SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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MERITAGE CORPORATIONMeritage Corporation
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[MERITAGE CORPORTATION LOGO]
NOTICE AND PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
DATE: WEDNESDAY, MAY 19, 199910, 2000
TIME: 9:00 A.M.
LOCATION: DOUBLETREE PARADISE VALLEY RESORT
5401 NORTH SCOTTSDALE ROAD
SCOTTSDALE, AZ 85250THE UNIVERSITY CLUB
13350 DALLAS PARKWAY
DALLAS, TEXAS 75240
To Our Stockholders:
The Management of Meritage Corporation cordially invites you to attend the
1999our
2000 Annual Meeting of Stockholders for the following purposes:
1. To elect three Class III directors to hold office for a two-year term;
2. To approve an amendment to our 1997 Stock Option Plan that will
increase the total number of shares authorized for issuance from
475,000 to 775,000, and the number of shares that may be issued to any
one person under the plan from 50,000 to 100,000. This amendment will
also authorize the full Board of non-employee Directors to administer
the plan;
3. To transact any other business that may properly come before the
meeting.
Only stockholders of record at the close of business on April 2, 1999March 31, 2000 are
entitled to vote at the annual meeting. A copy of our 19981999 Annual Report to
Stockholders, which includes audited financial statements, is enclosed.
By Order of the Board of Directors
/s/ Larry W. Seay
----------------------------------
Scottsdale, Arizona Larry W. Seay
April 7, 1999March 31, 2000 Secretary
YOUR VOTE IS IMPORTANT.
PLEASE SIGN, DATE AND MAIL THE ENCLOSED PROXY. A POSTAGE PAID
ENVELOPE IS PROVIDED FOR MAILING IN THE UNITED STATES.
MERITAGE CORPORATION
6613 NORTH SCOTTSDALE ROAD
SUITE 200
SCOTTSDALE, ARIZONA 85250
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PROXY STATEMENT
-----------------------------------------
This Proxy Statement is furnished to you in connection with the
solicitation of proxies to be used in voting at theour Annual Meeting of
Stockholders on May 19, 1999.10, 2000. THE MERITAGE BOARD OF DIRECTORS IS SOLICITING THIS
PROXY. The proxy materials relating to the annual meeting were mailed on or
about April 15, 19995, 2000 to stockholders of record at the close of business on April
2, 1999March
31, 2000 (the "record date"). A stockholderYou may revoke theyour proxy at any time before it is
exercised by attending the annual meeting and voting in person;person, duly executing
and delivering a proxy bearing a later date;date, or sending written notice of
revocation to the Corporate Secretary at the above address.
MeritageWe will bear the entire cost of proxy solicitation, including charges and
expenses of brokerage firms and others for forwarding solicitation material to
beneficial owners of itsour outstanding common stock. ProxiesWe may be solicitedsolicit proxies
through the mail, by personal interview telephone or telegraph.telephone.
VOTING SECURITIES OUTSTANDING
As of the record date, there were 5,425,8305,326,129 shares of Meritage common stock
outstanding. Stockholders areEach share is entitled to one vote for each share of record on each proposal at the annual
meeting. Only holders of record of common stock at the close of business on the
record date will be entitledpermitted to vote at the meeting, either in person or by
valid proxy. Abstentions and broker non-votes will be treated 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 following information should be reviewed along with the audited
consolidated financial statements, notes to consolidated financial statements,
independent auditors' reports and other information included in the Meritage
1998our 1999 Annual
Report that was mailed to you along with this Proxy Statement.
1
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
TheOur Board of Directors has seven members. The directors are divided into
two classes serving staggered two-year terms. This year our Class III directors
are up for election. The Board has nominated John R. Landon, Robert G. SarverSteven J. Hilton, William W.
Cleverly and C.
Timothy White, theRaymond Oppel, who are incumbent Class III Directors, for
re-election. Alan Hamberlin, a current Class I Director, will not stand for
re-election.
All nominees have consented to serve as directors. The Board of Directors
has no reason to believe that any of the nominees should be unable to act as a
director. However, if a nominee becomes unable to serve or if a vacancy should
occur before election, the Board of Directors may either reduce theits size of the
Board or designate a
substitute.substitute nominee. If a substitute nominee is named, the proxies will vote for
the election of the substitute.
If you do not indicate how you wishThe 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 for one or more ofis required to
elect directors. Unless you tell us on the nominees for
director, the proxiesproxy card to vote differently, we
will vote your signed retuned proxies FOR election of all the Board's nominees.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS ATHAT YOU VOTE FOR THE ELECTION OF
MR. LANDON, MR. SARVER AND MR. WHITE AS CLASS II DIRECTORS.THESE NOMINEES.
2
DIRECTOR AND OFFICER INFORMATION
JOHN R. LANDON has served as co-chairman and co-chief executive officer (or
co-managing director) since April 1998 and served as our chief operating officer
and co-chief executive officer from the combination of Legacy Homes and Meritage
in July 1997 to April 1998. Mr. Landon founded Legacy Homes in 1987 and as its
president, managed all aspects of the company's business. Mr. Landon is a member
of the National Association of Homebuilders and the Dallas Home and Apartment
Builders' Association.
STEVEN J. HILTON has served as Co-Chairmanco-chairman and Co-Chief Executive Officerco-chief executive officer
(or Co-Managing Director)co-managing director) since April 1998 and served as Meritage's Presidentour president and
Co-Chief Executive Officerco-chief executive officer from December 31, 1996 to April 1998. In 1985, Mr.
Hilton co-founded Monterey Homes, which merged with Homeplex Mortgage Investment
Co., the Company's predecessor, and was its Treasurer, Secretarytreasurer, secretary and Directordirector
until December 31, 1996. Prior to 1985 Mr. Hilton served as project
manager for Premier Community Homes, a residential homebuilder, and as a project
manager for Mr. Cleverly's real estate development company. Mr. Hilton 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 has served as Co-Chairman and Co-Chief Executive Officer (or
Co-Managing Director) since April 1998 and served as Meritage's Chief Operating
Officer and Co-Chief Executive Officer from the July 1997 combination of Legacy
Homes and Meritage to April 1998. Mr. Landon founded Legacy Homes in 1987 and as
its President, managed all aspects of the company's business. Before founding
Legacy Homes, Mr. Landon managed a regional land acquisition and development
operation for the Dallas/Fort Worth division of 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 is a member of the National
Association of Homebuilders and the Dallas Home and Apartment Builders'
Association.
