[LOGO]
October 22, 1997
Dear Fellow Shareholders:
You are cordially invited to attend the 1997 Annual Meeting of Shareholders
of Washington Homes, Inc. to be held on Thursday, November 20, 1997, beginning
at 10:00 a.m., local time, at the Greenbelt Marriott Hotel, Greenbelt, Maryland.
I look forward to meeting as many of you as can attend the meeting.
Holders of Washington Homes Common Stock are being asked to vote on the
matters listed in the enclosed Notice of Annual Meeting of Shareholders. The
Board of Directors recommends a vote "FOR" the proposals listed as items 1, 2, 3
and 4 in the Notice.
Whether or not you plan to attend the Meeting in person, it is important
that your shares of Washington Homes Common Stock be represented and voted at
the Meeting. Accordingly, after reading the enclosed Notice of Annual Meeting
and Proxy Statement, please sign, date and mail the enclosed proxy card in the
envelope provided.
Sincerely,
/s/ Geaton A. DeCesaris, Jr.
----------------------------
Geaton A. DeCesaris, Jr.
President and
Chief Executive Officer
[LOGO]
1802 Brightseat Road
Landover, MD 20785-4235
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD NOVEMBER 20, 1997
------------------
To the Shareholders of
Washington Homes, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders (the "Annual
Meeting") of Washington Homes, Inc., a Maryland corporation (the "Company"),
will be held on November 20, 1997, at the Greenbelt Marriott Hotel, 6400 Ivy
Lane, Greenbelt, Maryland, commencing at 10:00 a.m., local time, for the
following purposes:
1. To elect directors;
2. To consider amendment of the Company's Employee Stock Option Plan to
increase the number of shares of Common Stock available for option to
1,000,000 from 500,000.
3. To consider amendment of the Company's Non-Employee Directors' Stock
Option Plan to increase the number of shares available for option to
100,000 from 30,000.
4. To ratify the appointment of Deloitte & Touche LLP as independent
auditors for the Company for fiscal year 1998; and
5. To transact such other business as may properly come before the
Meeting.
Only holders of the Company's voting common stock of record at the close of
business on October 16, 1997, the record date, are entitled to receive notice of
and to vote at the Annual Meeting and all adjournments thereof.
/s/ Christopher Spendley
-----------------------------------
Christopher Spendley
October 22, 1997 Senior Vice President and Secretary
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HOLDERS OF VOTING COMMON STOCK ARE URGED TO MARK, SIGN AND DATE THE ENCLOSED
PROXY AND RETURN IT IN THE ENCLOSED PRE-ADDRESSED REPLY ENVELOPE, WHETHER OR NOT
THEY PLAN TO ATTEND THE MEETING.
- --------------------------------------------------------------------------------
WASHINGTON HOMES, INC.
PROXY STATEMENT
This Proxy Statement is being furnished to holders of the voting common
stock, par value $.01 per share (the "Common Stock"), of Washington Homes, Inc.,
a Maryland corporation (the "Company"), in connection with the solicitation of
proxies by its Board of Directors for use at the Annual Meeting of the Company's
shareholders (the "Annual Meeting") to be held on Thursday, November 20, 1997,
at the Greenbelt Marriott Hotel, 6400 Ivy Lane, Greenbelt, Maryland, commencing
at 10:00 a.m., local time, and at any adjournment or postponement thereof.
This Proxy Statement and accompanying form of Proxy and Notice of Annual
Meeting are first being mailed to holders of Common Stock on or about October
23, 1997. A copy of the Company's Annual Report to Shareholders for the fiscal
year ended July 31, 1997, including financial statements, has been sent
simultaneously with this Proxy Statement or has been previously provided to all
shareholders entitled to vote at the Annual Meeting.
SHAREHOLDERS ENTITLED TO VOTE
Only holders of Common Stock of record at the close of business on October
16, 1997, the record date, are entitled to notice of and to vote at the Annual
Meeting and adjournments thereof. As of October 16, 1997, there were 7,914,433
shares of Common Stock outstanding and entitled to be voted at the Annual
Meeting. In addition, the Company had 28,330 shares of non-voting common stock
outstanding which are convertible into voting common stock on a share-for-share
basis.
Each holder who is entitled to vote may cast one vote per share held on all
matters properly submitted for the vote of shareholders at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the Annual Meeting is
necessary to constitute a quorum. A plurality of the votes duly cast is required
for the election of directors. The affirmative vote of a majority of the votes
duly cast is required to approve the other matters to be acted upon at the
Annual Meeting.
PROXIES
All shares entitled to vote and represented by properly executed proxies
received prior to the Annual Meeting, and not revoked, will be voted at the
Annual Meeting in accordance with the instructions indicated on those proxies.
