<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
Schuler Homes, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
SCHULER HOMES, INC.
828 FORT STREET MALL
FOURTH FLOOR
HONOLULU, HI 96813
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 17, 1999
------------------------
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
SCHULER HOMES, INC. (the "Company") which will be held at Room #1 on the 8th
Floor of the Pacific Tower at 1001 Bishop Street, Honolulu, Hawaii, at 10:00
a.m. on May 17, 1999 for the following purposes:
1. To elect to the Board two directors to serve for a three-year term
ending in the year 2002 or until successors have been duly elected and
qualified;
2. To amend the Company's 1992 Stock Option Plan to increase the number of
shares of Common Stock available for issuance by 500,000 shares and to
further amend the 1992 Stock Option Plan as described in the accompanying
Proxy Statement;
3. To ratify the appointment of Ernst & Young LLP as independent public
accountants of the Company for the fiscal year ending December 31, 1999;
and
4. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
These matters are more fully described in the Proxy Statement accompanying
this Notice.
Only stockholders of record at the close of business on April 5, 1999 are
entitled to notice of and to vote at the Annual Meeting. The stock transfer
books will remain open between the record date and the date of the Annual
Meeting. A list of stockholders entitled to vote at the Annual Meeting will be
available for inspection at the executive offices of the Company.
All stockholders are cordially invited to attend the meeting in person.
Whether or not you plan to attend, please sign and return the enclosed proxy as
promptly as possible in the envelope enclosed for your convenience. Should you
receive more than one proxy because your shares are registered in different
names and addresses, each proxy should be signed and returned to assure that all
your shares will be voted. You may revoke your proxy at any time prior to the
Annual Meeting. If you attend the Annual Meeting and vote by ballot, your proxy
will be revoked automatically and only your vote at the Annual Meeting will be
counted.
<PAGE>
Please read the proxy material carefully. Your vote is important and the
Company appreciates your cooperation in considering and acting on the matters
presented.
Very truly yours,
[/S/ JAMES K. SCHULER]
James K. Schuler
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Honolulu, Hawaii
April 20, 1999
YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN. PLEASE
READ THE ATTACHED PROXY STATEMENT CAREFULLY, COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE AND RETURN IT IN THE ENCLOSED
ENVELOPE.
<PAGE>
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS OF
SCHULER HOMES, INC.
TO BE HELD MAY 17, 1999
------------------------
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of SCHULER HOMES, INC., a Delaware corporation ("Schuler
Homes" or the "Company") of proxies to be voted at the Annual Meeting of
Stockholders which will be held at 10:00 a.m. on May 17, 1999 at Room #1 on the
8th Floor of the Pacific Tower at 1001 Bishop Street, Honolulu, Hawaii 96813 or
at any adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual Meeting of Stockholders. This Proxy Statement and
the proxy card were first mailed to stockholders on or about April 20, 1999.
VOTING RIGHTS AND SOLICITATION
The specific proposals to be considered and acted upon at the Annual Meeting
are summarized in the accompanying Notice and are described in more detail in
this Proxy Statement. The close of business on April 5, 1999 was the record date
for stockholders entitled to notice of and to vote at the Annual Meeting. As of
that date, Schuler Homes had 20,922,028 shares of common stock, $.01 par value
per share (the "Common Stock"), issued, 20,053,028 of which were outstanding.
All of the shares of the Company's Common Stock outstanding on the record date
are entitled to vote at the Annual Meeting, and stockholders of record entitled
to vote at the meeting will have one (1) vote for each share so held on the
matters to be voted upon.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to Schuler Homes will
be voted at the Annual Meeting of Stockholders in accordance with the
stockholders' instructions contained therein. In the absence of contrary
instructions, shares represented by such proxies will be voted FOR the election
of the directors as described herein under "Proposal 1--Election of Directors",
FOR the proposal to amend the Company's 1992 Stock Option Plan as described
herein under "Proposal 2--Approval of Amendment to 1992 Stock Option Plan" and
FOR ratification of the selection of accountants as described herein under
"Proposal 3--Ratification of Selection of Independent Public Accountants."