LARRY W. SEAY has served as Chief Financial Officer and Vice
President-Finance since December 31, 1996, and has also served as the Company's
Secretary and Treasurer since January 1997. Mr. Seay was Chief Financial Officer
and Vice President-Finance of Monterey Homes from April 1996 to 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, UDC
Homes, Inc. filed for bankruptcy protection under Chapter 11 of the U.S.
Bankruptcy Code and emerged from reorganization proceedings in November 1995.
Prior to 1990, Mr. Seay was Treasurer and Chief Financial Officer of Emerald
Homes, Inc., also a Phoenix, Arizona-based homebuilding company, and was an
audit manager at Deloitte & Touche LLP. Mr. Seay is a certified public
accountant and a member of the American Institute of Certified Public
Accountants.
RICHARD T. MORGAN has served as Vice President since April 1998 and also
served as Chief Financial Officer of Meritage's Texas Division since July 1997.
Mr. Morgan joined Legacy Homes in November 1989 as Controller to develop and
manage the accounting department and administrative staff. He was appointed as
Legacy's Chief Financial Officer in January 1997. Prior to 1989, Mr. Morgan
worked for two independent oil and gas companies serving in both the accounting
and tax departments, and was employed by Price Waterhouse & Co. as a staff
accountant and tax senior.
ANTHONY C. DINNELL has served as Vice President of the Company since
December 1996, and has managed the Phoenix division since February 1998. From
1992 to 1996 he was the Vice President-Marketing and Sales for Monterey Homes.
Before joining Monterey Homes in 1992, he was in senior management for other
national homebuilding companies, and has been in the industry for over 20 years.
Mr. Dinnell is on the Sales and Marketing Council for the Central Arizona
Homebuilders' Association and a member of the National Homebuilders'
Association.
WILLIAM W. CLEVERLY has served as a Directordirector since December 31, 1996. He
served as one of Meritage's Co-Chairmenco-chairman and Co-Chief Executive Officersco-chief executive officer (or Co-Managing Directors)co-managing director)
from April 1998 to March 1999, and as Chairmanchairman of the Boardboard and Co-Chief Executive Officerco-chief
executive officer from December 31, 1996 to April 1998. Mr. Cleverly co-founded
Monterey Homes in 1985, and was its Presidentpresident and Directordirector until December 31,
1996, when it merged into the Company. In 19831996. Mr. Cleverly founded a real estate development company that developedis the chief executive officer of Inca Capital, and marketed
multi-family projects, and served as its President until 1986. Mr. Cleverly is a member
of the Central Arizona Homebuilders' Association and the National Homebuilders'
Association.
3
ALAN D. HAMBERLIN has served as a Directordirector since the Company's inception in
July 1988, has served as Chief Executive Officerchief executive officer of the Company from July 1988 until December 31,
1996 and as Chairmanchairman of the Boardboard of Directorsdirectors from January 1990 to December 31, 1996.
He was also served as the President of the CompanyCompany's president from
July 1988 until September 1995. Mr. Hamberlin has been
Presidentpresident of Courtland Homes, Inc., a Phoenix, Arizona single-family residential homebuilder,
since July 1983. Mr. Hamberlin has beenis also a director of American Southwest Financial
Corporation, and American Southwest Finance Co., Inc. since their organization in
September 1982, a director of American Southwest Affiliated
Companies since its
organization in March 1985 and a director of American Southwest Holdings, Inc.
since August 1994.
RAYMOND OPPEL has served as a Directordirector since December 1997, and has been in
the construction, real estate, and retail industries for over 20 years.1997. In 1982, he
co-founded and became Chairmanchairman and Chief Executive Officerchief executive officer of the Oppel Jenkins
Group, a regional homebuilder in Texas and New Mexico, with annual sales
of over $100 million. The Oppel Jenkins Groupwhich was sold to the
public homebuilder Kaufman & Broad, Inc. in 1995. Mr. Oppel has served as
president of the Texas Panhandle Builder's Association and has beenis a licensed real
estate broker since
1984.broker. Mr. Oppel currently is currently active as a private investor in real
estate development, banking and a new carautomobile dealership.
ROBERT G. SARVER has served as a Directordirector since December 1996, and has been
the Chairmanchairman and Chief Executive Officerchief executive officer of California Bank and Trust since
October
1998. From 1995 to 1998, he served as Chairmanchairman of Grossmont Bank. Mr. Sarver is
currently a director of Skywest Airlines and Zion's Bancorporation, a publicly
held bank holding company. In 1990, Mr. Sarver co-founded and currently serves
as the Executive Directorexecutive director of Southwest Value Partners and Affiliates, a real
estate investment company. In 1984, Mr. Sarver founded National Bank of Arizona,
Inc. and was its President until its acquisition by Zion's Bancorporation in
1994.
C. TIMOTHY WHITE has served as a Directordirector since December 1996, and served
as a director of Monterey Homes from February 1995 until December 1996. Since
1989, Mr. White has been an attorney with the law firm of Tiffany & Bosco, P.A.
in Phoenix, Arizona, which provides legal services to Meritage.
LARRY W. SEAY has served as chief financial officer and vice
president-finance since December 31, 1996, and has also served as our secretary
and treasurer since 1997. Mr. Seay was chief financial officer and vice
president-finance of Monterey Homes from April 1996 to December 31, 1996. From
1990 to 1996, Mr. Seay served as vice president/treasurer of UDC Homes, Inc. In
May 1995, UDC filed for bankruptcy protection under Chapter 11 of the Company.
SECURITY OWNERSHIP OFU.S.
Bankruptcy Code and emerged from reorganization proceedings in November 1995.
Mr. Seay is a certified public accountant and a member of the American Institute
of Certified Public Accountants.
3
RICHARD T. MORGAN has served as vice president since April 1998 and also
served as chief financial officer of our Texas division since July 1997. Mr.
Morgan joined Legacy Homes in 1989 as controller, and was appointed Legacy's
chief financial officer in 1997.
STOCK OWNED BY PRINCIPAL STOCKHOLDERSSHAREHOLDERS AND MANAGEMENT
The following table summarizes, as of March 31, 1999,2000, the number and
percentage of outstanding shares of Meritageour common stock beneficially owned by the
following:
+* each person known byor group management knows to beneficially own more than 5%
of such stock;
+* all Meritage directors and nominees for director;
+* all executive officers named in the compensation summary under
"Executive Compensation";
+* all Meritage directors and executive officers as a group.
