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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14a-6(e)(2))
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[ ] 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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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 JUNE 11, 1998
----------------------------
To Our Stockholders:
The Management of Monterey Homes Corporation cordially invites you to
attend the 1998 Annual Meeting of Stockholders to be held at 9:00 a.m., on June
11, 1998, at the Scottsdale Plaza Resort, Scottsdale, Arizona for the following
purposes:
1. To elect four Class I directors to serve for two-year terms;
2. To approve an amendment to the Company's 1997 Stock Option
Plan (the "Plan") to increase the total number of shares
authorized for issuance thereunder from 225,000 shares to
475,000 shares; and
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Each outstanding share of the Company's Common Stock entitles the
holder of record at the close of business on April 17, 1998 (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 1997 Annual Report to Stockholders, which includes audited financial
statements, is enclosed.
By Order of the Board of Directors
Scottsdale, Arizona Larry W. Seay
April 30, 1998 Vice President-Finance, Chief Financial Officer,
Secretary and Treasurer
IMPORTANT
TO ENSURE REPRESENTATION, 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
------------------------
This Proxy Statement is furnished to the stockholders of Monterey Homes
Corporation (the "Company"), a Maryland corporation, in connection with the
solicitation of proxies to be used in voting at the Annual Meeting of
Stockholders (the "Annual Meeting") to be held on June 11, 1998. 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 May 15, 1998 to
stockholders of record at the close of business on April 17, 1998 (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 entire cost of solicitation of proxies,
including 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 5,368,738 shares of the Company's
Common Stock outstanding. Stockholders are entitled to one vote for each share
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 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.
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
1997 Annual Report to Stockholders that was mailed with this Proxy Statement to
all stockholders of record as of the Record Date.
SECURITY OWNERSHIP OF
PRINCIPAL STOCKHOLDERS AND MANAGEMENT
The following table sets forth, as of April 1, 1998, the number and
percentage of outstanding shares of the Company's Common Stock beneficially
owned by (i) each person known by the Company to beneficially own more than 5%
of such stock, (ii) all directors and nominees for director of the Company,
(iii) all executive officers named in the Summary Compensation under "Executive
Compensation" and (iv) all directors and executive officers of the Company as a
group.
Shares Beneficially
Name and Address of Beneficial Owner(1) Owned(2) Percent Owned(3)
--------------------------------------- -------- ----------------
William W. Cleverly 742,890(4) 13.8%
Steven J. Hilton 739,557(4) 13.8%
John R. Landon 666,667(5) 12.5%
Alan D. Hamberlin 368,235(6) 6.5%
Robert G. Sarver 139,800(7) 2.6%
C. Timothy White 5,500(7) *
Ray Oppel --- *
Larry W. Seay 2,000(8) *
Richard T. Morgan 4,000 *
Anthony C. Dinnell -- *
All directors and executive officers
as a group (10 persons) 2,668,649 49.2%
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* Represents less than 1%.
(1) The address for each beneficial owner 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 1, 1998, and the shares 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 1, 1998, upon exercise of
options are deemed to be outstanding for the purpose of computing the
percentage of the shares owned by that 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 55,556 shares currently issuable upon exercise of outstanding
stock options.
(5) All 666,667 shares are owned with Eleanor Landon, spouse, as
tenants-in-common.
(6) Includes 12,633 shares of Common Stock indirectly beneficially owned by Mr.
Hamberlin through a partnership and 355,602 shares of Common Stock
currently issuable to Mr. Hamberlin upon exercise of outstanding stock
options (including dividend rights).
(7) Includes 2,500 shares currently issuable upon exercise of outstanding stock
options.
(8) Includes 2,000 shares currently issuable upon exercise of outstanding stock
options.
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 three directors whose terms expire at the 1999 Annual
Meeting of Stockholders. The Board of Directors has nominated William W.