Management does not know of any matters to be presented at this Annual Meeting
other than those set forth in this Proxy Statement and in the Notice
accompanying this Proxy Statement. If other matters should properly come before
the meeting, the proxy holders will vote on such matters in accordance with
their best judgment. Any stockholder has the right to revoke his or her proxy at
any time before it is voted by (i) delivering to the Company at its principal
executive office at 828 Fort Street Mall, Fourth Floor, Honolulu, Hawaii 96813,
Attention: Chief Financial Officer, a written notice of revocation or duly
executed proxy bearing a later date, or (ii) attending the meeting and voting in
person. Election of directors by stockholders shall be determined by a plurality
of the votes cast by the stockholders entitled to vote at the election present
in person or represented by proxy. The other matters submitted for Stockholder
approval at the Annual Meeting will be decided by the affirmative vote of the
holders of a majority of the shares of Common Stock present in person or
represented by proxy and entitled to vote at the meeting. Abstentions and broker
non-votes are each included in the determination of the number of shares present
for quorum purposes. Abstentions are counted in tabulations of the votes
1
<PAGE>
cast on proposals presented to stockholders and will have the same effect as
negative votes, whereas broker non-votes are not counted for purposes of
determining whether a proposal has been approved.
The entire cost of soliciting proxies will be borne by Schuler Homes.
Proxies will be solicited principally through the use of the mails, but, if
deemed desirable, may be solicited personally or by telephone, telegraph or
special letter by officers and regular Schuler Homes employees for no additional
compensation. Arrangements may be made with brokerage houses and other
custodians, nominees and fiduciaries to send proxies and proxy material to the
beneficial owners of the Company's Common Stock, and such persons may be
reimbursed for their expenses.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company that are intended to be presented
by such stockholders at the Company's 2000 Annual Meeting must be received no
later than December 22, 1999, in order that they may be included in the proxy
statement and form of proxy relating to that meeting. In addition, the proxy
solicited by the Board of Directors for the 2000 Annual Meeting will confer
discretionary authority to vote on any stockholder proposal presented at that
meeting, unless the Company receives notice of such proposal not later than
March 6, 2000.
MATTERS TO BE CONSIDERED AT ANNUAL MEETING
PROPOSAL 1
ELECTION OF DIRECTORS
The members of the Board of Directors of Schuler Homes are classified into
three classes, one of which is elected at each Annual Meeting of Stockholders to
hold office for a three-year term and until successors of such class have been
elected and qualified. The nominees for the Board of Directors are set forth
below. The proxy holders intend to vote all proxies received by them in the
accompanying form for the nominees for director listed below. In the event that
any nominee is unable or declines to serve as a director at the time of the
Annual Meeting, the proxies will be voted for any nominee who shall be
designated by the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors, the proxy
holders intend to vote all proxies received by them for any nominee listed
below. As of the date of this Proxy Statement, the Board of Directors is not
aware that any nominee is unable or will decline to serve as a director.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
NOMINEES LISTED BELOW.
NOMINEES TO BOARD OF DIRECTORS
<TABLE>
<CAPTION>
CLASS AND YEAR
DIRECTOR IN WHICH TERM
NAME PRINCIPAL OCCUPATION SINCE WILL EXPIRE AGE
- ------------------------------------- ------------------------------------------ ----------- -------------- ---
<S> <C> <C> <C> <C>
Bert T. Kobayashi.................... Attorney, Kobayashi, Sugita & Goda (law 1992 Class III 2002 58
firm)
Thomas A. Bevilacqua................. Executive Vice-President Corporate 1997 Class III 42
Development and General Counsel, E*Trade 2002
Group, Inc.
</TABLE>
Bert T. Kobayashi has served as a director of the Company since June 1992.
Mr. Kobayashi is a senior partner of the Honolulu law firm Kobayashi, Sugita &
Goda. Mr. Kobayashi has been a Director of First Hawaiian Bank since 1976 and
has served as a director of FHB Holding Company, Inc., the parent company of
First Hawaiian Bank, since 1990.
2
<PAGE>
Thomas A. Bevilacqua has been a director of the Company since April 1997.
Mr. Bevilacqua is Executive Vice-President of Corporate Development and General
Counsel of E*Trade Group, Inc. From 1991 to April 1999 Mr. Bevilacqua was a
partner of Brobeck, Phleger & Harrison LLP and served on that firm's Executive
Committee. Mr. Bevilacqua is a director of E*Trade Online Ventures.
DIRECTORS NOT STANDING FOR ELECTION
The members of the Board of Directors who are not standing for election at
this year's Annual Meeting are set forth below.