The address for each beneficial ownerour directors and executive officers is c/o Meritage
Corporation, 6613 North Scottsdale Road, Suite 200, Scottsdale, Arizona 85250.
The number of shares 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.
4
RIGHT TO
NUMBER ACQUIRE BY TOTAL PERCENT OF
NAME OF OF SHARES BY MAY 31, BENEFICIAL OUTSTANDING
BENEFICIAL OWNER AGE POSITION WITH COMPANY OWNED 19992000 SHARES SHARES (1)SHARES(1)
- ---------------- --- --------------------- ----- ------------ ------ -------------------
John R. Landon 42 Class II Director, Co-Chairman and Co-CEO 666,667(2) 102,111 768,778 14.2%
Steven J. Hilton 3738 Class I Director, 664,359 96,110 760,469 13.8%
Co-Chairman and Co-CEO John R. Landon 41705,601 172,667 878,268 16.0%
William W. Cleverly 43 Class I Director 708,934 166,667 875,601 15.9%
Alan D. Hamberlin 51 Class I Director 53,009(3) 320,226 373,235 6.6%
Robert G. Sarver 38 Class II Director, 666,667(2) 40,555 707,222 12.9%
Co-Chairman and Co-CEO
William W. Cleverly 42 Class I Director 667,692 96,110 763,802 13.8%
Alan D. Hamberlin 50 Class I Director, 12,633(3) 358,102 370,735 6.4%
CompensationAudit Committee Robert G. Sarver 37 Class II Director, 163,200 5,000 168,200 3.1%
Audit Committee170,700(4) 7,500 178,200 3.3%
C. Timothy White 3739 Class II Director 3,316 5,000 8,3167,500 10,816 *
Compensation and Audit
Committee
Ray Oppel 4243 Class I Director, 15,000 2,500 17,500 *
Audit Committee Anthony C. Dinnell 47 Vice President-Phoenix 2,040 1,000 3,04015,000 7,500 22,500 *
Larry W. Seay 4344 Chief Financial Officer, -- 4,200 4,200Vice President- 3,700 7,000 10,700 *
Vice President-Finance,Finance, Secretary and Treasurer
Richard T. Morgan 44 Vice President 3,500 7,000 10,500 *
All directors and
executive officers as
a group (15(9 persons) 2,200,501 620,577 2,821,078 51.0%2,330,427 798,171 3,128,598 51.1%
Wellington Management Co., LLP 75 State Street, Boston MA, 02109 304,000(5) -- 304,000 5.7%
* Represents less than 1%.
(1) The percentages shown include the shares of common stock actually owned as
of March 31, 1999,2000, and the shares which the person or group had the right
to acquire within 60 days of suchthat date. In calculating the percentage of
ownership, all shares of common stock which the identified person had the
right to acquire within 60 days of March 31, 1999,2000 upon exercise of options,
are deemed to beconsidered as outstanding for the purpose of computing the percentage of the shares
owned by that person or group, but are not deemed to beconsidered as outstanding for the purpose of
computing the percentage of the shares of
common stock owned by any other person.
(2) All 666,667 shares are owned with Eleanor Landon, spouse, as
tenants-in-common.
(3) Mr. Hamberlin indirectly beneficially owns the12,633 shares through a
partnership.
(4) Mr. Sarver beneficially owns 1,500 shares through his spouse and 500 shares
through a minor child.
(5) Based on Schedule 13G, filed with the SEC on February 9, 2000. Wellington
Management Company, LLP ("WMC") has shared voting power with respect to
268,000 shares and shared dispositive power with respect to 304,000 shares.
The shares as to which the Schedule 13G is filed by WMC, in its capacity as
an investment advisor, are owned by clients of WMC who have the right to
receive or the power to direct the dividends from or proceeds of such
shares. The Schedule 13G also states that none of WMC's clients are known
to have such right or power with respect to more than 5% of our common
stock.
4
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
THE BOARD OF DIRECTORS met six times in 1998. All directors1999. Each director attended at
least 75% or
more of thehis Board and committee meetings of which he was a member during the
year.
THE COMPENSATION COMMITTEE consists of Mr. Hamberlin and Mr. White, who are
non-employee members of the Board. The committee, which met three times in 1998,
reviews all aspects of executive officer compensation and makes recommendations
on such matters to the full Board of Directors. The Compensation Committee's
1998 report is set forth later in this Proxy Statement.meetings.
THE AUDIT COMMITTEE consistsrecommends appointment of Mr. Oppel, Mr. Sarver and Mr. White, and
met three times during 1998. The committee makes recommendations to the Board
concerning the selection ofour independent auditors,
reviews the Company'sour financial statements and considers such other matters in relation to the
external audit of financial affairs that may be necessary or appropriate to promote accurate and timely financial reporting.
The audit committee consists of Mr. Oppel and Mr. Sarver, both non-employee
directors, and met four times during 1999
OTHER COMMITTEES. Meritage doesWe do not maintain a compensation committee, a standing
nominating committee or other committee performing similar functions. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. White is a shareholder of Tiffany & Bosco, P.A., a Phoenix, Arizona law
firm that provides legal services to Meritage. In 1998, Meritage paid Tiffany &
Bosco approximately $321,000 for legal fees.
5
The entire
Board performs those duties.
DIRECTOR COMPENSATION
Directors who are not Meritage employeesNon-employee directors received an annual retainer of $10,000$12,000 in 1998, an amount that1999,
except Mr. Cleverly. Mr. Cleverly was increaseda Meritage employee during the first part
of 1999, and therefore received a retainer only for the period he was not
employed by us, which amounted to $12,000 for 1999.$8,000. Non-employee directors do not receive no
additional compensation for attending Board or Committeecommittee meetings. In 1997 and
1999, the Company granted to each non-employee director was granted options to acquire 5,000 shares of
Meritageour common stock as additional consideration for their services. The 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 stock on the grant date.
EXECUTIVE COMPENSATION
The following table summarizes the compensation Meritagewe paid in 1999, 1998, and
1997 to the Co-Chief
Executive Officersour co-chief executive officers and the other most highly compensated
executive officers
for
the fiscal years ended December 31, 1997 and 1998, based on salary and
management incentive plan bonuses. None of the officers named below received
compensation from Meritage during 1996.