Cleverly, Steven J. Hilton and Alan D. Hamberlin, the incumbent Class I
Directors, for re-election. In addition, the Board of Directors has nominated
Raymond (Ray) Oppel as a Class I Director. Unless otherwise noted thereon, the
shares represented by the enclosed proxy will be voted for the election of
Messrs. Cleverly, Hilton, Hamberlin and Oppel. If any of the four 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. The affirmative vote of a majority of
the shares of Common Stock present at the Annual Meeting in person or by proxy
and entitled to vote is required to elect directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE ELECTION
OF MESSRS. CLEVERLY, HILTON, HAMBERLIN AND OPPEL AS CLASS I DIRECTORS OF THE
COMPANY.
INFORMATION CONCERNING DIRECTORS AND OFFICERS
Information concerning the Company's current directors and executive
officers is set forth below.
Name Age Position with the Company
- ---- --- -------------------------
William W. Cleverly 41 Managing Director, Class I
Steven J. Hilton 36 Managing Director, Class I
John R. Landon 40 Managing Director, Class II
Larry W. Seay 42 Vice President-Finance, Chief Financial
Officer, Secretary and Treasurer
Richard T. Morgan 42 Vice President
Alan D. Hamberlin (1) 49 Class I Director
Ray Oppel(2) 41 Class I Director
Robert G. Sarver (2) 36 Class II Director
C. Timothy White(1)(2) 36 Class II Director
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(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
William W. Cleverly currently serves as a Managing Director of the
Company, and served as Chairman of the Board and Co-Chief Executive Officer from
December 31, 1996, to April 1998. In 1985 Mr. Cleverly co-founded the Monterey
Entities, which merged with Homeplex Mortgage Investment Co., predecessor to
Monterey Homes Corporation, and served as President and Director of the Monterey
Entities until December 31, 1996. From 1983 to 1986, Mr. Cleverly was the
President of a real estate development company which he founded that 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 and the National Homebuilders' Association.
Steven J. Hilton currently serves as a Managing Director of the
Company, and served as President and Co-Chief Executive Officer from December
31, 1996, to April 1998. Mr. Hilton co-founded the Monterey Entities in 1985 and
served as Treasurer, Secretary and Director of the Monterey Entities until
December 31, 1996. From 1985 to 1986, Mr. Hilton served as 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.
John R. Landon currently serves as a Managing Director of the Company,
and served as Chief Operating Officer and Co-Chief Executive Officer from the
July 1997 combination with Legacy Homes to April 1998. He was elected to the
Board of Directors in September 1997. Mr. Landon founded Legacy Homes in 1987
and in his capacity as its President, managed all aspects of the company's
business, including construction operations, land acquisitions and development,
sales and marketing, and finance. Prior to establishing Legacy Homes, Mr. Landon
managed a regional land acquisition and development operation for the
Dallas/Fort Worth division of Nash Phillips/Copus Homebuilders, a large single
family residential homebuilder, and held positions in both sales and land
development for Trammel Crow Residential Group. Mr. Landon began his career with
the public accounting firm of Ernst & Whinney. Mr. Landon received his
undergraduate degree in Accounting from Louisiana State University, and is a
member of the National Association of Homebuilders and the Dallas Home and
Apartment Builders' Association.
Larry W. Seay has served as Vice President-Finance and Chief Financial
Officer of the Company since 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 December 31, 1996. From 1990 to 1996, Mr. Seay served as
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.
Richard T. Morgan has served as a Vice President of the Company since
April, 1998, and as Chief Financial Officer of Legacy Homes since January 1997.
Mr. Morgan joined Legacy Homes in November 1989 as Controller to develop and
manage the accounting department and administrative staff. From 1981 to 1989,
Mr. Morgan worked for two independent oil and gas companies serving in both the
accounting and tax departments. Prior to 1981, Mr. Morgan was employed by Price
Waterhouse & Co. as a staff accountant and tax senior. Mr. Morgan received a
B.B.A. in Accounting in December 1977 from the University of Texas at Austin.
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 December 31, 1996, and as Chairman
of the Board of Directors from January 1990 to December 31, 1996. He also served
as the President of the Company from its origination 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 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 as a director of American
Southwest Holdings, Inc. since August 1994.
