as a result of the
grant or exercise of an ISO, or on a later disposition of the Common Stock
received, except is the event of a disqualifying disposition, the Company is
entitled to a deduction equal to the amount of ordinary income realized by the
optionee.
Non-Qualified Stock Options. An NQSO is any stock option other than an
Incentive Stock Option. Such options are referred to as "non-qualified" because
they do not meet the requirements of, and are not eligible for, the favorable
tax treatment provided by Section 422 of the Code.
No taxable income is realized by an optionee upon the grant of an NQSO,
nor is the Company entitled to a tax deduction by reason of such grant. Upon the
exercise of an NQSO, the optionee realizes ordinary income in an amount equal to
the excess of the fair market value of the Common Stock on the date of exercise
over the exercise price and the Company is entitled to a corresponding tax
deduction.
Upon a subsequent sale or other disposition of Common Stock acquired
through exercise of an NQSO, the optionee realizes a short-term or long-term
capital gain or loss to the extent of any intervening appreciation or
depreciation. Such a resale by the optionee has no tax consequences to the
Company.
Change of Control
Upon the occurrence of a Corporate Transaction (as defined in the
Plan), if the surviving corporation or the purchaser does not assume the
obligations of the Company under the Plan, all outstanding options shall become
immediately exercisable in full and each option holder shall be afforded the
opportunity to exercise their options prior to the consummation of the Corporate
Transaction so that the option holder can participate in the Corporate
Transaction. The Plan defines a "Corporate Transaction" to include (i) a merger
or consolidation in which the Company is not the surviving entity; (ii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company in a liquidation or dissolution of the Company; or (iii) any reverse
merger in which the Company is the surviving entity but in which the beneficial
ownership of securities possessing more than 50% of the total combined voting
power of the Company's
17
outstanding securities are transferred to holders different from those who held
such securities immediately prior to such merger.
To the extent that the Plan is unaffected and assumed by the successor
corporation or its parent company, a Corporate Transaction will have no effect
on the outstanding options and the options shall continue in effect according to
their terms. Options which continue in effect shall be appropriately adjusted to
account for the number and class of securities which would have been issued to
the option holder in connection with the consummation of the Corporate
Transaction had the option holder exercised the option immediately prior to the
Corporate Transaction. Appropriate adjustments also shall be made to the
exercise price of such options, provided that the aggregate exercise price shall
remain the same.
Plan Benefits
The following table sets forth initial grants of options that the
Company expects to make upon approval of the Plan by the stockholders to (i)
each current executive officer of the Company; (ii) all current executive
officers as a group; (iii) all current directors who are not executive officers
as a group; and (iv) all employees, including all current officers who are not
executive officers, as a group. Grants under the Plan will be made at the
discretion of the Committee and, accordingly, future grants are not yet
determinable.
18
PLAN BENEFITS
STOCK OPTION PLAN
Number of Shares
Name and Location To Be Granted Initially
- ----------------- -----------------------
William W. Cleverly
Chairman and Co-Chief Executive Officer ---
Steven J. Hilton ---
President and Co-Chief Executive Officer
Larry W. Seay 10,000
Vice President - Finance, Chief Financial
Officer, Secretary and Treasurer
Anthony C. Dinnell 10,000
Vice President - Marketing and Sales
Irene Carroll 7,500
Vice President - Land Acquisition and
Development
Christopher T. Graham 7,500
Vice President - Construction Operations
Jeffrey R. Grobstein 10,000
Vice President - Tucson Division
Executive Officer Group 45,000
Director Group 20,000
Employee Group 13,500
Required Vote
Approval of the Monterey Homes Corporation Stock Option Plan requires
the affirmative vote of a majority of shares of Common Stock present at the
Annual Meeting in person or by proxy.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
APPROVAL OF THE MONTEREY HOMES CORPORATION STOCK OPTION PLAN.
19
AMENDMENT TO THE COMPANY'S BYLAWS
(Proposal No. 3)
General
The Board of Directors has approved, and recommends that the
stockholders approve an amendment (the "Amendment") to Article II, Section 2 of
the Bylaws of the Company that would allow for an increase in the size of the
Board of Directors. Under the Amendment, the number of directors could initially
be increased or decreased from time to time upon a majority vote of the entire
Board of Directors. As presently in effect, the Company's Bylaws specify that
the Company's Board of Directors shall consist of five members and that such
number of directors can not be changed except with the approval of the
stockholders.