19981999 SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(#) COMPENSATION
--------------------------- ---- ------ ------------- -------- ---------- ------------
John R. Landon - Co-Chairman and Co- 1999 $375,000 $200,000 30,000 $26,004
Chief Executive Officer 1998 210,000 200,000 -- 22,183
1997 200,000 200,000 166,667 11,700
Steven J. Hilton - Co-Chairman and 1998 $210,000 $200,000 -- $30,438
Co-ChiefCo- 1999 375,000 200,000 30,000 33,212
Chief Executive Officer 1998 210,000 200,000 -- 30,438
1997 200,000 200,000 -- 31,905
John R. Landon - Co-Chairman and 1998 210,000 200,000 -- 22,183
Co-Chief Executive Officer 1997 200,000 200,000 166,667 11,700
William W. Cleverly - Director* 1999 55,125 200,000 -- 8,764
1998 210,000 200,000 -- 35,108
1997 200,000 200,000 -- 31,905
Anthony C. Dinnell - Vice President 1998 125,000 130,000 5,000 11,914
-Phoenix 1997 90,000 149,445 10,000 9,589
Larry W. Seay - Chief Financial Officer, 1999 150,000 95,937 20,000 12,611
Vice President-Finance, Secretary and 1998 120,726 90,000 -- 9,884
Secretary and Treasurer 1997 113,750 85,000 12,500 6,575
Richard T. Morgan - Vice President 1999 110,833 60,000 10,000 1,237
1998 97,167 54,000 -- 1,272
1997 89,500 35,000 10,000 1,200
* For the fiscal years ended December 31, 1997 and 1998 Mr. Cleverly served as a
Co-Chief Executive Officerco-chief executive officer or Co-Managing Director.co-managing director. He resigned as an officer in
March 1999 and his separation agreement is described herein under the "Board of
Director's Report on Executive Compensation."
5
1999 OPTION GRANTS IN 1998
The following table lists stock options granted in 19981999 to the officers
named in the Summary Compensation Table. The amounts shown as potential
realizable values rely on arbitrarily assumed share price appreciation rates
prescribed by the SEC over the ten-yearseven-year term of the options. In assessing
those values, please note that the ultimate value of the options depends on
actual future share values and do not necessarily reflect management's
assessment of Meritage'sour future stock price performance. The potential realizable
values are not intended to indicate the value of the options.
6
INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------
PERCENTAGE POTENTIAL REALIZABLE VALUE AT
OF TOTAL AT ASSUMED ANNUAL RATES OF STOCK
SHARES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE OR FOR OPTION TERM
OPTIONS EMPLOYEES BASE PRICE EXPIRATION --------------------------------------------------------
NAME GRANTED (#)GRANTED(#) IN 19981999 ($/SHARE) DATE 0% 5% 10%
---- --------------------- ------- --------- ---- -- -- ---------- -------- --------
John R. Landon 30,000 11% $15.68 1/12/06 -- $131,135 $362,677
Steven J. Hilton 30,000 11% $15.68 1/12/06 -- -- -- -- -- -- --
John R. Landon -- -- -- -- -- -- --
William W. Cleverly -- -- -- -- -- -- --
Anthony C. Dinnell 5,000 8.7 $17.12 4/27/08 -- $53,874 $136,489131,135 362,677
Larry W. Seay 20,000 8% $14.25 1/12/06 -- 116,024 270,384
Richard T. Morgan 15,000 6% $14.25 1/12/06 -- -- -- -- -- --87,018 202,788
This table excludes options granted to Mr. Cleverly in 1999, which were
forfeited upon his resignation effective March 18, 1999.
AGGREGATED OPTION EXERCISES IN 19981999 AND OPTION VALUES AT END OF FISCAL YEAR 19981999
The following table lists the number of shares acquired and the value
realized as a result of options exercised during 19981999 for the listed officers.
The table contains values for "in the money" options, which are those with a
positive spread between the exercise price and the December 31, 19981999 share price
of $12.1875.$10.875. The values are the difference between the year-end price per share
and the exercise price per share, multiplied by the number of applicable shares
in the money. These values have not been and may never be realized. The options
may never be exercised, and the value, if any, will depend on the share price on
the exercise date.
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FISCAL IN-THE-MONEYMONEY OPTIONS AT FISCAL
SHARES YEAR END (#) FISCALEND(#) YEAR END ($END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#)EXERCISE(#) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------------------- -------- ----------- ------------- ----------- -------------
John R. Landon -- -- 102,111 94,556 $540,624 $396,878
Steven J. Hilton -- -- 96,110 70,557 $666,763 $489,489
John R. Landon172,667 24,000 937,502 -- -- 40,555 126,112 281,350 874,902
William W. Cleverly -- -- 96,110 70,557 666,763 489,489
Anthony C. Dinnell 2,000 $15,010166,667 -- 13,000937,502 -- 52,540
Larry W. Seay 3003,700 $ 2,720 2,200 10,000 11,509 53,91524,994 7,000 21,500 10,510 21,020
Richard T. Morgan -- -- 7,000 18,000 9,500 14,250
CHANGE OF CONTROL ARRANGEMENTS
If Meritage undergoes a change of control that is required to be reported
on Form 8-K under securities laws before the third anniversary of the effective
dates of their stock option agreements, the options granted to Messrs. Hilton
and Landon under their stock option agreements will vest in full and be
immediately exercisable.
76
BOARD OF DIRECTORS' REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee consists of Messrs. Hamberlin and White, both of
whom are independent directors. The Committee reviews all aspects of executive
officer compensation and makes recommendations on such matters to the full Board
of Directors. In addition, Meritage has hired a compensation consultant to
advise the Compensation Committee on matters of executive compensation.
OVERVIEW AND PHILOSOPHY. Meritage'sOur compensation program for executive officers
primarily consists of base salary, annual bonus and long-term incentives in the
form of stock option grants. Executives also participate in various other
benefit plans generally available to all company employees, including a medical
and 401(k) plan.
Meritage'sOur philosophy is to pay base salaries that enable itus 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 provide substantial rewards to executives if stockholders benefit from stock
price appreciation, and no reward if the stock price does not appreciate.
CONTRACTUAL COMPENSATION ARRANGEMENTS. Meritage currently hasOur two Co-Chairmen,co-chairmen, Steven J.