Raymond (Ray) Oppel has been in the construction, real estate, and
retail industries for over 20 years and was appointed to the Company's Board of
Directors in December 1997. In 1982, he was co-founder and became chairman and
Chief Executive Officer of the Oppel Jenkins Group, a regional homebuilder in
Texas and New Mexico with annual sales in excess of $100 million. The Oppel
Jenkins Group was sold to the public homebuilder Kaufman & Broad, Inc., in 1995.
Mr. Oppel served as president of the Texas Panhandle Builder's Association and
has been a licensed real estate broker since 1984. Mr. Oppel is currently active
as a private investor in real estate development, banking, and a new car
dealership.
Robert G. Sarver has served as a director of the Company since December
31, 1996. Mr. Sarver has served as the Chairman and Chief Executive Officer of
GB Bancorporation, 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 Bancorporation, 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 Bancorporation 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 December
31, 1996. Mr. White served as a director of the Monterey Entities from February
1995 until December 31, 1996. Since 1989, Mr. White has been an attorney with
the law firm of Tiffany & Bosco, P.A. in Phoenix, Arizona. During 1997 and 1996,
the Company paid Tiffany & Bosco, P.A. approximately $236,000 and $100,000,
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, 1997, the
Company's Board of Directors met on 15 occasions. No director attended fewer
than 75% of the number of meetings of the Board and of the committees on which
he served during the period he was a member of the Board of Directors.
Compensation Committee. In 1997, the Compensation Committee consisted
of Messrs. Hamberlin and White, who are non-employee members of the Board of
Directors. The Compensation Committee, which met once in 1997, 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 1997 is set forth below.
Audit Committee. The Audit Committee, which met twice during 1997,
makes recommendations to the Board concerning the selection of independent
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.
DIRECTOR COMPENSATION
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. During 1997, the Board of Directors granted options to
acquire 5,000 shares of the Company's Common Stock to each non-employee Director
as additional consideration for their services. These options vest in equal
2,500 share increments on each of the first two anniversary dates of the date of
grant and have an exercise price equal to the closing price of the Company's
Common Stock on the date of grant.
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 year ended December 31, 1997, of those persons who were, at December 31,
1997 (i) the Chief Executive Officers (Managing Directors) of the Company and
(ii) the other most highly compensated executive officers of the Company
(collectively, the "Named Officers"). Information with respect to compensation
for fiscal years 1996 and 1995 is not provided as none of the Named Officers
received compensation from the Company during 1996 or 1995 for their services.
SUMMARY COMPENSATION TABLE
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Long-Term
Compensation
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Annual Compensation Awards
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All Other
Name and Principal Position Year Salary Bonus Options(#) Compensation
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William W. Cleverly - Managing Director 1997 200,000 200,000 -- 31,905
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Steven J. Hilton - Managing Director 1997 200,000 200,000 -- 31,905
- -------------------------------------------------------------------------------------------------------------------------
John R. Landon - Managing Director 1997 200,000 200,000 166,667 11,700
- -------------------------------------------------------------------------------------------------------------------------
Larry W. Seay - Vice President Finance, 1997 113,750 85,000 12,500 6,575
Chief Financial Officer, Secretary and
Treasurer
- -------------------------------------------------------------------------------------------------------------------------
Anthony C. Dinnell - Vice President 1997 90,000 149,445 10,000 9,589
Phoenix Division
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OPTION GRANTS IN 1997
The table below sets forth information with respect to the granting of
stock options during the fiscal year ended December 31, 1997, to the Named
Officers.