The Amendment to allow for expanding the size of the Board of Directors
was unanimously approved on March 13, 1997, by the Company's Board of Directors
which deemed it to be advisable and in the best interest of the Company and all
its stockholders. In the opinion of management, the Amendment will benefit the
stockholders because, if approved, the Company will have the flexibility to
expand its current Board membership as needed and, if desired, retain the
services of additional, well-qualified persons to serve on the Company's Board
of Directors. If the Amendment is approved, Article II, Section 2 of the Bylaws
of the Company shall be deleted in its entirety and replaced with the following:
"The number of directors of the Corporation may be increased or
decreased from time to time by vote of a majority of the entire Board
of Directors to a number not less than five and not greater than nine.
The directors shall be divided into two classes designated Class I and
Class II. Each Class shall consist of one-half of the directors or as
close thereto as possible. Each director whose term shall have expired
at an annual meeting of stockholders shall be elected for a term
running until the second annual meeting of stockholders next succeeding
his or her election and until his or her successors shall have been
duly elected an qualified. A director may be removed from office as
provided in Article I, Section 10 of these Bylaws."
Purpose and Effect
The Board of Directors believes that in order to attract and retain a
sufficient number of qualified directors, the size of the Board must be
increased. Currently, the Board of Directors consists of five members. Of these
five members, Mr. Cleverly and Mr. Hilton are current employees of the Company
and Mr. Hamberlin is the former Chief Executive Officer of the Company.
An increase in the number of board members will allow the Company the
flexibility to recruit additional outside directors that may provide the Company
with business expertise in industries that are similar or complementary to the
Company's homebuilding business. In addition, the Company currently does not
have the ability to provide a seat of the Board of
20
Directors to an officer of another corporation should the Company decide to
undertake a merger or acquisition, and expanding the Board would allow the
Company to provide a director position to such an officer.
Required Vote
The affirmative vote of a majority of the outstanding shares of Common
Stock entitled to vote at the Annual Meeting is required to approve the
Amendment to the Company's Bylaws.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
AMENDMENT TO THE BYLAWS TO INCREASE THE AUTHORIZED NUMBER OF DIRECTORS.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The principal independent public accounting firm utilized by the
Company during the fiscal year ended December 31, 1996 was Ernst and Young LLP,
independent certified public accountants.
On January 14, 1997, the Company's Board of Directors dismissed Ernst &
Young LLP, and to replaced them with KPMG Peat Marwick LLP. KPMG Peat Marwick
LLP served as the independent accountants for the Monterey Entities prior to the
Merger described above. KPMG Peat Marwick LLP performed the audit of the
Company's financial statements for the year ended December 31, 1996. A
representative of KPMG Peat Marwick will attend the Annual Meeting for the
purpose of responding to appropriate questions and will be afforded an
opportunity to make a statement if the representative so desires.
Ernst & Young LLP rendered unqualified reports with respect to the
financial statements of the Company for the two most recent fiscal years. In
addition, during the two most recent fiscal years there were no disagreements
between the Company and Ernst & Young LLP with respect to any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
STOCKHOLDER PROPOSALS
The Board of Directors will consider nominations from stockholders to
the class of directors whose terms expire at the 1998 Annual Meeting of
Stockholders that are made in writing to the Secretary of the Company, are
received at least 90 days prior to the 1998 Annual Meeting, and contain
sufficient background information concerning the nominee to enable proper
judgment to be made as to his or her qualifications, as more fully provided in
the Company's Articles of Incorporation and Bylaws. Proposals of stockholders as
to other matters intended to be presented at the 1998 Annual Meeting must be
received by the Company by December 19, 1997 for inclusion in the Company's
proxy materials relating to such Annual Meeting.
21
OTHER MATTERS
The Board of Directors does not intend to present at the Annual Meeting
any matters other than those described herein and does not presently know of any
matters that will be presented by other parties.