Hilton and John R. Landon, both of whom serve as Chief
Executive Officers.chief executive officers. Mr. Hilton
and Mr. Landon have entered into employment agreements with Meritage,us, which provide for a base
salary, stock options and bonuses based on company performance.
The Company'sOur prior Board of Directors negotiated an employment agreement and a
related stock option agreement with Mr. Hilton effective December 31, 1996, in
connection with the merger of Monterey Homes, an Arizona-based homebuilding
business, into the Company. Mr. Hilton was one of the shareholdersa shareholder of Monterey Homes
prior tobefore the merger. The employment agreementsagreement and the stock option agreementsagreement were
an integral factorfactors in Mr. Hilton's decision to proceed with the merger and assume
management of Meritage. Mr. Hilton's compensation package is more fully
described under "Employment Agreements."
In July 1997, the Companywe combined with Legacy Homes, a Texas based homebuilding
business owned by John and Eleanor Landon. In connection with the combination,
Meritagewe negotiated an employment agreement and related stock option agreement with
Mr. Landon, under which Mr. Landon was appointed Chief
Operating Officerchief operating officer and
Co-Chief Executive Officerco-chief executive officer and was granted stock options. Mr. Landon's agreement
also included provisions for the Companyus to pay him additional consideration not to
exceed $15 million, based on the Company'sour earnings. Additional consideration was
approximately $2.8 million in 1997 and $7.0 million in 1998, and was paid
subsequent to each year-end. Meritage'sOur Board of Directors removed the contingent
nature of the remaining $5.2 million in 1999, which will bewas paid to Mr. Landon in
January 2000. The successful negotiation of the employment agreement and other
related agreements was an integral part of Mr. Landon's decision to combine
Legacy Homes with the Company and become part of itsour management team. Mr.
Landon's compensation package is more fully described under "Employment
Agreements."
Effective March 18, 1999, William Cleverly, one of the shareholdersa shareholder of Monterey Homes prior tobefore the merger,
resigned as Managing Director of the
Company.a managing director effective March 18, 1999. Mr. Cleverly will continuecontinues
to serve on Meritage'sour Board of Directors and as a consultant to the Company.us. In connection with
Mr. Cleverly's resignation, Meritage and Mr. Cleverly entered into a separation
and consulting agreement. Under this agreement, (the "separation agreement"). Under the separation agreement, Meritage
agreed to buy outwe purchased Mr. Cleverly's
employment agreement (which is described below under "Employment Agreement"Agreements")
for $656,375, an amount equal to his salary through the end of his employment
term and his pro-rated bonus through March 31, 1999. Mr. Cleverly also remainsremained
entitled to the contingent stock he was granted in connection with the merger of
Monterey Homes with the Company on December 31,in 1996 and to the stock options he was granted
under his 1996 stock option agreement, which contains terms identical to Mr.
Hilton's stock option agreement. The separation is deemed a termination without
cause under Mr. Cleverly's employment agreement with the Company.
8
agreement.
For three years from the effective date of the separation agreement, Mr.
Cleverly will consult on Meritage'sour new product development and other areas agreed upon
by the parties. Mr. Cleverly will not be required to spend more than 25 hours
per month in his capacity as a consultant to Meritage.our consultant. The separation agreement contains a
non-compete provision whichthat prohibits Mr. Cleverly from competing with Meritageus for
three years following the effective date. The
non-compete provision isdate, subject to various exceptions. In
consideration for Mr. Cleverly's covenantagreement not to compete, Meritagehe will pay Mr. Cleverlybe paid a
total of $285,000
payable in quarterly installments of $23,750 beginning in June 1999.$23,750. As of December 31, 1999,
we have paid Mr. Cleverly $71,250 of this amount.
For five years from the effective date of the separation agreement, the
CompanyMr.
Cleverly will nominate Mr. Cleverlybe nominated for election to the Meritageour Board of Directors, so long as he
owns greater thanat least 275,000 shares of Meritageour stock or unless he has committed any act
that constitutes "cause" as defined in his previous employment agreement.
7
In connection with the separation agreement, both Mr. Cleverly and Meritage
released the other party from any liabilities or obligations either party had or
may have against such party in the future, subject to certain exceptions.
STOCK OPTION PLAN. In 1997, the Board of Directors and Meritageour stockholders
approved the adoption of the Meritage Corporation Stock Option Plan. The plan
authorizes grants of incentive stock optionoptions and non-qualified stock options to
executives, directors and consultants as selected by the Compensation Committee. TheBoard. Subject to
stockholder approval of Proposal No. 2, the total number of shares of common
stock available for awards under the plan is 475,000. The775,000, and the maximum number of
shares of common stock that can be issued to any one person under the plan is
50,000100,000 shares. A summary of the plan is included under Proposal No. 2.
The Board of Directors believes that the plan promotes the success and enhances Meritage'sour value, by tyingas it
ties the personal interests of the participants to those of Meritageour stockholders,
and providingprovides the participants with an incentive for outstanding performance. The
Compensation CommitteeBoard of Directors 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.
Hilton and Landon were each granted options to purchase 166,667 shares of Meritageour
common stock. These options vest over three to four-year periods.three-years. In 1994, the Internal Revenue
Code was amended to add a limitation on the tax deduction a publicly-heldpublicly 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 numerousmany
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,
Meritage haswe have not been subject to the deductibility limitation and hashave generally
structured itsour equity-based compensation to comply with the performance-based
compensation exception to the limitation.
Mr. Hilton's stock options granted in connection with the merger were an
integral part of his employment agreement and as an inducement for him to
consummate the merger. Mr. Landon's stock options were granted in connection
with the combination as an integral part of Mr. Landon's employment agreement
and as an inducement for him to proceed with the transaction. None of the stock
options granted to Messrs. 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 Meritageour common stock and the exercise
of substantial option holdings, Messrs. 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 result in a charge to earnings on Meritage'sour
financial statements.
Meritage currently has a federal income tax net operating loss ("NOL")
carryforward that expires between 2007 and 2009. The ability to use the NOL
carryforward to offset future taxable income would be substantially limited
under federal tax laws if an "ownership change" as defined by those laws has
occurred or occurs before the NOL carryforward expires. Management monitors the
grants of stock options against the limitations.
COMPENSATION COMMITTEE
Alan D. Hamberlin
C. Timothy White
9
EMPLOYMENT AGREEMENTS
Meritage hasWe have employment agreements with Steven J. Hilton and John R. Landon.Landon that
provide for terms through December 31, 2001 and June 30, 2001, respectively.