===========================================================================================================================
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation
Individual Grants for Option Term(1)
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Percentage of
Shares Total Options Exercise or
Underlying Granted to Base Price
Options Employees ($/Share) Expiration
Name Granted (#) in 1997 Date 0% 5% 10%
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William W. Cleverly -- -- -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Steven J. Hilton -- -- -- -- -- -- --
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John R. Landon 166,667* -- $ 5.25 06/30/01 $ 312,501 $568,415 $863,620
- ---------------------------------------------------------------------------------------------------------------------------
Larry W. Seay 10,000 7.7 5.62 12/31/06 -- 31,062 76,435
" 2,500 1.9 11.50 12/03/07 -- 18,081 45,820
- ---------------------------------------------------------------------------------------------------------------------------
Anthony C. Dinnell 10,000 7.7 5.62 12/31/06 -- 31,062 76,435
===========================================================================================================================
*Options granted were in connection with the Legacy Homes Combination, and not
part of the Company's stock option plan.
(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 of 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.
Aggregated Option Exercises in Last Fiscal Year and Option Value at End of
Fiscal Year 1997
The table below sets forth information with respect to the exercise of
stock options during the fiscal year ended December 31, 1997 by the Named
Officers. 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 Options Value of Unexercised
at Fiscal In-the-Money Options at Fiscal
Year End (#) Year End ($)(1)
- -------------------------------------------------------------------------------------------------------------------------------
Shares
Acquired on Value Realized
Name Exercise (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
William W. Cleverly -- -- 55,556 111,111 $381,948 $ 763,888
- -------------------------------------------------------------------------------------------------------------------------------
Steven J. Hilton -- -- 55,556 111,111 381,948 763,888
- -------------------------------------------------------------------------------------------------------------------------------
John R. Landon -- -- -- 166,667 -- 1,145,836
- -------------------------------------------------------------------------------------------------------------------------------
Larry W. Seay -- -- 2,000 10,500 13,010 53,603
- -------------------------------------------------------------------------------------------------------------------------------
Anthony C. Dinnell -- -- 2,000 8,000 13,010 52,040
===============================================================================================================================
(1) Calculated based on the closing price of the Company's Common Stock on
December 31, 1997 of $12.125 per share less the exercise price per share,
multiplied by the number of applicable shares in the money.
CHANGE OF CONTROL ARRANGEMENTS
If prior to the third anniversary of the effective date of the stock
option agreements of Messrs. Cleverly, Hilton and Landon, there is a change of
control of the Company that is required to be reported in Form 8-K under the
Securities Exchange Act of 1934, as amended, the options granted to Messrs.
Cleverly, Hilton and Landon pursuant to their stock option agreements shall vest
in full and be immediately exercisable.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with William W. Cleverly and
Steven J. Hilton (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 1997 and 1998 of the lesser of 4% of the pre-tax
consolidated net income of the Company or $200,000. The Company also has an
employment agreement with John R. Landon (the "Landon Employment Agreement").
The Landon Employment Agreement has a term ending June 30, 2001, and provides
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 1997 and 1998 equal to the
lesser of 4% of the consolidated pre-tax net income or $200,000. Thereafter,
under both the Employment Agreements and the Landon Employment Agreement, 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. Messrs. Cleverly,
Hilton and Landon serve as Managing Directors of the Company.
If 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 (i) 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 death or disability, plus (ii) a pro rated bonus.
If Mr. Landon voluntarily terminates his employment without "Good
Reason" or is discharged for "Cause," the Company will have no obligation to pay
him his current annual salary or bonus. The Company will be obligated to pay Mr.
Landon the Deferred Contingent Payments, but will have the option to make the
payments as scheduled or in one lump sum, based on the pre-tax income of the
Company and the pre-tax income of the Company's Texas division for the twelve
month period ending with the fiscal quarter immediately preceding his
termination, less a 25% reduction. If Mr. Landon is terminated without "Cause"
or as a result of death or disability or if he resigns for "Good Reason", the
Company will be obligated to pay Mr. Landon (i) his then current base salary
through the end of the stated term of employment in the event of termination by
the Company without "Cause" or for "Good Reason," or for six months after
termination in the event of death or disability and (ii) a pro rated bonus. If
Mr. Landon is terminated without "Cause" or resigns for "Good Reason," Mr.