Monterey Homes Corporation
Larry W. Seay
Vice President - Finance, Chief Financial Officer,
Secretary and Treasurer
May __, 1997
22
EXHIBIT A
---------
MONTEREY HOMES CORPORATION
STOCK OPTION PLAN
-----------------
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS.
---------------------------------------
a. The Stock Option Plan (the "Option Plan") of Monterey Homes
(the "Company"), is hereby adopted. The Option Plan shall
provide for the issuance of incentive stock options ("ISOs")
and nonqualified stock options ("NSOs").
b. The purpose of this Option Plan is to promote the long-term
success of the Company by attracting, motivating and retaining
key executives, consultants and directors (the "Participants")
through the use of competitive long-term incentives which are
tied to stockholder interests by providing incentives to the
Participants in the form of stock options which offer rewards
for achieving the long-term strategic and financial objectives
of the Company.
c. The Option Plan is intended to provide a means whereby
Participants may be given an opportunity to purchase shares of
Stock of the Company pursuant to (i) options which may qualify
as ISOs under Section 422 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code"), or (ii) NSOs
which may not so qualify.
d. The term "Affiliates" as used in this Option Plan means parent
or subsidiary corporations, as defined in Section 424(e) and
(f) of the Code (but substituting "the Company" for "employer
corporation"), including parents or subsidiaries which become
such after adoption of the Option Plan.
2. ADMINISTRATION OF THE PLAN
--------------------------
a. The Option Plan shall be administered by the Compensation
Committee (the "Committee") appointed by the Board of
Directors of the Company from time to time (the "Board").
b. The Committee shall consist entirely of directors qualifying
as "non-employee directors" as such term is defined in Rule
16b-3 promulgated by the Securities and Exchange Commission
(the "Committee"). Members of the Committee shall serve at the
pleasure of the Board.
c. The Committee may from time to time determine which employees
of the Company or its Affiliates or other individuals or
entities (each an "option holder") shall be granted options
under the Option Plan, the terms thereof (including without
1
limitation determining whether the option is an incentive
stock option and the times at which the options shall become
exercisable), and the number of shares of Stock for which an
option or options may be granted.
d. If rights of the Company to repurchase Stock are imposed, the
Board or the Committee may, in its sole discretion,
accelerate, in whole or in part, the time for lapsing of any
rights of the Company to repurchase shares of such Stock or
forfeiture restrictions.
e. If rights of the Company to repurchase Stock are imposed, the
certificates evidencing such shares of Stock awarded
hereunder, although issued in the name of the option holder
concerned, shall be held by the Company or a third party
designated by the Committee in escrow subject to delivery to
the option holder or to the Company at such times and in such
amounts as shall be directed by the Board under the terms of
this Option Plan. Share certificates representing Stock which
is subject to repurchase rights shall have imprinted or typed
thereon a legend or legends summarizing or referring to the
repurchase rights.
f. The Board or the Committee shall have the sole authority, in
its absolute discretion, to adopt, amend and rescind such
rules and regulations, consistent with the provisions of the
Option Plan, as, in its opinion, may be advisable in the
administration of the Option Plan, to construe and interpret
the Option Plan, the rules and regulations, and the
instruments evidencing options granted under the Option Plan
and to make all other determinations deemed necessary or
advisable for the administration of the Option Plan. All
decisions, determinations and interpretations of the Committee
shall be binding on all option holders under the Option Plan.
3. STOCK SUBJECT TO THE PLAN
-------------------------
a. "Stock" shall mean Common Stock of the Company or such stock
as may be changed as contemplated by Section 3(c) below. Stock
shall include shares drawn from either the Company's
authorized but unissued shares of Common Stock or from
reacquired shares of Common Stock, including without
limitation shares repurchased by the Company in the open
market. The maximum shares of Common Stock that can be issued
under this Option Plan is 225,000 shares, and the maximum
shares of Common Stock that can be issued to any one person
under this Option Plan is 50,000 shares.
b. Options may be granted under the Option Plan from time to time
to eligible persons. Stock options awarded pursuant to the
Option Plan which are forfeited, terminated, surrendered or
canceled for any reason prior to exercise shall again become
available for grants under the Option Plan (including any
option canceled in accordance with the cancellation regrant
provisions of Section 6 (f) herein).