<TABLE>
<CAPTION>
CLASS AND YEAR
DIRECTOR IN WHICH TERM
NAME PRINCIPAL OCCUPATION SINCE WILL EXPIRE AGE
- ---------------------------------------- ---------------------------------------- ----------- -------------- ---
<S> <C> <C> <C> <C>
Pamela S. Jones......................... Senior Vice President of Finance and 1992 Class II 2000 38
Chief Financial Officer of Schuler
Homes, Inc.
Martin T. Hart.......................... Independent businessman 1992 Class II 2000 64
James K. Schuler........................ Chairman of the Board, President and 1992 Class I 2001 60
Chief Executive Officer of Schuler
Homes, Inc.
Michael T. Jones........................ Executive Vice President of Operations 1992 Class I 2001 39
of Schuler Homes, Inc./ Hawaii Division
President
</TABLE>
Pamela S. Jones has been the Company's Senior Vice President of Finance and
Chief Financial Officer since January 1992. From July 1988 to January 1992, Ms.
Jones served as Vice President of Finance and Chief Financial Officer of JPS
Hawaii, Inc., the predecessor of the Company. From September 1983 to May 1988,
Ms. Jones worked as a Certified Public Accountant as Manager for the Seattle,
Washington office of Touche Ross & Co., a national accounting firm. Ms. Jones is
a member of the Washington Society of Certified Public Accountants and the
American Institute of Certified Public Accountants.
Martin T. Hart has served as a director of the Company since April 1992. Mr.
Hart is a private investor and has owned and managed a number of companies over
the years. Mr. Hart serves as a director of P.J. America, Inc., a food service
company, MassMutual Corporate Investors, an investment company, MassMutual
Participation Investors, Inc., an investment company, Optical Securities Group,
Inc., a manufacturer of security systems, T-Netix, Inc., a communications
company, Ardent Software, Inc., a software company and Vail Banks, Inc., a bank
holding company.
James K. Schuler was the founder of the Company and has been the Company's
Chairman of the Board, President and Chief Executive Officer since the Company's
incorporation in Delaware in January 1992. From 1988 to January 1992, Mr.
Schuler served as Chairman of the Board, President and Chief Executive Officer
of JPS Hawaii, Inc. Since 1973 he has been President of James K. Schuler &
Associates, Inc., a private single- and multi-family development company that
constructed homes in Hawaii, California, Washington and Texas ("JKS").
Michael T. Jones has been the Company's Executive Vice President of
Operations of the Hawaii division since January 1992 and in early 1999 was named
Hawaii Division President. From July 1988 to January 1992, Mr. Jones served as
Executive Vice President of Real Estate Development and Marketing of JPS Hawaii,
Inc. From 1983 to June 1988, Mr. Jones was Construction Project Manager for
Pacific West Sport & Racquet Clubs, a developer and operator of athletic and
recreational facilities, and Vice President of Real Estate Development for JKS.
3
<PAGE>
Pamela S. Jones is the daughter of James K. Schuler. Michael T. Jones and
Pamela S. Jones are husband and wife.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of five meetings during
fiscal 1998. Each director attended at least 75% of the aggregate of (i) the
total number of meetings of the Board and (ii) the total number of meetings held
by all committees of the Board on which he or she served.
The Company has an Audit Committee and a Compensation Committee of the Board
of Directors. There is no nominating committee or committee performing the
functions of such committee.
The Audit Committee meets with the Company's financial management and its
independent accountants and reviews internal control conditions, audit plans and
results, and financial reporting procedures. This Committee, currently
consisting of Michael T. Jones, Martin T. Hart and Bert T. Kobayashi, held one
meeting during fiscal 1998.
The Compensation Committee reviews and approves the Company's compensation
arrangements for key employees and administers the 1992 Stock Option Plan and
the 1998 Employee Stock Purchase Plan. This Committee, currently consisting of
Martin T. Hart and Bert T. Kobayashi, held two meetings during fiscal 1998.
DIRECTOR REMUNERATION
Non-employee members of the Board are each paid an annual retainer fee of
$20,000 plus a fee of $500 per Board meeting and are reimbursed for all
out-of-pocket costs incurred in connection with their attendance at such
meetings. Upon joining the Board, each non-employee Board member also receives
an option grant for 20,000 shares of Common Stock under the Company's 1992 Stock
Option Plan. Automatic option grants in the amount of 5,000 shares are made
annually to each individual who continues to serve as a non-employee Board
member on the date of each subsequent Annual Meeting of Stockholders.