If no instructions are indicated on a properly executed proxy, the shares
represented by such proxy will be voted as recommended by the Board of
Directors. The Board of Directors recommends a vote FOR the election of the
nominees for election as directors; FOR amendment of the Company's Employee
Stock Option Plan; FOR amendment of the Company's Non-Employee Directors' Stock
Option Plan; and FOR ratification of the appointment of Deloitte & Touche LLP as
independent auditors for the 1998 fiscal year.
If any other matters are properly presented at the Annual Meeting for
consideration, including, among other things, consideration of a motion to
adjourn the Annual Meeting to another time or place (including, without
limitation, for the purpose of soliciting additional proxies), the persons named
in the enclosed form of proxy will vote on those matters in accordance with
their best judgment to the same extent as the person signing the proxy would be
entitled to vote. It is not currently anticipated that any other matters will be
raised at the Annual Meeting.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. A proxy may be revoked (i) by filing
with the Secretary of the Company, at or before the taking of the
vote at the Annual Meeting, a written notice of revocation or a duly executed
proxy, in either case later dated than the prior proxy relating to the same
shares, or (ii) by attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not itself revoke a proxy).
1. ELECTION OF DIRECTORS
Seven directors are proposed to be elected at the Annual Meeting to serve
until the next annual meeting of shareholders and until their successors are
duly elected and qualified. Properly executed proxies returned in a timely
fashion will be voted in the election of each of the nominees named below,
unless the shareholder indicates on the proxy that the vote should be withheld
from any or all of such nominees.
The Board of Directors has proposed the persons listed below as nominees
for election as directors at the Annual Meeting. All nominees are currently
serving as directors of the Company. The Company expects each nominee for
election as a director at the Annual Meeting will stand for election and be able
to serve as a director. If any nominee is unable to stand for election and
serve, proxies will be voted in favor of the remainder of those nominated and
may be voted for substitute nominees.
Following is a listing of the nominees along with a brief summary of their
business experience:
Geaton A. DeCesaris, Sr., 66, has served as Chairman of the Board of the
Company since August 1988. From June 1985 to August 1988, he served as Senior
General Partner of Sonny DeCesaris and Sons Development Group, a real estate
development and construction firm. Prior thereto from 1973 to June 1985, he was
founder and President of Sonny DeCesaris and Sons Builders, Inc., and from 1960
to 1973, President of Procopio and DeCesaris Construction Company.
Geaton A. DeCesaris, Jr., 42, has served as President, Chief Executive
Officer and a Director of the Company since August 1988. Prior thereto from June
1985 to August 1988, Mr. DeCesaris was Managing General Partner of Sonny
DeCesaris and Sons Development Group and, from 1973 to June 1985, Vice President
of Sonny DeCesaris and Sons Builders, Inc.
Thomas Connelly, 48, has served as a Director since September 1992. Since
April 1997, he has been Vice President and Chief Financial Officer of Western
Pacific Housing, a homebuilder based in El Segundo, California. Prior thereto
from November 1996 to April 1997 he was Senior Vice President and Chief
Financial Officer of the Forecast Group, LP (real estate) in Rancho Cucamonga,
California; from August 1988 to November 1996 he was a Senior Vice President of
the Company; and from September 1994 to September 1996 he served as the
Company's Chief Financial Officer. Mr. Connelly has over 22 years experience in
finance and real estate development.
Paul C. Sukalo, 46, has served as Senior Vice President and a Director of
the Company since August 1988. Prior thereto from June 1985 to August 1988, he
was a general partner of Sonny DeCesaris and Sons Development Group. He has over
17 years of related construction experience, principally in residential
construction and related services.
Ronald M. Shapiro, 54, has been a Director of the Company since April 1993.
Mr. Shapiro, an attorney, is President of Shapiro, Robinson & Associates, Inc.,
a professional sports management and contract negotiations firm which he founded
in 1976. Since January 1992 he has served as Counsel To The Firm of Shapiro and
Olander, Baltimore, Maryland, a law firm he founded in 1972. He is also a
director of First Mariner, a bank holding company.
Richard B. Talkin, 60, has been a Director of the Company since April
1993. Mr. Talkin is an attorney specializing in real estate related matters
and has practiced law in Columbia, Maryland for over 25 years.
2
Richard S. Frary, 50, has been a Director of the Company since December
1995. Mr. Frary is a partner and managing director of Tallwood Associates, Inc.,
a merchant banking firm located in New York, which specializes in corporate
restructurings and real estate and has held that position since 1990. He is also
a director of Value Property Trust, a real estate investment trust.
Geaton A. DeCesaris, Sr., Chairman of the Board, is the father of Geaton A.