Landon will have the option to receive the Deferred Contingent Payments as
scheduled or in one lump sum based on the pre-tax income of the Company and the
Company's Texas division for the twelve month period ending with the fiscal
quarter immediately preceding his termination. If Mr. Landon's employment is
terminated due to death or disability, Mr. Landon or his estate may elect to
have the Deferred Contingent Payments continue as scheduled or have the
remainder paid out in one lump sum, based upon the pre-tax income of the Company
and of the Company's Texas division for the twelve month period ending with the
fiscal quarter immediately preceding termination, less a 25% reduction.
"Cause" under the Employment Agreements and the Landon Employment
Agreement 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. "Cause" under the
Landon Employment Agreement also includes willful disregard of the employee's
primary duties to the Company. "Good Reason" under the Landon Employment
Agreement is defined to include (i) assignment of duties inconsistent with the
scope of the duties associated with Mr. Landon's titles or positions or which
would require Mr. Landon to relocate his principal residence outside the
Dallas/Fort Worth, Texas metropolitan area; (ii) failure by the Company to pay
any part of the Deferred Contingent Payments under the Legacy Agreement; (iii)
termination of Mr. Landon for Cause and it is determined that Cause did not
exist; or (iv) failure of the Company to permit the Texas operation to utilize
its equity to obtain financing or to provide access to the Texas division of its
Intercompany Receivable (as defined in the Legacy Agreement).
The Employment Agreements with Messrs. Cleverly and Hilton and the
Landon Employment Agreement contain non-compete provisions that until December
31, 2001 and June 30, 2001, respectively, restrict the employees from, except in
connection with their performance of their duties under the Employment
Agreements and the Landon Employment Agreement (i) engaging in the homebuilding
business and, with respect to Mr. Landon only, the mortgage brokerage or banking
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, Mr. Hilton or Mr. Landon is terminated under
his respective 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 Agreements unless either Mr. Cleverly
or Mr. Hilton is terminated by the Company without Cause. The non-compete
provisions under the Landon Employment Agreement will survive termination of the
Landon Employment Agreement unless Mr. Landon is terminated without Cause or
resigns for Good Reason.
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists of Messrs. Hamberlin and White,
both of whom are independent directors. 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. In addition, the
Company has hired a compensation consultant to advise the Compensation Committee
on matters of executive compensation.
Overview and Philosophy. The Company's compensation program for
executive officers is primarily comprised of base salary, annual bonus and
long-term incentives in the form of stock option grants. Executives also
participate in various other benefit plans, including a medical and 401K plan,
generally available to all employees of the Company.
The Company's philosophy is to pay base salaries to executives that
enable the Company to attract, motivate and retain highly qualified executives.
The annual bonus program is designed to reward performance based on financial
results. Stock option grants are intended to result in no reward if the stock
price does not appreciate, but may provide substantial rewards to executives as
stockholders benefit from stock price appreciation.
Contractual Compensation Arrangements. The Company currently has three
Managing Directors, William W. Cleverly, Steven J. Hilton and John R. Landon,
all of whom function as Chief Executive Officers of the Company. The Company has
entered into employment agreements with each Messrs. Cleverly, Hilton and Landon
which provide for a base salary, bonuses based on Company performance and stock
options.
The Company's prior Board of Directors negotiated employment agreements
and related stock option agreements with each Messrs. Cleverly, and Hilton
effective December 31, 1996, in connection with the merger of Monterey Homes
Construction I, Inc., an Arizona corporation and Monterey Homes Arizona II, an
Arizona Corporation (collectively, the "Monterey Entities"), with and into the
Company (the "Merger). Prior to the Merger, Messrs. Cleverly and Hilton were the
sole shareholders of the Monterey Entities, an Arizona based homebuilding
business. The employment agreements and the stock option agreements were an
integral factor in Messrs. Cleverly and Hilton's decision to proceed with the
Merger and assume management of the
Company. The compensation packages of Messrs. Cleverly and Hilton are more fully
described under "Employment Agreements."