Both agreements 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 equal to the lesser of 4% of the Company's pre-tax
consolidated net income or $200,000. Thereafter, both agreements provide that
the bonusbased on a percentage payout of consolidated net income, will beas determined by the
Compensation Committee of the Board of
Directors. In no event may the bonus paid
in any year exceed $200,000 per employee. TheMr. Hilton agreement has a term ending
December 31, 2001 and the Landon agreement has a term ending June 30, 2001.
Messrs. Hilton andMr. Landon serve as Co-Chairmenour co-chairmen and Co-Chief Executive Officers
of the Company.co-chief
executive officers.
Under his agreement,both agreements, if employment is terminated:
* voluntarily or for cause, or with respect to Mr. HiltonLandon,
voluntarily terminates his employment or
is discharged for "cause," Meritage haswithout good reason, we have no further obligation to
pay himthe officers' salary or bonus. Ifbonus;
* without cause, or with respect to Mr. Hilton is terminated during the term of his agreement without
"cause", Meritage will beLandon, voluntarily for
good reason, we are obligated to pay himthe officer his then current
annualbase salary through the term of the agreement. If Mr. Hilton is terminated as a result of
his agreement;
* due to death or permanent disability, Meritage will bewe are obligated to pay himthe
officer his then current annual salary for six months after termination,
plus a pro rated bonus.
Under his agreement, if Mr. Landon voluntarily terminates his employment
without good reason or is discharged for cause, Meritage has no further
obligation to pay him salary or bonus. Meritage will be obligated to pay Mr.
Landon 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 if Mr.
Landon resigns for good reason, or for six months after termination in the event
of death or disability and a pro rated bonus.
"Cause" under both the Hilton agreement and the Landon agreementagreements is defined to mean 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.our
expense. "Cause" under the Landon agreement also includes willful disregard of
8
the employee's primary duties to the Company. "Good Reason" under the Landon
agreement is defined to include:
+* 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;
+ failure by the Company to pay any part of the deferred payments due in
connection with the combination agreement;
+* termination of Mr. Landon for cause and it is determined that
cause did not exist; or
+ the Company's* our failure to make certain working capital arrangements
available to the Texas division.
TheBoth agreements with Messrs.contain non-compete provisions over their terms that
restrict Mr. Hilton and Mr. Landon contain five-year non-compete
provisions that restrict them from:
+* engaging in the homebuilding business and, with respect to Mr.
Landon, the mortgage brokerage or banking business;
+* recruiting, hiring or discussing employment with any person who
is, or within the past six months was, an employee of the Company;
+a Meritage employee;
* soliciting any customer or supplier of the CompanyMeritage for a competing
business or otherwise attempting to induce any customer or
supplier to discontinue its relationship with the Company;us; or
+* except solely as a limited partner with no management or
operating responsibilities, engaging in the land banking or lot
development business.
10
The foregoing provisions shall not restrict:
+* the ownership of less than 5% of a publicly-traded company; or
+* if the employment of either Mr. Hilton or Mr. Landon is
terminated under his respective employment agreement, engaging in
the custom homebuilding business, or the production homebuilding
business outside a 100 mile radius of any Meritage project or
outside Northern California, or engaging in the land banking or
lot development business. The non-compete provisions survive the
termination of the Hilton agreement unless Mr. Hilton is
terminated without cause. The non-compete provisions under the
Landon agreement survive termination of that agreement unless Mr.
Landon is terminated without cause or resigns for good reason.
MeritageWe also hashave an employment agreementsagreement with Larry W. Seay, and Anthony C.
Dinnell. Both agreements areour chief
financial officer, that provides for a term through January 1, 2001. Mr. Seay's
agreement is designed to provide for an initiala base salary
($120,750, increased to $150,000 for 1999 under the Seay agreement and $125,000,
increased to $135,000 for 1999 under the Dinnell agreement) and an annual bonus based on
the achievement of specific performance objectives. Compensation is subject to
continuing employment and standard employment policies. The Seay and
Dinnell agreements have a term ending January 1, 2001, and January 1, 2000,
respectively. During the terms of both agreements, the
employee agrees:
+ not toagreement, Mr. Seay agrees that he will not:
* engage in the business of providing any homebuilding products or
services where Meritage doeswe do or proposespropose to do business;
+ not to* solicit for employment anyone who works for or contracts with
Meritage for one year after the last date the employee is with
the Company;
+ not to* solicit or take away any of Meritage'sour customers or disclose potential
customers to the Company'sour competitors.
If the employeeMr. Seay is terminated without cause, he will be entitled to receive:
+* an amount equal to 50% of his base salary;
+* 50% of his average bonus for the previous three fiscal years; +and
* acceleration of his stock options as if he held them through the
end of the following fiscal year.
If the employeeMr. Seay voluntarily terminates his employment within twelve months
following a change of control of the Company due to a demotion in position, he
will be entitled to receive:
+* an amount equal to 100% of his base salary;
+* 100% of his average bonus for the previous three fiscal years;
and
+* vesting in full of all his stock options.
119
CHANGE OF CONTROL ARRANGEMENTS
If Meritage undergoes a change of control that is required to be reported
on Form 8-K under securities laws before the third anniversary of the effective
date of his stock option agreement, the options granted to Mr. Landon under his
stock option agreement will vest in full and be immediately exercisable.
We also have senior executive severance agreements under which, upon
termination of employment within two years of a change of control, certain
executive officers, including Messrs. Hilton, Landon, Seay and Morgan, will
receive a cash payment equal to one or two times the highest annual compensation
paid during the two years prior to termination, and accelerated vesting under
our benefit and stock option plans.
10
PERFORMANCE GRAPHSGRAPH
In connection with the Company's merger with Monterey Homes on December 31,
1996, the Companywe terminated itsour REIT status and entered into the homebuilding business.
We have not included a performance graph for 1995 and 1996, as the information
for those years is no longer relevant to our business.
The chart below graphs the Company'sour performance in the form of cumulative total
return to stockholders since Meritagewe began homebuilding as itsour primary business. The Company'sOur
total return is compared to thosethat of the Dow
Jones Industry Group - Home Construction ("Dow/Homes") and the Standard and Poor's 500 Composite Stock
Index.Index and of a cumulative return on the common stock of seven publicly trade
peer issuers, which includes Beazer Homes USA, Inc., Crossman Communities, Inc.