DeCesaris, Jr., President and a Director; Marco A. DeCesaris, Vice President;
and A. Hugo DeCesaris, Vice President; and is the father-in-law of Paul C.
Sukalo, Senior Vice President and a Director.
MEETINGS AND COMMITTEES OF THE BOARD
The Board of Directors has designated several committees of the Board,
including a Compensation Committee, an Audit Committee and an Executive
Committee, the functions and membership of which are described below.
The Compensation Committee is responsible for approving recommendations to
the Board of Directors regarding salaries, incentive bonuses and other
compensation arrangements with executive officers of the Company and for the
administration of the Washington Homes Employee Stock Option Plan. The Audit
Committee's functions include making recommendations to the Board of Directors
on the selection of the Company's auditors, reviewing the arrangements for and
scope of the independent auditors' examination, meeting with the independent
auditors to review the adequacy of internal controls and reporting and
performing any other duties or functions deemed appropriate by the Board. The
Executive Committee may, with certain limitations, act for the Board of
Directors between meetings of the Board.
The members of both the Compensation and Audit Committees during fiscal
1997 were Messrs. Frary, Shapiro and Talkin. Mr. Shapiro was Chairman of the
Compensation Committee and Mr. Frary was Chairman of the Audit Committee. The
Executive Committee consists of Geaton A. DeCesaris, Sr., Geaton A. DeCesaris,
Jr. and Paul C. Sukalo.
During fiscal 1997, the Board of Directors met six times, the Executive
Committee acted by unanimous consent five times, the Compensation Committee met
once and acted by unanimous consent five times and the Audit Committee met once.
DIRECTOR COMPENSATION
During fiscal 1997, the Company paid each non-employee director $6,000 per
year plus $2,500 for each Board meeting and $1,000 for each committee meeting
not held in conjunction with a Board meeting which they attended and reimbursed
such directors for all out-of-pocket expenses incurred in connection with their
activities as directors. During fiscal 1997 each non-employee director (with the
exception of Mr. Connelly) received an option under the Company's Non-Employee
Directors' Stock Option Plan to purchase 3,000 shares of Common Stock at a price
of $3.69 per share (the market price at the date of grant). During the fiscal
year ended July 31, 1997, the Company engaged Mr. Talkin as counsel to provide
legal services to the Company in certain matters.
3
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of September 30, 1997
with respect to the beneficial ownership of the Company's voting common stock by
each person known by the Company to be the beneficial owner of more than five
percent of its outstanding voting common stock:
SHARES OF VOTING COMMON
STOCK BENEFICIALLY OWNED
NAME AND ADDRESS ------------------------
OF BENEFICIAL OWNERS(1) NUMBER PERCENT(2)
----------------------- ------ ----------
Geaton A. DeCesaris, Sr. (3)(4)(5).................... 812,088 10.2
Geaton A. DeCesaris, Jr. (3)(4)(5).................... 1,090,389 13.7
Marco A. DeCesaris (4)(5)............................. 523,333 6.6
A. Hugo DeCesaris (3)(4)(5)........................... 446,000 5.6
Joseph A. DeCesaris (3)(4)(5)......................... 482,334 6.1
FMR Corp. and
Fidelity Management and Research Corporation (6)
82 Devonshire Street
Boston, MA 02109-3614................................. 501,400 6.3
Dimensional Fund Advisors, Inc. (7)
1299 Ocean Avenue
Santa Monica, CA 90401................................ 415,500 5.2
- ----------
(1) The address for DeCesaris family members is 1802 Brightseat Road, Landover,
Maryland 20785-4235.
(2) Based on 7,942,763 shares outstanding which includes 28,330 shares of
non-voting common stock which are convertible into shares of voting common
stock on a share-for-share basis.
(3) Includes shares held by spouse and jointly with spouse. Each person listed
has joint voting and investment power with that person's spouse with
respect to the shares jointly owned. Also includes shares held in that
person's retirement plan accounts.
(4) Geaton A. DeCesaris, Jr., Marco A. DeCesaris, A. Hugo DeCesaris and Joseph
A. DeCesaris are the sons and Paul C. Sukalo is the son-in-law of Geaton A.
DeCesaris, Sr. While these persons have acted together in various
businesses, principally in real estate, there is no agreement among them to
vote their shares together or to otherwise act in concert concerning the
affairs of the Company. Each of the individuals disclaims beneficial
ownership of any shares other than as listed opposite such person's name in
the table above or the table on the next page.
(5) In addition to shares listed above, various DeCesaris family trusts hold
340,000 shares of Common Stock for the benefit of family members, portions
of which may be deemed indirectly beneficially owned as follows: 100,000
shares by Geaton A. DeCesaris, Jr., 40,000 shares by Marco A. DeCesaris,
40,000 by A. Hugo DeCesaris and 80,000 by Joseph A. DeCesaris. The
co-trustees of these trusts have shared voting and investment power with
respect to shares held.