Accordingly, in May 1998, Martin T. Hart, Bert T. Kobayashi and Thomas A
Bevilacqua each received an option grant for 5,000 shares of Common Stock with
an exercise price per share of $8.50.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Certificate of Incorporation and Bylaws provide for
indemnification of all directors and officers. Each director and officer of the
Company has entered into a separate indemnification agreement with the Company.
4
<PAGE>
PROPOSAL 2
APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN
The Company's stockholders are being asked to approve an amendment to the
1992 Stock Option Plan (the "Option Plan"), which includes the following
changes:
1. increase the number of shares of Common Stock available for issuance
by 500,000 shares;
2. implement an annual aggregate limit on the maximum number of shares
for which any one individual may be granted options and separately
exercisable stock appreciation rights of 500,000 shares;
3. render non-employee Board members eligible to receive option grants
under the Discretionary Option Grant Program of the Option Plan;
4. eliminate the restriction that the individuals who serve as Plan
Administrator may not receive any discretionary option grants from the
Company while serving as Plan Administrator or during the twelve month
period preceding appointment as Plan Administrator;
5. require stockholder approval of future amendments to the Option Plan
only to the extent necessary to satisfy applicable laws or regulations;
6. allow the shares issued under the Option Plan which are subsequently
reacquired by the Company pursuant to the Company's exercise of its
repurchase rights to be added back to the share reserve available for future
issuance under the Option Plan;
7. effect a series of additional changes to the provisions of the
Option Plan (including the transferability of non-statutory stock options
and the elimination of the six (6)-month holding period requirement as a
condition to the exercise of stock appreciation rights) in order to take
advantage of the recent amendments to Rule 16b-3 of the Securities and
Exchange Commission which exempts certain officer and director transactions
under the Plan from the short-swing liability provisions of the Federal
securities laws;
8. to extend the term of the Option Plan for ten years to March 21,
2009; and
9. to remove the aggregate limit on the number of automatic option
grants to Board members.
Stockholder approval of this proposal shall constitute ratification of the
automatic option grants made to each of the Company's non-employee Board members
at the Company's 1998 Annual Meeting. The Option Plan became effective in
January, 1992 at the time of the Company's initial public offering. The
amendment to the Option Plan that is the subject of the Proposal was adopted by
the Board on March 22, 1999, subject to stockholder approval.
The proposed share increase will assure that a sufficient reserve of Common
Stock is available under the Option Plan to attract and retain the services of
employees, which is essential to the Company's long-term growth and success. The
establishment of the limit on the maximum number of shares for which any one
individual may be granted options and separately exercisable stock appreciation
rights will allow the Plan Administrator more flexibility in utilizing options
to provide equity incentives to the Company's senior management while assuring
that any compensation deemed paid by the Company in connection with the exercise
of those options will qualify as performance-based compensation which is not
subject to the $1 million dollar limitation on the tax deductibility of
executive compensation per covered individual imposed under Internal Revenue
Code Section 162(m). The remaining amendments will provide the Company with more
opportunities to make equity incentives available to the non-employee Board
members as an inducement for their continued service and to facilitate plan
administration by eliminating a number of limitations and restrictions
previously incorporated into the Plan to comply with the applicable requirements
of SEC Rule 16b-3 prior to its recent amendment.
5
<PAGE>
The following is a summary of the principal features of the Option Plan as
amended. The summary, however, does not purport to be a complete description of
all the provisions of the Option Plan. Any stockholder of the Company who wishes
to obtain a copy of the actual plan document may do so upon written request to
the Corporate Secretary at the Company's principal executive offices in
Honolulu, Hawaii.
EQUITY INCENTIVE PROGRAMS
The Option Plan contains two separate equity incentive programs: (i) a
Discretionary Option Grant Program and (ii) an Automatic Option Grant Program.
The Compensation Committee of the Board and the Board have separate but
concurrent authority to administer the Discretionary Option Grant Program. The
Plan Administrator (which as used in this summary will mean either the
Compensation Committee or the Board to the extent each such entity is
administering the Option Plan) will have complete discretion (subject to the
provisions of the Option Plan) to authorize option grants under the Option Plan.