2
c. If there shall be any changes in the Stock subject to the
Option Plan, including Stock subject to any option granted
hereunder, through merger, consolidation, recapitalization,
reorganization, reincorporation, stock split, reverse stock
split, stock dividend, combination or reclassification of the
Company's Stock or other similar events, an appropriate
adjustment shall be made by the Committee in the number of
shares of Stock. Consistent with the foregoing, in the event
that the outstanding Stock is changed into another class or
series of capital stock of the Company, outstanding option to
purchase Stock granted under the Option Plan shall become
options to purchase such other class or series and the
provisions of this Section 3(c) shall apply to such new class
or series.
d. The aggregate number of shares of Stock approved by the Option
Plan may not be exceeded without amending the Option Plan and
obtaining stockholder approval within twelve months of such
amendment.
4. ELIGIBILITY
-----------
Persons who shall be eligible to receive stock options granted under
the Option Plan shall be those individuals and entities as the
Committee in its discretion determines should be awarded such
incentives given the best interests of the Company; provided, however,
that (i) ISOs may only be granted to employees of the Company and its
Affiliates and (ii) any person holding capital stock possessing more
than 10% of the total combined voting power of all classes of Stock of
the Company or any Affiliate shall not be eligible to receive ISOs
unless the exercise price per share of Stock is at least 110% of the
fair market value of the Stock on the date the option is granted.
5. EXERCISE PRICE FOR OPTIONS GRANTED UNDER THE PLAN
-------------------------------------------------
a. All ISOs and the majority of NSOs will have option exercise
prices per option share not less than the fair market value of
a share of the Stock on the date the option is granted, except
that in the case of ISOs granted to any person possessing more
than 10% of the total combined voting power of all classes of
stock of the Company or any Affiliate the price shall be not
less than 110% of such fair market value. The price of ISOs or
NSOs granted under the Option Plan shall be subject to
adjustment to the extent provided in Section 3(c) above.
b. The fair market value on the date of grant shall be determined
based upon the closing price on an exchange on that day or, if
the Stock is not listed on an exchange, on the average of the
closing bid and asked prices in the Over the Counter Market on
that day.
3
6. TERMS AND CONDITIONS OF OPTIONS
-------------------------------
a. Each option granted pursuant to the Option Plan shall be
evidenced by a written stock option agreement (the "Option
Agreement") executed by the Company and the person to whom
such option is granted. The Option Agreement shall designate
whether the option is an ISO or an NSO.
b. The term of each ISO and NSO shall be no more than 10 years,
except that the term of each ISO issued to any person
possessing more than 10% of the voting power of all classes of
stock of the Company or any Affiliate shall be no more than 5
years. Subsequently issued options, if Stock becomes available
because of further allocations or the lapse of previously
outstanding options, will extend for terms determined by the
Board or the Committee but in no event shall an ISO be
exercised after the expiration of 10 years from the date of
its grant.
c. In the case of ISOs, the aggregate fair market value
(determined as of the time such option is granted) of the
Stock to which ISOs are exercisable for the first time by such
individual during any calendar year (under this Option Plan
and any other plans of the Company or its Affiliates if any)
shall not exceed the amount specified in Section 422(d) of the
Internal Revenue Code, or any successor provision in effect at
the time an ISO becomes exercisable.
d. The Option Agreement may contain such other terms, provisions
and conditions regarding vesting, repurchase or other
provisions as may be determined by the Committee. To the
extent such terms, provisions and conditions are inconsistent
with this Option Plan, the specific provisions of the Option
Plan shall prevail. If an option, or any part thereof, is
intended to qualify as an ISO, the Option Agreement shall
contain those terms and conditions which the Committee
determine are necessary to so qualify under Section 422 of the
Internal Revenue Code.
e. The Committee shall have full power and authority to extend
the period of time for which any option granted under the
Option Plan is to remain exercisable following the option
holder's cessation of service as an employee, director or
consultant, including without limitation cessation as a result
of death or disability; provided, however, that in no event
shall such option be exercisable after the specified
expiration date of the option term.