(6) Beneficial ownership as of June 30, 1997. FMR Corp. has informed the
Company that it has sole voting power with respect to no shares and sole
disposition power with respect to all shares held.
(7) Beneficial ownership is as of June 30, 1997. Dimensional Fund Advisors,
Inc. ("DFA"), a registered investment advisor, has informed the Company
that it has sole power to vote 281,300 shares and sole dispositive power
with respect to all shares held. Officers of DFA have the power to vote
134,200 shares.
4
SECURITIES OWNERSHIP OF MANAGEMENT
The following table sets forth information as of September 30, 1997
regarding beneficial ownership of the Company's common stock (both voting and
non-voting shares) by each Director, each nominee to become a Director, each of
the Company's five most highly compensated executive officers and the Directors
and executive officers of the Company as a group:
NUMBER OF SHARES PERCENTAGE OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
---- ------------------ ------------------
Geaton A. DeCesaris, Jr.............. 1,090,389 (1)(2)(3) 13.7
Geaton A. DeCesaris, Sr.............. 812,088 (1) 10.2
Cameron Ross......................... -- (3) *
Paul C. Sukalo....................... 279,961 (1)(3)(4) 3.5
Christopher Spendley................. -- (3) *
Thomas Connelly...................... 39,503 (1) *
Ronald M. Shapiro.................... 2,225 (3) *
Richard B. Talkin.................... 9,000 (1)(3) *
Richard S. Frary..................... 53,830 (1)(3)(5) *
All Directors and executive officers
as a group (16 persons)............ 3,264,798 (1)(2)(3)(4)(5) 41.1
- ----------
* Less than 1% of issued and outstanding shares of common stock (both voting and
non-voting).
(1) Includes shares held jointly with spouse, shares held for benefit of minor
children and/or shares held in retirement plan accounts.
(2) Does not include 100,000 shares held in the DeCesaris family trusts which
may be deemed indirectly beneficially owned by Geaton A. DeCesaris, Jr.
(3) Does not include shares which such person has a right to acquire through
the exercise of options as follows: Mr. DeCesaris 55,000; Mr. Sukalo
16,000; Mr. Spendley 40,000; Mr. Ross 12,000; Mr. Shapiro 6,000; Mr. Talkin
6,000; Mr. Frary 4,000 and all executive officers and directors as a group.
(4) Does not include 60,000 shares held in the DeCesaris family trusts which
may be deemed indirectly beneficially owned by Paul C. Sukalo.
(5) Includes 28,330 shares of non-voting common stock.
5
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation paid to the
Company's chief executive officer and its four other most highly compensated
executive officers serving at July 31, 1997 for services rendered during the
last three fiscal years:
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
-----------------
ANNUAL COMPENSATION NUMBER OF
-------------------------------- SHARES UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY BONUS OTHER(1)(2) OPTIONS GRANTED
--------------------------- ----------- -------- ------- ----------- -----------------
Geaton A. DeCesaris, Jr................. 1997 $350,000 $65,000 $2,687 30,000
President and Chief Executive Officer 1996 350,000 -- 1,000 12,500
1995 350,000 50,000 1,000 12,500
Geaton A. DeCesaris, Sr................. 1997 260,000 -- 2,340 --
Chairman of the Board 1996 260,000 -- 1,000 --
1995 260,000 -- 1,000 --
Cameron Ross............................ 1997 165,390 60,655 2,199 --
President, Westminster Homes, Inc. 1996 159,082 121,963 1,000 6,000
1995 145,082 31,433 1,000 6,000
Paul C. Sukalo.......................... 1997 140,000 65,750 2,298 4,000
Senior Vice President 1996 135,300 48,430 1,000 6,000
1995 135,300 41,333 1,000 6,000
Christopher Spendley.................... 1997 139,373 35,000 -- 40,000
Senior Vice President 1996 -- -- -- --
1995 -- -- -- --
- ----------
(1) Includes the matching amounts paid by the Company to the Company's 401(k)
Plan under which employee contributions are partially matched up to the
greater of $1,000 or 1.5% of compensation.
(2) Excludes perquisites and other personal benefits since the aggregate amount
of such compensation is the lesser of $50,000 or 10% of salary and bonus
combined.
The Company does not have employment agreements with any of its executive
officers.