However, all grants under the Automatic Option Grant Program will be made in
strict compliance with the provisions of that program, and no administrative
discretion will be exercised by the Plan Administrator with respect to the
grants made thereunder. Stockholder approval of the amendment to the Option Plan
subject to this Proposal will constitute pre-approval of all option grants
subsequently made on the basis of the amended Option Plan under that program and
the subsequent exercise and cancellation of those options in accordance with
those terms.
SHARE RESERVE
The maximum number of shares of the Company's Common Stock available for
issuance over the term of the Option Plan may not exceed 1,500,000 shares,
including the 500,000-share increase for which stockholder approval is sought
under this Proposal. In no event may any one participant in the Option Plan be
granted options or separately exercisable stock appreciation rights for more
than 500,000 shares in the aggregate for each calendar year beginning with 1999.
The shares of Common Stock issuable under the Plan may be drawn from shares
of the Company's authorized but unissued Common Stock or from shares of Common
Stock reacquired by the Company, including shares repurchased on the open
market.
In the event any change is made to the outstanding shares of Common Stock by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the Option Plan and to each outstanding option.
ELIGIBILITY
Officers and other employees of the Company and its parent or subsidiaries
(whether now existing or subsequently established), non-employee members of the
Board and the board of directors of its parent or subsidiaries and consultants
and independent advisors of the Company and its parent and subsidiaries will be
eligible to participate in the Discretionary Option Grant Program. Non-employee
members of the Board (including members of the Compensation Committee) will also
be eligible to participate in the Automatic Option Grant Program.
As of March 31, 1999 approximately 6 executive officers, 380 other employees
and 0 non-employee Board members were eligible to participate in the Option
Plan, and 3 non-employee Board members were eligible to participate in the
Automatic Option Grant Program.
6
<PAGE>
VALUATION
The fair market value per share of Common Stock on any relevant date under
the Option Plan will be the closing selling price per share on that date on the
NASDAQ National Market System. On March 31, 1999 the closing selling price per
share was $6.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty five percent (85%) of the fair
market value per share of Common Stock on the option grant date. No granted
option will have a term in excess of ten years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
TANDEM STOCK APPRECIATION RIGHTS provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
shares of Common Stock subject to the surrendered option over (b) the
aggregate exercise price payable for such shares. Such appreciation
distribution may, at the discretion of the Plan Administrator, be made in
cash or in shares of Common Stock.
LIMITED STOCK APPRECIATION RIGHTS may be granted to officers of the
Company as part of their option grants. Any option with such a limited stock
appreciation right in effect will automatically be cancelled upon the
successful completion of a hostile take-over of the Company. In return for
the cancelled option, the officer will be entitled to a cash distribution
from the Company in an amount per cancelled option share equal to the excess
of (a) the take-over price per share over (b) the exercise price payable for
such share.
The Plan Administrator will have the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Common Stock and
to issue replacement options with an exercise price based on the market price of
Common Stock at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who first becomes
a non-employee Board member will automatically be granted at that time an option
grant for 20,000 shares of Common Stock. In addition, on the date of each Annual
Stockholders Meeting, beginning with the 1993 Annual Meeting, each individual
who is to continue to serve as a non-employee Board member after such meeting
will automatically be granted an option to purchase 5,000 shares of Common
Stock, provided such individual has served as a non-employee Board member for at
least six months.
Each option will have an exercise price per share equal to 100% of the fair
market value per share of Common Stock on the option grant date and a maximum
term of ten years measured from the option grant date.
Each option will become exercisable with respect to 25% of the option shares
upon the optionee's completion of one (1) year of Board service measured from
the grant date and with respect to the balance
7
<PAGE>
of the option shares, in a series of 36 equal monthly installments upon the
optionee's three (3)-year period of Board service thereafter.
The shares subject to each automatic option grant will immediately vest upon
the optionee's death or permanent disability or upon certain changes in the
ownership or control of the Company. In addition, upon the successful completion
of a hostile take-over, each automatic option grant will automatically be
cancelled for a cash distribution per cancelled option share in an amount equal
to the excess of (a) the take-over price per share over (b) the exercise price
payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full. In connection with a hostile change in control
of the Company (whether by successful tender offer for more than 50% of the
outstanding voting stock or by proxy contest for the election of Board members),
the Plan Administrator will have the discretionary authority to provide for
automatic acceleration of outstanding options under the Discretionary Grant
Program at the time of such change in control or upon the subsequent termination
of the optionee's service.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more optionees to pay the exercise
of outstanding options under the Discretionary Option Grant Program by
delivering a promissory note payable in installments. The Plan Administrator
will determine the terms of any such promissory note. However, the maximum
amount of financing provided any optionee may not exceed the cash consideration
payable for the purchased shares plus all applicable taxes incurred in
connection with the acquisition of the shares. Any such promissory note may be
subject to forgiveness in whole or in part, at the discretion of the Plan
Administrator, over the optionee's period of service.