Engle Homes, Inc, Hovnanian Enterprises, Inc, MDC Holdings, Inc. NVR, Inc., and
Washington Homes, Inc. (the "Peer Group"). The comparison assumes $100 was
invested on December 31, 1996 in Meritage's Common Stock and in each of the other indices
and assumes reinvestment of dividends.
AS OF DECEMBER 31,
----------------------------
1996 1997 1998
---- ---- ----
Meritage Corporation 100 167.24 168.10
Dow Jones Industry Group - Home Construction 100 153.81 163.02
S&P 500 100 194.95 250.66
12
PERFORMANCE GRAPHS (CONTINUED)
The following chart compares the cumulative total stockholder return on
Meritage common stock during the three 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, 1993 in Meritage common stock and in each of the other
indices and assumes reinvestment of dividends.
AS OF DECEMBER 31,
---------------------------------------------
1993 1994 1995--------------------------------
1996 ---- ---- ---- ----1997 1998 1999
----- ----- ----- -----
Meritage Corporation 100 81.60 124.58 204.72
NAREIT Index 100 75.70 123.70 186.62167.2 168.1 150.0
S&P 500 100 101.31 139.23 171.19
13133.6 171.5 207.6
Peer Group 100 137.8 186.5 152.5
11
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Executive officers, directors and "beneficial owners" of more than ten
per
centpercent of Meritageour common stock must file initial reports of ownership and reports
of changes in ownership with the Securities and Exchange Commission under
Section 16(a). Based upon a review of the copies of the forms furnished to Meritage,us,
or written representations that all required forms were filed, management
believes all filing requirements were met during 1998.1999.
CERTAIN TRANSACTIONS AND RELATIONSHIPS
Since September 1994, Meritage haswe have leased approximately 11,000 square feet of office space
in a Scottsdale, Arizona office building from a limited liability company owned
by Messrs. Hilton and Cleverly. The five-year lease has a
five-year term,expires August 30, 2004, and
Meritage haswe have an option to expand itsour 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 $238,240 in 1999,
$210,816 in 1998 and $192,487 in 1997 and $173,160 in 1996.1997. Management believes that the lease terms
are no less favorable than those that could be negotiated in an arm's length
transaction.
Since July 1, 1997, Meritage haswe have leased office space in Plano, Texas from Home Financial
Services, a Texas partnership owned by John and Eleanor Landon. The lease
expires May 15, 2002. Rents paid to the partnership were $176,773 in 1999,
$169,294 in 1998 and $81,588 in 1997. Management believes that the lease terms
are no less favorable than those that could be negotiated in an arm's length
transaction.
MeritageWe paid legal fees to Tiffany & Bosco, P.A. of approximately $ 334,000 in
1999 and $321,000 in 1998 and $236,000 in 1997.1998. C. Timothy White, a Meritage director,one of our directors, is a
shareholder of Tiffany and Bosco, P.A.
In 1998 Meritage1999 we purchased 3592 lots for development in Arizona from a business
controlled by the spouse of one of the Company'sour directors. The total amount paid for the
lots was approximately $1,314,000,$3,517,000, a price management believes is no less
favorable than Meritagewe could have negotiated in an arm's length transaction.
In 1999 Mr. Landon personally purchased 27.25 acres of undeveloped land in
Allen, Texas, on behalf of the Company.our behalf. Mr. Landon is in the process of sellingsold the land to Meritage later in the
Meritageyear at no gain. TheOur acquisition price of the property was $985,735.
RELATIONSHIP WITH$994,705.
In 1999 we entered into a $70 million borrowing agreement with Norwest Bank
and California Bank and Trust ("CBT"). This line of credit is due December 31,
2001, has interest payable monthly approximating prime or LIBOR plus 1.75%, and
is secured by first deeds of trust on real estate. Mr. Sarver, one of our
directors, is the chairman and chief executive officer of CBT. Management
believes the terms of the loan to be no less favorable than we could have
negotiated in an arms length transaction.
PROPOSAL TO APPROVE AMENDMENT TO THE MERITAGE CORPORATION
STOCK OPTION PLAN
(PROPOSAL NO. 2)
On January 12, 2000, our Board of Directors adopted, subject to shareholder
approval, an amendment to the Meritage Corporation 1997 Stock Option Plan that
would increase the number of shares of common stock reserved for issuance under
the plan from 475,000 shares to 775,000 shares. The amendment would also
increase the maximum amount of shares that could be issued to one person from
50,000 to 100,000, and allow the plan to be administered by all non-employee
members of the Board of Directors. Certain material features of the plan are
discussed below, however, the description is subject to, and qualified by the
full text of the plan, attached as Exhibit A, which includes the proposed
amendment highlighted in bold. The closing price for our common stock on January
12, 2000, as reported on the New York Stock Exchange, was $10.00 per share. 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
approve the proposal.
12
The Board believes the plan promotes success and enhances our value, as it
ties the personal interests of the participants to those of stockholders and
provides the participants with an incentive for outstanding performance. The
Board of Directors administers the plan, and has the exclusive authority over
it, including the power to determine a participant's eligibility, the types of
awards to be granted, the timing of the awards and the exercise price of awards.
The Board believes that increasing the number of shares reserved for issuance
and the maximum number of shares a person may be granted will enhance the plan's
success and its impact on our value.
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 be equal or greater than the fair market value of the stock at the
date of the grant, the option must expire 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 grant date. Certain other requirements must also be met. The Board
determines the amount of consideration to be paid to us upon exercise of any
options. Payment may be made in cash, common stock or other property.
An optionee is not treated as receiving taxable income upon either the
grant or 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 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 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 the 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.
We are 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. In such case, we are
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. These 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.
The optionee realizes no taxable income upon the grant of an NQSO, nor are
we 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 exercise date over the exercise
price, and we are entitled to a corresponding tax deduction.
Upon 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 consequence to us.