6
The following tables set forth certain information concerning the granting
and exercise of stock options during the fiscal year ended July 31, 1997, by the
persons named in the Summary Compensation Table and the value of all unexercised
options at the end of the fiscal year:
AGGREGATED OPTION EXERCISES IN
LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
VALUE OF
UNEXERCISED UNEXERCISED
SHARES ACQUIRED VALUE OPTIONS AT IN THE
NAME ON EXERCISE REALIZED 7/31/97 MONEY OPTIONS
---- --------------- -------- ----------- -------------
Geaton A. DeCesaris, Jr... -- -- 55,000 --
Geaton A. DeCesaris, Sr... -- -- -- --
Cameron Ross.............. -- -- 12,000 --
Paul C. Sukalo............ -- -- 16,000 --
Christopher Spendley...... -- -- 40,000 --
OPTION GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
VALUE AT ASSMUED
ANNUAL RATES
% OF TOTAL OF STOCK PRICE
NUMBER OPTIONS APPRECIATION FOR
OF SHARES GRANTED TO EXERCISE OPTION TERM
UNDERLYING EMPLOYEES IN PRICE EXPIRATION --------------------
NAME OPTIONS GRANTED FISCAL YEAR PER SHARE(1) DATE 5% 10%
---- --------------- ------------ ------------ ---------- ------- --------
Geaton A. DeCesaris, Jr...... 30,000 12.71% $4.06 9/18/06 $58,549 $165,357
Geaton A. DeCesaris, Sr...... None -- -- -- -- --
Cameron Ross................. None -- -- -- -- --
Paul C. Sukalo............... 4,000 1.69% 3.69 9/18/06 9,282 23,524
Christopher Spendley......... 20,000 8.47% 4.25 8/18/06 53,456 135,468
20,000 8.47% 4.69 1/31/07 58,990 149,493
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(1) Options are exercisable as follows: 25% beginning 1 year after grant; 50%
beginning 2 years after grant; and fully exercisable beginning 4 years
after grant.
CERTAIN TRANSACTIONS
The Company currently leases over 24,000 square feet of office space in the
Ingle West Office Building in Landover, Maryland from Citadel Land, Inc., a
corporation owned by members of the DeCesaris family, pursuant to a lease
expiring in October 2000 at a base annual rental of $414,000. The rental is
subject to adjustment for increased operating expenses and changes in the
Consumer Price Index. In fiscal 1997, the Company paid Citadel $443,041 in
rentals.
REPORT OF COMPENSATION COMMITTEE
REGARDING EXECUTIVE COMPENSATION
The Board of Directors has determined that the Company's executive
compensation program will be administered by the Compensation Committee (the
"Committee") which consists of three non-employee
7
independent directors. The Committee was established in April 1993, following
completion of the Company's initial public offering.
For fiscal 1997 executive compensation consisted generally of base salary,
bonuses and grants of stock options under the Company's Employee Stock Option
Plan. The Committee annually reviews the Company's executive compensation
program and policies and approves compensation for executive personnel.
The overall policy objective of the Company's executive compensation
program is to provide base compensation levels and compensation incentives (in
the form of bonuses and stock options) that attract and retain the highest
quality individuals for key executive positions with the Company. The executive
compensation program is intended to recognize individual contribution to
corporate performance and to recognize the overall performance of the Company
relative to the performance of other corporations in the homebuilding industry.
BASE COMPENSATION
The Committee annually reviews base compensation levels of executive
personnel to determine that such compensation is competitive, both individually
and in the aggregate, with other homebuilding industry companies of comparable
size and profitability. Comparisons with other companies are obtained through
public information and surveys of homebuilding industry compensation available
from outside compensation advisors. Individual base compensation levels are set
based upon these competitive factors, but also are varied based upon
performance, experience and the scope of each particular position.
BONUSES
The Company awards annual and periodic cash bonuses to its executive
personnel. These bonuses tie a portion of compensation directly to results
achieved during each fiscal year. Individual amounts are determined by an
evaluation of individual performance, division performance and Company
performance. As with base compensation, the Committee reviews bonuses and the
bonus structure annually in an effort to set a program which promotes behavior
which is intended to enhance shareholder value and is competitive, both as to
the bonus and when combined with base salary, with other homebuilders of
comparable size and profitability.
For fiscal 1997, bonuses for executive personnel in each of the Company's
operating divisions were tied, in large measure, to the ability of each division
to meet or exceed the business plan objectives established at the beginning of
the fiscal year as calculated by various measurements of financial and operating
performance.
Bonuses for executive personnel whose activities are not directly a part of
the operating divisions were based in part upon the ability of the Company to
meet or exceed pre-set performance goals, in part on the achievement of specific
objectives in programs of a broader nature and in part were set at levels to
bring total cash compensation in line with other homebuilders. A bonus for the
chief executive officer was to be based on achieving after-tax financial results
by the Company and its subsidiaries in relation to its business plan and on the
achievement of specific objectives in programs of a broader nature.