SPECIAL TAX ELECTION
The Plan Administrator may provide one or more holders of options with the
right to have the Company withhold a portion of the shares otherwise issuable to
such individuals in satisfaction of the tax withholding liability incurred by
such individuals in connection with the exercise of those options or the vesting
of those shares. Alternatively, the Plan Administrator may allow such
individuals to deliver previously acquired shares of Common Stock in payment of
such tax liability.
AMENDMENT AND TERMINATION
The Board may amend or modify the Option Plan in any or all respects
whatsoever subject to any required stockholder approval. The Board may terminate
the Option Plan at any time, and the Option Plan will in all events terminate on
March 21, 2009.
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of shares of Common
8
<PAGE>
Stock subject to options granted between January 1, 1998 and March 31, 1999
under the Option Plan together with the weighted average exercise price payable
per share.
OPTION TRANSACTIONS
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTION AVERAGE
NAME SHARES EXERCISE PRICE
- ------------------------------------------------------------------- ----------- ---------------
<S> <C> <C>
James K. Schuler .................................................. 0 --
Chairman of the Board, President
and Chief Executive Officer
Michael T. Jones .................................................. 30,000 $ 6.73
Executive Vice President of Operations/Hawaii
Division President, Director
Pamela S. Jones ................................................... 40,000 $ 6.77
Senior Vice president of Finance and
Chief Financial Officer, Director
Harvey L. Goth .................................................... 4,500 $ 6.68
Senior Vice President of Acquisition
and Development
David L. Oyler .................................................... 16,700 $ 6.79
Vice President/Colorado Division
President--Melody Homes, Inc.
All current executive officers as a group
(6 persons)...................................................... 103,200 $ 6.75
Bert T. Kobayashi ................................................. 5,000 $ 8.50
Director
Thomas A. Bevilacqua .............................................. 5,000 $ 8.50
Director
Martin T. Hart .................................................... 5,000 $ 8.50
Director
All non-employee directors as a group
(3 persons)...................................................... 15,000 $ 8.50
All employees, including current officers who are not
executive officers as a group (54 persons)....................... 187,550 $ 6.68
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the Option Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
INCENTIVE STOCK OPTIONS. No taxable income is recognized by the optionee at
the time of the option grant, and no taxable income is generally recognized at
the time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise
9
<PAGE>
disposed of. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
NON-STATUTORY OPTIONS. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Assuming approval of this proposal, the Company anticipates that any
compensation deemed paid by it in connection with disqualifying dispositions of
incentive stock option shares or exercises of non-statutory options granted with
exercise prices equal to the fair market value of the option shares on the grant
date will qualify as performance-based compensation for purposes of Code Section
162(m) and will not have to be taken into account for purposes of the $1 million
limitation per covered individual on the deductibility of the compensation paid
to certain executive officers of the Company. Accordingly, all compensation
deemed paid with respect to those options is expected to remain deductible by
the Company without limitation under Code Section 162(m).
10
<PAGE>
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the
shares on the grant date will result in a compensation expense to the Company's
earnings equal to the difference between the exercise price and the fair market
value of the shares on the grant date. Such expense will be accruable by the
Company over the period that the option shares are to vest. Option grants at
100% of fair market value will not result in any charge to the Company's
earnings. However, the Company must disclose in footnotes and pro-forma
statements to the Company's financial statements, the impact those options would
have upon the Company's reported earnings were the value of those options at the
time of grant treated as a compensation expense. Whether or not granted at a
discount, the number of outstanding options may be a factor in determining the
Company's earnings per share on a fully-diluted basis.