f. As a condition to option grants under the Option Plan, the
option holder agrees to grant the Company the repurchase
rights as Company may at its option require and as may be set
forth in a separate repurchase agreement. Any option granted
under the Option Plan may be subject to a vesting schedule as
provided in the Option Agreement and, except as provided in
this Section 6 herein, only the vested portion of such option
may be exercised at any time during the Option Period. All
rights to
4
exercise any option shall lapse and be of no further effect
whatsoever immediately if the option holder's service as an
employee is terminated for "Cause" (as hereinafter defined) or
if the option holder voluntarily terminates the option
holder's service as an employee. The unvested portion of the
option will lapse and be of no further effect immediately upon
any termination of employment of the option holder for any
reason. In the remaining cases where the option holder's
service as an employee is terminated due to death, permanent
disability, or is terminated by the Company (or its
affiliates) without Cause at any time, unless otherwise
provided by the Committee, the vested portion of the option
will extend for a period of three (3) months following the
termination of employment and shall lapse and be of no further
force or effect whatsoever only if it is not exercised before
the end of such three (3) month period. "Cause" shall be
defined in an Employment Agreement between Company and option
holder and if none there shall be "Cause" for termination if
(i) the option holder is convicted of a felony, (ii) the
option holder engages in any fraudulent or other dishonest act
to the detriment of the Company, (iii) the option holder fails
to report for work on a regular basis, except for periods of
authorized absence or bona fide illness, (iv) the option
holder misappropriates trade secrets, customer lists or other
proprietary information belonging to the Company for the
option holder's own benefit or for the benefit of a
competitor, (v) the option holder engages in any willful
misconduct designed to harm the Company or its stockholders,
or (vi) the option holder fails to perform properly assigned
duties.
g. No fractional shares of Stock shall be issued under the Option
Plan, whether by initial grants or any adjustments to the
Option Plan.
7. USE OF PROCEEDS
---------------
Cash proceeds realized from the sale of Stock under the Option Plan
shall constitute general funds of the Company.
8. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
--------------------------------------------
a. The Board may at any time suspend or terminate the Option
Plan, and may amend it from time to time in such respects as
the Board may deem advisable provided that (i) such amendment,
suspension or termination complies with all applicable state
and federal requirements and requirements of any stock
exchange on which the Stock is then listed, including any
applicable requirement that the Option Plan or an amendment to
the Option Plan be approved by the stockholders, and (ii) the
Board shall not amend the Option Plan to increase the maximum
number of shares of Stock subject to ISOs under the Option
Plan or to change the description or class of persons eligible
to receive ISOs under the Option Plan without the consent of
the stockholders of the Company sufficient to approve the
Option Plan in the first instance. The Option Plan shall
terminate on the earlier of (i) tenth anniversary of
5
the Plan's approval or (ii) the date on which no additional shares of
Stock are available for issuance under the Option Plan.
b. No option may be granted during any suspension or after the
termination of the Option Plan, and no amendment, suspension
or termination of the Option Plan shall, without the option
holder's consent, alter or impair any rights or obligation
under any option granted under the Option Plan.
c. The Committee, with the consent of affected option holders,
shall have the authority to cancel any or all outstanding
options under the Option Plan and grant new options having an
exercise price which may be higher or lower than the exercise
price of canceled options.
d. Nothing contained herein shall be construed to permit a
termination, modification or amendment adversely affecting the
rights of any option holder under an existing option
theretofore granted without the consent of the option holder.
9. ASSIGNABILITY OF OPTIONS AND RIGHTS
-----------------------------------
Each ISO and NSO granted pursuant to this Option Plan shall, during the
option holder's lifetime, be exercisable only by the option holder, and
neither the option nor any right to purchase Stock shall be
transferred, assigned or pledged by the option holder, by operation of
law or otherwise, other than be will upon a beneficiary designation
executed by the option holder and delivered to the Company or the laws
of descent and distribution.