13
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 Meritage's obligation
under the plan, all outstanding options shall become immediately exercisable in
full and each option holder shall be given the opportunity to exercise their
options before 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:
* a merger or consolidation in which Meritage is not the surviving
entity;
* the sale, transfer or other disposition of all or substantially all of
the assets of Meritage in a liquidation or dissolution of the company;
or
* any reverse merger in which Meritage is the surviving entity but in
which the beneficial ownership of securities possessing more than 50%
of the total combined voting power of Meritage'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 provides information about the options that were
outstanding under the 1997 Plan on March 31, 2000. The options granted have
seven or ten-year terms, vest equally over five years beginning 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 seven of ten-year terms,
vest equally over two years beginning on the first anniversary of the date of
grant and have exercise prices ranging from $5.62 to $14.25 per share. Grants
under the plan are made at the discretion of the Board. Future grants are not
yet determinable.
INDIVIDUAL OF GROUP NAME NUMBER OF SHARES
- ------------------------ ----------------
Executive Officers
Mr. Hilton 30,000
Mr. Landon 30,000
Mr. Seay 32,500
Mr. Morgan 25,000
-------
All executive officers (4 persons) 117,500
All directors who are not executive officers (5 persons) 40,000
All employees other than executive officers (27 persons) 239,000
SECURITIES ACT REGISTRATION
We intend to register the additional shares of common stock available for
issuance under a Registration Statement on Form S-8 to be filed with the
Securities and Exchange Commission.
THE BOARD RECOMMENDS THAT YOU VOTE FOR APPROVAL OF THIS PROPOSAL TO
AMEND THE MERITAGE CORPORATION STOCK OPTION PLAN.
INDEPENDENT ACCOUNTANTS
The firm of KPMG LLP served as Meritage'sour principal independent public accounting
firm and performed the audit of theour financial statements for the fiscal year
ended December 31, 1998.1999. A representative of KPMG will attend the annual meeting
to answer questions and will be given an opportunity to make a statement shouldif he
wishwishes to do so.
During the two most recent fiscal years, there were no disagreements
between Meritage and KPMG LLP with respect to any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure.
14
STOCKHOLDER PROPOSALS
The Board of Directors will consider nominations from stockholders for the
class of directors whose terms expire at the year 20002001 Annual Meeting.
Nominations must be made in writing to theour Corporate Secretary, received at
least 90 days prior to the 20002001 Annual Meeting, and contain sufficient
background information concerning the nominee. Thenominee's qualifications. Our Corporate
Secretary must receive any other stockholder proposals for the 20002001 Annual
Meeting by December 19, 19992000 to be considered for inclusion in the Company's 2000our 2001 Proxy
Statement.
OTHER MATTERS
The Board of Directors is not aware of any other matters to be presented at
the meeting. If any other business should properly come before the meeting, the
proxy holders will vote according to their best judgment.
Meritage Corporation
/s/ Larry W. Seay
-----------------------------------------------------------------
Larry W. Seay
Chief Financial Officer, Vice
President-Finance, Secretary and
Treasurer
April 7, 1999March 31, 2000
15
[FRONTEXHIBIT A
MERITAGE CORPORATION
STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND DEFINITIONS.
a. The Stock Option Plan (the "Option Plan") of Meritage 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 CARD]
PROXY PROXY
MONTEREY HOMES CORPORATION
PROXY SOLICITED ON BEHALFTHE PLAN
a. THE OPTION PLAN SHALL BE ADMINISTERED BY MEMBERS OF THE BOARD OF
DIRECTORS OF THE COMPANY (THE "BOARD") QUALIFYING AS "NON-EMPLOYEE
DIRECTORS" AS SUCH TERM IS DEFINED IN RULE 16B-3 PROMULGATED BY THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION").
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 BOARD 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 BOARD 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 that
is subject to repurchase rights shall have imprinted or typed thereon
a legend or legends summarizing or referring to the repurchase rights.
16
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 BOARD 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 775,000 SHARES, AND THE MAXIMUM
NUMBER OF SHARES OF COMMON STOCK THAT CAN BE ISSUED TO ANY ONE PERSON
UNDER THIS OPTION PLAN IS 100,000 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 BOARD
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 BOARD 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.
17
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 determines,
are necessary to so qualify under Section 422 of the Internal Revenue
Code.
e. The BOARD 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
18
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 BOARD, 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 BOARD, 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 BOARD. 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
19
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 Board 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
20
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.
21
PROXY PROXY
MERITAGE CORPORATION
FOR THE ANNUAL MEETING OF STOCKHOLDERS--JUNE 11, 1998STOCKHOLDERS - MAY 10, 2000
The undersigned hereby appoints John R. Landon and Steven J. Hilton, and John R. Landon, or either
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 Meritage Corporation that the
undersigned is entitled to vote at the Annual Meeting of Shareholders to be held
onan Wednesday, May 19, 1999,10, 2000, at 9:00 a.m., ArizonaCentral Daylight Time, at the
DoubleTree Paradise Valley Resort, Paradise Valley, ArizonaUniversity Club, Dallas, Texas 75240 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, onan the matters set forth below.
Unless otherwise marked, this proxy will be voted FOR the election of director
nominees.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.
[BACK OF CARD]
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
John R. Landon [ ] [ ]
Robert G. Sarver
C. Timothy White
WITHHELD FOR: (Write nominees' names in the space provided below.)
------------------------------------------------------------------
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 PROPOSALFOLD 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.
- ----------------------- -------------------------- -----------------------DETACH HERE
Please mark
your vote as [X]
indicated in
this example
WITHHELD
FOR FOR ALL FOR AGAINST ABSTAIN
1. ELECTION OF CLASS I DIRECTORS: [ ] [ ] 2. TO APPROVE AMENDMENT TO COMPANY'S [ ] [ ] [ ]
VOTE FOR nominees listed below 1997 STOCK OPTION PLAN
William W. Cleverly THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS
Steven J. Hilton YOU SPECIFY ABOVE. IF NO SPECIFIC VOTING DIRECTIONS ARE
Raymond Oppel GIVEN YOU, THIS PROXY WILL BE VOTED FOR THE LISTED
PROPOSAL AND, BY WITH RESPECT TO SUCH OTHER BUSINESS AS
WITHHELD FOR: (Write that nominees' name MAY PROPERLY COME BEFORE THE MEETING, IN ACCORDANCE
in the space provided below) WITH THE DISCRETION OF THE APPOINTED PROXY. PLEASE
SIGN, DATE AND RETURN THIS PROXY PROMPTLY.
______________________________________________
Signature _____________________ Signature _____________________ Date _________
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 fullfall corporate
name, by a duly authorized officer. If shares are held jointly, each stockholder
named should sign.
FOLD AND DETACH HERE