In July 1997, the Company combined with Legacy Homes, a Texas based
homebuilding business owned by John and Eleanor Landon (the "Legacy
Combination"). In connection with the Legacy Combination, the Company negotiated
an employment agreement and related stock option agreement with Mr. Landon,
pursuant to which Mr. Landon was appointed Chief Operating Officer and Co-Chief
Executive Officer of the Company and was granted certain stock options. The
successful negotiation of the employment agreement and related stock option
agreement was an integral part of Mr. Landon's decision to combine Legacy Homes
with the Company and become part of its management team. Mr. Landon's
compensation package is more fully described under "Employment Agreements."
Stock Option Plan. In 1997, the Board of Directors and the stockholders
of the Company approved the adoption of the Monterey Homes Corporation Stock
Option Plan (the "Plan") for executives, directors and consultants of the
Company. The Plan authorizes grants of incentive stock option and non-qualified
stock options to individuals and entities as directed by the Compensation
Committee. Subject to the approval of stockholders of Proposal No. 2, the total
number of shares of Common Stock available for awards under the Plan is 475,000.
The maximum number of shares of Common Stock that can be issued to any one
person under the plan is 50,000 shares. A summary of the Plan is set forth under
Proposal No. 2.
The Board of Directors believes that the Plan promotes the success and
enhances the value of the Company by (i) tying the personal interests of the
participants to those of the Company's stockholders, and (ii) providing the
participants with an incentive for outstanding performance. The Plan is
administered by the Compensation Committee which has the exclusive authority to
administer the Plan, including the power to determine the eligibility, the types
of awards to be granted, the timing of the awards and the exercise price of
awards.
Other Options. In connection with their employment agreements, Messrs.
Cleverly, Hilton and Landon were each granted the option to purchase 166,667
shares of Common Stock. Such options vest over three to four year periods. In
1994, the Internal Revenue Code was amended to add a limitation on the tax
deduction a publicly-held company may take on compensation aggregating more than
$1 million for selected executives in any given year. The law and related
regulation are subject to numerous qualifications and exceptions. Gains realized
on non-qualified stock options, or incentive stock options that are subject to a
"disqualifying disposition," are subject to new tax limitations unless they meet
certain requirements. To date, the Company has not been subject to the
deductibility limitation and has generally structured its equity-based
compensation to comply with the performance-based compensation exception to the
limitation.
The stock options of Messrs. Cleverly and Hilton were granted in
connection with the Merger as an integral part of each of their employment
agreements and as an inducement for them to consummate the Merger. Mr. Landon's
stock options were granted in connection with the Legacy Combination as an
integral part of Mr. Landon's employment agreement and as an inducement for him
to combine Legacy Homes with the Company. None of the stock options granted to
Messrs. Cleverly, Hilton or Landon satisfy the exceptions to the
non-deductibility of tax or $1 million threshold described above. Accordingly,
if as a result of substantial appreciation in the Company's Common Stock and the
exercise of substantial option holdings, Messrs. Cleverly, Hilton or Landon's
compensation were to exceed $1 million in a given year, the excess
may not be deductible. The compensation element of an option does not, however,
result in a charge to earnings on the Company's financial statements.
The Company currently has a federal income tax net operating loss
carryforward (the "NOL Carryforward") which expires at various times beginning
in 2007 and ending in 2009. The ability of the Company to use the NOL
Carryforward to offset future taxable income would be substantially limited
under Section 382 of the Internal Revenue Code of 1986, as amended (the "Code")
if an "ownership change" within the meaning of Section 382 of the Code has
occurred or occurs with respect to the Company before expiration of the NOL
Carryforward. The Company monitors the grant of stock options against the
limitations.
COMPENSATION COMMITTEE
Alan D. Hamberlin
C. Timothy White
PERFORMANCE GRAPHS
In connection with the Merger, the Company terminated its REIT status
as of December 31, 1996, and entered into the homebuilding business. The
following graphs reflect the cumulative total stockholder return on the
Company's Common Stock for the five years ended December 31, 1997.