10. PAYMENT UPON EXERCISE
---------------------
Payment of the purchase price upon exercise of any option or right to
purchase Stock granted under this Option Plan shall be made by giving
the Company written notice of such exercise, specifying the number of
such shares of Stock as to which the option is exercised. Such notice
shall be accompanied by payment of an amount equal to the Option Price
of such shares of Stock. Such payment may be (i) cash, (ii) by check
drawn against sufficient funds, (iii) such other consideration as the
Committee, in its sole discretion, determines and is consistent with
the Option Plan's purpose and applicable law, or (iv) any combination
of the foregoing. Any Stock used to exercise options to purchase Stock
(including Stock withheld upon the exercise of an option to pay the
purchase price of the shares of Stock as to which the option is
exercised) shall be valued in accordance with procedures established by
the Committee. If accepted by the Committee in its discretion, such
consideration also may be paid through a broker-dealer sale and
remittance procedure pursuant to which the option holder (i) shall
provide irrevocable written instructions to a designated brokerage firm
to effect the immediate sale of the purchased Stock and remit to the
Company, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate option price payable for the
purchased Stock plus all applicable Federal and State income and
6
employment taxes required to be withheld by the Company in connection
with such purchase and (ii) shall provide written directives to the
Company to deliver the certificates for the purchased Stock directly to
such brokerage firm in order to complete the sale transaction.
11. WITHHOLDING TAXES
-----------------
a. Shares of Stock issued hereunder shall be delivered to an
option holder only upon payment by such person to the Company
of the amount of any withholding tax required by applicable
federal, state, local or foreign law. The Company shall not be
required to issue any Stock to an option holder until such
obligations are satisfied.
b. The Committee may, under such terms and conditions as it deems
appropriate, authorize an option holder to satisfy withholding
tax obligations under this Section 11 by surrendering a
portion of any Stock previously issued to the option holder or
by electing to have the Company withhold shares of Stock from
the Stock to be issued to the option holder, in each case
having a fair market value equal to the amount of the
withholding tax required to be withheld.
12. RATIFICATION
------------
This Option Plan and all options issued under this Option Plan shall be
void unless this Option Plan is or was approved or ratified by (i) the
Board; and (ii) a majority of the votes cast at a stockholder meeting
at which a quorum representing at least a majority of the outstanding
shares of Stock is (either in person or by proxy) present and voting on
the Option Plan within twelve months of the date this Option Plan is
adopted by the Board. No ISOs shall be exercisable prior to the date
such stockholder approval is obtained.
13. CORPORATE TRANSACTIONS
----------------------
a. For the purpose of this Section 13, a "Corporate Transaction"
shall include any of the following stockholder-approved
transactions to which the Company is a party: (i)a merger or
consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of
which is to change the State of the Company's incorporation;
(ii) the sale, transfer or other disposition of all or
substantially all of the assetsof the Company in
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which beneficial ownership of
securities possessing more than fifty percent (50%)
of the total combined voting power of the Company's
outstanding securities are transferred to holders
different from those who held such securities
immediately prior to such merger.
b. Upon the occurrence of a Corporate Transaction, if the
surviving corporation or the purchaser, as the case may be,
does not assume the obligations of the Company under
7
the Option Plan, then irrespective of the vesting provisions
contained in individual option agreements, all outstanding
options shall become immediately exercisable in full and each
option holder will be afforded an opportunity to exercise
their options prior to the consummation of the merger or sale
transaction so that they can participate on a pro rata basis
in the transaction based upon the number of shares of Stock
purchased by them on exercise of options if they so desire. To
the extent that the Option Plan is unaffected and assumed by
the successor corporation or its parent company a Corporate
Transaction will have no effect on outstanding options and the
options shall continue in effect according to their terms.
c. Each outstanding option under this Option Plan which is
assumed in connection with the Corporate Transaction or is
otherwise to continue in effect shall be appropriately
adjusted, immediately after such Corporate Transaction, to
apply and pertain to the number and class of securities which
would have been issued to the option holder in connection with
the consummation of such Corporate Transaction had such person
exercised the option immediately prior to such Corporate
Transaction. Appropriate adjustments shall also be made to the
option price payable per share, provided the aggregate option
price payable for such securities shall remain the same. In
addition, the class and number of securities available for
issuance under this Option Plan following the consummation of
the Corporate Transaction shall be appropriately adjusted.
d. The grant of options under this Option Plan shall in no way
affect the right of the Company to adjust, reclassify,
reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
14. REGULATORY APPROVALS
--------------------
The obligation of the Company with respect to Stock issued under the
Plan shall be subject to all applicable laws, rules and regulations and
such approvals by any governmental agencies or stock exchanges as may
be required. The Company reserves the right to restrict, in whole or in
part, the delivery of Stock under the Plan until such time as any legal
requirements or regulations have been met relating to the issuance of
Stock, to their registration or qualification under the Securities
Exchange Act of 1934, if applicable, or any applicable state securities
laws, or to their listing on any stock exchange at which time such
listing may be applicable.