STOCK OPTIONS
Stock options are granted as a means of aligning the economic interests of
key personnel with those of the shareholders of the Company. For fiscal 1997,
stock options were granted for 236,000 shares of the Company's Common Stock.
In the past, options were granted to all executive and other key personnel
at time of the Company's initial public offering who were not then shareholders
of the Company. Other options also have been granted at the time of hire of
executive and management personnel. For fiscal 1997 the Committee established a
program for
8
grants for additional awards based on individual performance. In addition, at
the time of hire, options were granted in fiscal 1997 based on the potential for
future contribution to the success of the Company.
CEO COMPENSATION
The criteria previously enumerated are those that have been applied to the
Company's Chief Executive Officer, Geaton A. DeCesaris, Jr. During fiscal 1997
Mr. DeCesaris received base compensation of $350,000, which was unchanged from
fiscal 1996. Mr. DeCesaris received a bonus for fiscal 1997 of $65,000. This was
an increase of $65,000 from fiscal 1996 level when he declined a bonus. In
determining Mr. DeCesaris' compensation the Committee recognized that the
Company did not fully achieve its financial goals for the year, despite progress
made in several areas including geographical expansion, integration of expanded
operations and management of the Company's land position. During the year, Mr.
DeCesaris received options to purchase 30,000 shares of common stock.
Ronald M. Shapiro
Richard B. Talkin
Richard S. Frary
Members of the Compensation Committee
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATIONS
Mr. Talkin, a member of the Compensation Committee, performs legal services
for the Company.
2. PROPOSAL TO AMEND EMPLOYEE STOCK OPTION PLAN
On September 17, 1992, the Company adopted the Washington Homes Employee
Stock Option Plan (the "Option Plan") pursuant to which options for up to
500,000 shares of Common Stock could be granted to officers and other key
employees of the Company. On July 18, 1997, the Board of Directors voted to
increase the number of shares for which options could be granted to 1,000,000
subject to shareholder approval at this meeting. This was done to enable the
continued granting of options in excess of the 500,000 available under the plan.
At July 31, 1997 there were outstanding options to purchase 432,000 shares of
the Company's voting common stock at prices ranging from $3.69 to $5.50. It is
estimated that approximately 50 persons are eligible for participation in the
Plan at this time. Options granted under the Option Plan can be either incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") ("ISO's") or non-qualified options ("NQO's"). The
recipients of options, type of option, and terms are determined by the
Compensation Committee of the Board of Directors (the "Committee").
ISO's granted under the Option Plan to holders of ten percent or less of
the Company's outstanding equity securities will have an exercise price not
lower than the fair market value of a share of the Company's Common Stock on the
date of the grant. The exercise price of ISO's granted to holders of more than
ten percent of the Company's outstanding equity securities will have an exercise
price of at least 110 percent of the fair market value of a share of the
Company's Common Stock at the time of the grant. The aggregate fair market value
of stock subject to ISO's, as determined upon grant, which are exercisable by an
optionee for the first time during any calendar year cannot exceed $100,000. The
exercise price of all NQO's granted under the Option Plan will be no less than
the fair market value of a share of Common Stock at the time the NQO is granted.
Options will become exercisable no less than 12 months following the date
of grant. Options are not transferable by the optionee other than by will or the
laws of descent and distribution or pursuant to a designation of beneficiary
upon death.
9
An option remains exercisable until the earlier of (i) ten years from the
date of grant in the case of a NQO or an ISO granted to a holder of ten percent
or less of the Company's voting stock or five years from the date of grant in
the case of an ISO granted to a holder of more than ten percent of the Company's
voting stock, or (ii) three months after the date on which the optionee ceases
to be employed by the Company. If an optionee dies while employed by the
Company, options may be exercised during the earlier of the period ending on the
expiration date of the option or one year following the optionee's death,
provided that an ISO exercised later than three months after death will be
treated for federal income tax purposes as a NQO.
The Option Plan allows for the exercise of options in whole or in part. The
option holder can exercise an option with payment in cash or, with the consent
of the Committee, by delivering shares of Common Stock equal in fair market
value to the purchase price of the shares to be acquired pursuant to the option
or by delivery instructions for a broker to deliver sale or loan proceeds to the
Company.
The federal income tax consequences are as follows:
ISO's. Generally, income is not recognized by an optionee when an ISO is
granted or exercised. If the stock obtained upon exercise of an ISO is sold more
than one year after exercise and two years after the option is granted, the
difference between the option price and the amount realized on the sale is
taxable to the optionee as a long-term capital gain. The Company is not entitled
to a deduction as a result of the grant or exercise of an ISO or the sale of the
stock acquired upon exercise thereof, if the stock is held by the optionee for
the requisite periods.