Comparison of Five Year Cumulative Total Return
The chart below graphs the Company's performance in the form of
cumulative total return to stockholders since the Company began homebuilding as
its primary business on December 31, 1996. The Company's total return is
compared to those of the Dow Jones Industry Group - Home Construction
("Dow/Homes") and the Standard and Poor's 500 Composite Stock Index. The
comparison assumes $100 was invested on December 31, 1992 in the Company's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
As of December 31,
--------------------------------
1996 1997
---- ----
The Company 100 161.67
Dow Jones Industry Group - Home Construction 100 158.01
S&P 500 100 162.84
The following chart compares the cumulative total stockholder return on
the Company Common Stock during the four years ended December 31, 1996, when the
Company terminated its REIT status, with a cumulative total return on an
industry index prepared by the National Association of Real Estate Trusts
("NAREIT") and the Standard & Poor's 500 Stock Index. The comparison assumes
$100 was invested on December 31, 1992 in the Company's Common Stock and in each
of the foregoing indices and assumes reinvestment of dividends.
As of December 31,
----------------------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
The Company 100 52.63 42.95 65.57 111.46
NAREIT Index 100 114.55 86.71 141.70 213.78
S&P 500 100 109.99 111.43 153.13 188.29
SECTION 16(a) BENEFICIAL STOCK 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
Since September 1994, the Company has leased approximately 11,000
square feet of office space in a Scottsdale, Arizona office building from a
limited liability company owned by Messrs. Cleverly and Hilton. The lease has a
five-year term, and the Company has an option to expand its space in the
building and renew the lease for additional terms at rates that are competitive
with those in the market at such time. Rents paid to the limited liability
company totaled $192,487, $173,160 and $164,394 during fiscal years 1997, 1996
and 1995, respectively. Monterey believes that the terms of the lease are no
less favorable than those which could be obtained in an arm's length negotiated
transaction.
Since July 1, 1997, the Company has leased space from Home Financial
Services, a Texas partnership owned by John and Eleanor Landon, for office space
in Plano, Texas. The annual rent under the lease, which expires May 15, 2002, is
$163,175. Management believes the terms of this lease to be no less favorable
than those which it could obtain at an arm's length negotiated transaction.
During 1997 and 1996, Monterey incurred fees for legal services to
Tiffany & Bosco, P.A. of approximately $236,000 and $100,000, respectively. C.
Timothy White, a director of the Company, is a shareholder of Tiffany and Bosco,
P.A.
PROPOSAL TO APPROVE AMENDMENT TO THE MONTEREY HOMES
CORPORATION STOCK OPTION PLAN
(Proposal No. 2)
On April 28, 1998, the Compensation Committee of the Company's Board of
Directors adopted, subject to approval by the Company's shareholders, an
amendment to the Monterey Homes Corporation 1997 Stock Option Plan (the "Plan")
to increase the number of shares of the Company's Common Stock reserved for
issuance under the Plan from 225,000 shares to 475,000 shares. Certain material
features of the Plan are discussed below, however, such description is subject
to, and is qualified in its entirety by, the full text of the Plan, attached
hereto as Exhibit A, which includes the proposed amendment highlighted in bold.
The closing price for the Common Stock on April 28, 1998, as reported on the New
York Stock Exchange, was $17.125 per share.
The Board of Directors believes that the Plan promotes the success and
enhances the value of the Company by (i) tying the personal interests of the
participants to those of the Company's stockholders, and (ii) providing the
participants with an incentive for outstanding performance. The Plan is
administered by the Compensation Committee which has the exclusive authority to
administer the Plan, including the power to determine the eligibility, the types
of awards to be granted, the timing of the awards and the exercise price of
awards. The Board of Directors believes that the success of the Plan and its
impact on the value of the Company will be enhanced by increasing the number of
shares reserved for issuance under the Plan to 475,000.
General - Description of 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 transferable 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 transferable 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 transferable or not subject
to a substantial risk of forfeiture.
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 a 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 in 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 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 as of April 10, 1998, under the Plan,
the number of options granted 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. The
options granted have a ten year term, vest equally over five years commencing on
the first anniversary of the date of grant and have exercise prices ranging from
$5.62 to $19.06 per share. The options granted to directors have a ten year
term, vest equally over two years commencing on the first anniversary of the
date of grant and have exercise prices ranging from $5.62 to $11.50 per share.