15. NO EMPLOYMENT/SERVICE RIGHTS
----------------------------
Neither the action of the Company in establishing this Option Plan, nor
any action taken by the Board or the Committee hereunder, nor any
provision of this Option Plan shall be construed so as to grant any
individual the right to remain in the employ or service of the
8
Company (or any parent, subsidiary or affiliated corporation) for any
period of specific duration, and the Company (or any parent, subsidiary
or affiliated corporation retaining the services of such individual)
may terminate or change the terms of such individual's employment or
service at any time and for any reason, with or without cause.
16. MISCELLANEOUS PROVISIONS
------------------------
a. The provisions of this Option Plan shall be governed by the
laws of the State of Arizona, as such laws are applied to
contracts entered into and performed in such State, without
regard to its rules concerning conflicts of law.
b. The provisions of this Option Plan shall insure to the benefit
of, and be binding upon, the Company and its successors or
assigns, whether by Corporate Transaction or otherwise, and
the option holders, the legal representatives of their
respective estates, their respective heirs or legatees and
their permitted assignees.
c. The option holders shall have no divided rights, voting rights
or any other rights as a stockholder with respect to any
options under the Option Plan prior to the issuance of a stock
certificate for such Stock.
d. If there is a conflict between the terms of any employment
agreement pursuant to which options under this Plan are to be
granted and the provisions of this Plan, the terms of the
employment agreement shall prevail
9
This Proxy is Solicited on Behalf of the Board of Directors
MONTEREY HOMES CORPORATION
1997 ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints William W. Cleverly and Steven J.
Hilton, or any one of them acting in the absence of the other with full powers
of substitution, the true and lawful attorneys and proxies for the undersigned
and to vote, as designated below, all shares of Common Stock of MONTEREY HOMES
CORPORATION (the "Company") that the undersigned is entitled to vote at the
Annual Meeting of Shareholders (the "Meeting") to be held on Tuesday, July 29,
1997, at 9:00 a.m., Arizona Time, at The Arizona Club, 7150 East Camelback Road,
Suite 500, Scottsdale, Arizona, 85251 and at any and all adjournments thereof,
and to vote all shares of Common Stock which the undersigned would be entitled
to vote, if then and there personally present, on the matters set forth below:
(Continued, and to be marked, dated and signed, on the other side)
- --------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^
Please mark
your votes as [X]
indicated in
this example
WITHHELD
FOR FOR ALL
1. ELECTION OF TWO DIRECTORS: [ ] [ ] THIS PROXY WILL BE VOTED AS DIRECTED OR, IF
VOTE FOR nominees listed below CONTRARY DIRECTION IS INDICATED, WILL BE VOTED
FOR THE ELECTION OF DIRECTOR NOMINEES, FOR
Robert G. Shriver APPROVAL OF THE COMPANY'S STOCK OPTION PLAN AND
C. Timothy White FOR APPROVAL OF THE AMENDMENT TO THE COMPANY'S
BYLAWS, AND AS SAID PROXIES DEEM ADVISABLE ON
SUCH OTHER MATTERS AS MAY COME BEFORE THE
MEETING.
WITHHELD FOR:(Write that nominee's name in the space povided below.)
________________________________________________________________________________
2. APPROVAL OF THE MONTEREY HOMES FOR AGAINST ______
CORPORATION STOCK OPTION PLAN [ ] [ ] |
|
|
3. APPROVAL OF AMENDMENT TO THE COMPANY'S BYLAWS FOR AGAINST
TO INCREASE NUMBER OF AUTHORIZED DIRECTORS [ ] [ ]
FROM THE FIVE TO UP TO NINE
Signature ___________________________________________Signature ___________________________________________Date______________________
NOTE: Please sign as name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such.
- ------------------------------------------------------------------------------------------------------------------------------------
^ FOLD AND DETACH HERE ^