If, however, the stock acquired upon exercise of an ISO is sold less than
one year after exercise or less than two years after the option is granted, the
lesser of (i) the difference between the fair market value on the date of
exercise and the option exercise price or (ii) the difference between the amount
realized on the sale and the option exercise price is taxable to the optionee as
ordinary income and the Company is entitled to a corresponding deduction. The
excess of the amount realized on the sale over the fair market value on the date
of exercise, if any, is taxable as a long-term or short-term capital gain,
depending on the length of time the stock is held.
NQO's. Since an NQO does not have a "readily ascertainable" fair market
value at the time the NQO is granted, no income is recognized by an optionee at
such time. Except as described below, upon exercise of an NQO an optionee is
treated as having received ordinary income at the time of exercise in an amount
equal to the difference between the option exercise price and the then fair
market value of the Common Stock acquired. The Company will be entitled to a
deduction in an amount corresponding to such difference. The optionee's basis in
the Common Stock acquired upon exercise of an NQO will be equal to the option
exercise price plus the amount of ordinary income recognized, and any gain or
loss thereafter recognized upon disposition of the Common Stock is generally
treated as a capital gain or loss.
During the fiscal year ended July 31, 1997, options to purchase 189,000
shares of Common Stock of the Company were granted under the Employee Stock
Option Plan and options for an additional 47,000 shares were issued with an
exercise price of $3.69 to replace options issued in 1993 with an exercise price
of $9.00 per share. Options for 89,000 shares were canceled during the year. No
options have ever been exercised under the Option Plan.
A favorable vote of a majority of the shares represented at the Meeting is
required for approval of the Amendment.
3. APPROVAL OF AN AMENDMENT TO THE STOCK OPTION
PLAN FOR NON-EMPLOYEE DIRECTORS
In 1994, the Company adopted and shareholders approved the Washington Homes
Non-Employee Directors' Stock Option Plan (the "Directors Plan") which provides
for the issuance to each non-employee director of the
10
Company options to purchase shares of Washington Homes Common Stock.
Shareholders are being asked to consider approval of an Amendment to the
Directors' Plan which would increase the number of shares available for option
under the Directors' Plan to 100,000 from 30,000. The Amendment to the
Directors' Plan was adopted by the Board of Directors with the non-employee
directors abstaining from the vote.
The purchase price for the Common Stock subject to options under the
Directors Plan is its fair market value on the date of grant. Options become
exercisable for 25% of the option grant one year after the date of grant, 50% of
the option grant two years after the date of grant and are fully exercisable
three years after the date of grant.
The purpose of the Plan is to enable members of the Board of Directors, who
are not current employees of the Company, to increase their ownership of
Washington Homes Common Stock and to align their interests with the shareholders
of the Company in consideration of their services to the Company. Messrs.
Connelly, Frary, Shapiro and Talkin are currently the only directors who will be
eligible to participate in the Plan.
A non-employee director will be able to exercise his or her stock options
for 90 days following cessation of service as a director. Options will also be
exercisable for 6 months following the death of an option holder.
Since the Directors' Plan was adopted in 1994, options for 21,000 shares
have been granted at exercise prices ranging from $3.63 to $6.00 per share.
Options for 2,000 shares have been canceled and no options have been exercised.
Following adoption of the proposed Amendment, a total of 100,000 shares of
Washington Homes Common Stock will be available for issuance under the
Directors' Plan. Options issued under the Directors' Plan will be exercisable
for a period of ten years. The number of shares available for award, and the
exercise price and share available under outstanding options, are subject to
adjustment to reflect any stock split, stock dividend, recapitalization or other
reorganization of the Company.
The Directors' Plan is administered by a Committee consisting of the
directors of the Company who are not outside directors. No persons other than
non-employee directors are eligible to participate in the Plan. The Committee
will determine additional grants of stock options under the Directors' Plan, as
amended.
Options to be issued under the Directors' Plan are "non-qualified options"
("NQO'S") for Federal income tax purposes. Since an NQO does not have a "readily
ascertainable" fair market value at the time the NQO is granted, no income is
recognized by an optionee at such time. Except as described below, upon exercise
of an NQO an optionee is treated as having received ordinary income at the time
of exercise in an amount equal to the difference between the option exercise
price and the then fair market value of the Common Stock acquired. The Company
will be entitled to a deduction in an amount corresponding to such difference.
The optionee's basis in the Common Stock acquired upon exercise of an NQO will
be equal to the option exercise price plus the amount of ordinary income
recognized, and any gain or loss thereafter recognized upon disposition of the
Common Stock is generally treated as a capital gain or loss.
A favorable vote of a majority of the shares represented at the Meeting is
required for approval of the Amendment.