Grants under
the Plan will be made at the discretion of the Committee and, accordingly,
future grants are not yet determinable.
Name Number of Shares
- ---- ----------------
Current Executive Officers
- --------------------------
William W. Cleverly --
Steven J. Hilton --
John R. Landon --
Larry W. Seay 12,500
Richard T. Morgan 10,000
------
Current executive officers as a group (5 persons) 22,500
Current directors who are not executive officers as a group (4 persons)* 20,000
Employees, including current officers who are not executive officers, as a 120,000
group (20 persons)
- --------------------
*Includes one nominee for election as a director.
Securities Act Registration
The Company intends to register the additional shares of Common Stock
available for issuance under the Plan pursuant to a Registration Statement on
Form S-8 filed with the Securities and Exchange Commission.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF
THIS PROPOSAL TO AMEND THE MONTEREY HOMES CORPORATION STOCK OPTION PLAN TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK ISSUABLE THEREUNDER.
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The principal independent public accounting firm utilized by the
Company during this fiscal year ended December 31, 1997, and which performed the
audit of the Company's financial statements for the year then ended was KPMG
Peat Marwick LLP, independent certified public accountants. 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.
During the two most recent fiscal years, there were no disagreements
between the Company and KPMG Peat Marwick 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 1999 Annual Meeting of
Stockholders that are made in writing to the Secretary of the Company, are
received at least 90 days prior to the 1999 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 1999 Annual Meeting must be
received by the Company by December 19, 1998, for inclusion in the Company's
proxy materials relating to such Annual Meeting.
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
April 30, 1998
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 (as defined
herein) 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
"Commission"). 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 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 number of shares of Common Stock that can be
issued under this Option Plan is 475,000 shares, and the maximum
number of 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).
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
options 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.
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 the
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 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 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 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 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 assets of 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 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 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 dividend 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.
PROXY PROXY
MONTEREY HOMES CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS--JUNE 11, 1998
The undersigned hereby appoints William W. Cleverly, Steven J. Hilton
and John R. Landon, or any one of them acting in the absence of the others with
full powers of substitution, the true and lawful attorneys and proxies for the
undersigned 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 Thursday, June
11, 1998, at 9:00 a.m., Arizona Time, at the Scottsdale Plaza Resort,
Scottsdale, Arizona 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
Unless otherwise Marked, this proxy will be voted FOR the election of
director nominees and FOR Proposal No. 2.
YOUR VOTE IS IMPORTANT: PLEASE SIGN AND DATE THE OTHER SIDE OF THIS
PROXY CARD AND RETURN IT PROMPTLY USING THE ENCLOSED ENVELOPE.
Please mark [X] your votes.
The Board of Directors recommends a vote FOR Proposals 1 and 2.
1. Election of Class I Directors: FOR WITHHELD
FOR ALL
William W. Cleverly [ ] [ ]
Steven J. Hilton
Alan D. Hamberlin
Raymond Oppel
WITHHELD FOR: (Write nominees' names in the space provided below).
------------------------------------------------------------------
2. To approve amendment to Company's FOR WITHHELD ABSTAIN
1997 Stock Option Plan [ ] [ ] [ ]
This proxy, when properly executed will be voted as you
specify above. If no specific voting directions are given by
you, this proxy will be voted FOR the listed proposals and,
with respect to such other business as may properly come
before the meeting, in accordance with the discretion of the
appointed proxy. PLEASE SIGN, DATE AND RETURN THIS PROXY
PROMPTLY.
Dated: _______________________________________, 1998
_______________________________ _______________________________
Signature Signature
Please sign exactly as name(s) appear herein. If acting as an executor,
administrator, trustee, custodian, guardian, etc., you should so
indicate in signing. If the stockholder is a corporation, please sign
the full corporate name, by a duly authorized officer. If shares are
held jointly, each stockholder named should sign.