11
CUMULATIVE TOTAL RETURN
The following graph compares the total return of the Company's Common Stock
during the period from February 26, 1993 to July 31, 1997 with the Standard and
Poor's 500 Stock Index and the Dow Jones Home Construction Index:
[INSERT GRAPH]
* $100 invested on February 26, 1993 in stock or index including reinvestment of
Dividends. Fiscal year ending July 31.
12
4. APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Deloitte & Touche LLP to serve as
independent auditors for the Company and its subsidiaries for the fiscal year
ended July 31, 1998. The appointment was made subject to ratification by
shareholders. Deloitte & Touche LLP and its predecessors have served as
independent auditors for the Company since 1967.
Representatives of Deloitte & Touche LLP are expected to be present at the
Annual Meeting. They will have an opportunity to make a statement if they desire
to do so and will be available to respond to questions from shareholders.
The affirmative vote of a majority of the shares represented at the meeting
is required for ratification.
COMPLIANCE WITH SECTION 16(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers, directors, and persons who are holders of more than ten percent 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
and to furnish the Company with copies of all forms filed. The Company believes
that during fiscal 1997, its officers, directors and greater than ten-percent
beneficial holders complied with all applicable Section 16(a) filing
requirements.
EXPENSES OF SOLICITATION
All expenses of this solicitation, including the cost of preparing and
mailing this Proxy Statement, will be borne by the Company. In addition to
solicitation by use of the mails, proxies may be solicited by directors,
officers and other employees of the Company in person or by telephone, telegram
or other means of communication. Such directors, officers and other employees
will not be additionally compensated, but may be reimbursed for out-of-pocket
expenses in connection with such solicitation. Arrangements will be made with
custodians, nominees and fiduciaries for forwarding proxy solicitation materials
to beneficial owners of shares held of record by such custodians, nominees and
fiduciaries, and the Company will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith.
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS
Shareholders may present proper proposals for inclusion in the Company's
proxy statement for consideration at the next annual meeting of its shareholders
by submitting proposals to the Company in a timely manner. In order to be so
included for the 1998 Annual Meeting, shareholder proposals must be received by
the Company no later than July 1, 1998, and must otherwise comply with the
requirements of Rule 14a-8 under the Securities Exchange Act of 1934.
13
OTHER MATTERS
The only matters expected to come before the Annual Meeting are those set
forth in this Proxy Statement. The Board of Directors does not know of any other
matters to be presented at the Annual Meeting. If any additional matters are
properly presented at the meeting or any adjournment thereof, the persons named
in the Proxy will have discretion to vote in accordance with their best judgment
on such matters.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Christopher Spendley
--------------------------------
Christopher Spendley
Senior Vice President and
Secretary
14
[Washington Homes Logo]
WASHINGTON HOMES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Geaton A. DeCesaris, Jr. and Christopher
Spendley, or either one, each with power of substitution, as proxies for the
undersigned to vote all shares of Common Stock of Washington Homes, Inc., a
Maryland corporation, which the undersigned is entitled to vote at the Annual
Meeting of Shareholders to be held on November 20, 1997, and any adjournments or
postponements thereof, as hereinafter specified and, in their discretion, upon
such other matters as may properly come before the meeting and any adjournments
or postponements thereof. The undersigned hereby revokes all proxies heretofore
given.
(Continued on reverse side)
ON MATTERS FOR WHICH YOU DO NOT SPECIFY A CHOICE, YOUR SHARES WILL BE VOTED Please mark
AS RECOMMENDED BY THE BOARD OF DIRECTORS your votes as [X]
indicated in
this example
1. Election of Directors (mark only one)
Vote FOR all nominees Vote Geaton A. DeCesaris, Sr. Thomas Connelly, Richard S. Frary, Richard B. Talkin
listed and recommended by WITHHELD Geaton A. DeCesaris, Jr. Paul Sukalo, Ronald M. Shapiro,
the Board of Directors (except from all
as directed to the contrary) nominees INSTRUCTION: To withhold authority to vote for any individual nominee, line through
or otherwise strike out that nominee's name above.
[ ] [ ] _____________________________________________________________________________________
2. Proposal to Amend Employee Stock 3. Proposal to Amend Non-Employee Director's 4. Proposal to ratify appointment of
Option Plan Stock Option Plan independent auditors
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ] [ ]
PLEASE SIGN, DATE AND RETURN THIS
----- PROXY, USING THE ENCLOSED POSTAGE
| PREPAID ENVELOPE.
|
| ____________________________________
| Signature
____________________________________
Signature
Dated: _______________________, 1997
When signing as attorney, executor,
administrator, trustee or guardian,
please give full title as such. If
the signer is a corporation, sign
the full corporate name by duly
duly authorized officer.