Under a recently-proposed interpretation to the current accounting
principles, option grants made to non-employee Board members or consultants
after December 15, 1998 will result in a direct charge to the Company's reported
earnings based upon the fair value of the option measured on the vesting date of
each installment of the underlying option shares. Such charge will accordingly
include the appreciation in the value of the option shares over the period
between the grant date of the option (or, if later, the effective date of the
final amendment of the accounting principles) and the vesting date of each
installment of the option shares. In addition, if the proposed amendment is
adopted, any options which are repriced after December 15, 1998 will also
trigger a direct charge to Company's reported earnings measured by the
appreciation in the value of the underlying shares over the period between the
grant date of the option (or, if later, the effective date of the final
amendment) and the date the option is exercised for those shares.
Should one or more optionees be granted stock appreciation rights which have
no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
As of March 31, 1999, no option grants have been made under the Option Plan
on the basis of the 500,000-share increase for which stockholder approval is
sought as part of this Proposal. However, on the date of the Annual Meeting,
each of Messrs. Bevilacqua, Hart and Kobayashi will receive an option grant for
5,000 shares under the Automatic Option Grant Program at an exercise price equal
to the fair market value of the shares on that date.
STOCKHOLDER APPROVAL
The affirmative vote of a majority of the outstanding voting shares of the
Company present or represented and entitled to vote at the 1999 Annual Meeting
is required for approval of the amendment to the Option Plan. Should such
stockholder approval not be obtained, then the share reserve will not be
increased, non-employee Board members will not become eligible to receive option
grants under the Discretionary Option Grant Program and any unvested shares
repurchased by the Company will not be added back to the share reserve for
reissuance. The Option Plan will, however, continue to remain in effect, and
option grants may continue to be made pursuant to the provisions of the Option
Plan prior to its amendment until the available reserve of Common Stock under
such plan is issued.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT TO THE OPTION PLAN. THE BOARD BELIEVES THAT IT IS IN
THE BEST INTERESTS OF THE COMPANY TO IMPLEMENT A COMPREHENSIVE EQUITY INCENTIVE
PROGRAM FOR THE COMPANY WHICH WILL PROVIDE A MEANINGFUL OPPORTUNITY FOR
OFFICERS, EMPLOYEES AND NON-EMPLOYEE BOARD MEMBERS TO ACQUIRE A SUBSTANTIAL
PROPRIETARY INTEREST IN THE ENTERPRISE AND THEREBY ENCOURAGE SUCH INDIVIDUALS TO
REMAIN IN THE COMPANY'S SERVICE AND MORE CLOSELY ALIGN THEIR INTERESTS WITH
THOSE OF THE STOCKHOLDERS.
11
<PAGE>
PROPOSAL 3
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTS
The firm of Ernst & Young LLP served as independent public accountants for
the Company for the fiscal year ended December 31, 1998. The Board of Directors
has appointed Ernest & Young LLP to serve in the same capacity for the current
fiscal year and is asking stockholders to ratify the selection of Ernst & Young
LLP by the Board of Directors as independent public accountants. The affirmative
vote of a majority of the shares presented and voting at the meeting is required
to ratify the selection of Ernst & Young LLP. In the event that stockholders
fail to ratify the selection of Ernst & Young LLP, the Board of Directors would
reconsider such selection.
A representative of Ernst & Young LLP is expected to attend the Annual
Meeting and has indicated that he has no statement to make, but will be
available to respond to appropriate questions and to make a statement if such
representative desires to do so.
THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP TO SERVE AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement. If any other matters properly come before the Annual Meeting,
it is the intention of the persons named in the enclosed form of Proxy to vote
the shares they represent as the Board of Directors may recommend. Discretionary
authority with respect to such other matters is granted by the execution of the
enclosed Proxy.
12
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1999 (except as
indicated in the footnotes below) by (i) each person who is known to the Company
to own beneficially more than 5% of the outstanding shares of the Common Stock
of the Company, (ii) each director, (iii) each officer listed in the Summary
Compensation Table and (iv) all directors and executive officers as a group. All
shares are subject to the named person's sole voting and investment power except
where otherwise indicated.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME AND ADDRESS BENEFICIALLY PERCENT OF
OF BENEFICIAL OWNER OWNED COMMON STOCK
- ----------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
James K. Schuler (1)(2)
828 Fort Street Mall, 4th Floor
Honolulu, Hawaii 96813..................................... 10,831,928 54.0%
Loomis, Sayles & Company, L.P. (3)
One Financial Center
Boston, MA 02111........................................... 1,681,297 8.4%
Franklin Resources, Inc. (4)
777 Mariners Island Boulevard
San Mateo, California 94404................................ 1,680,400 8.4%
State of Wisconsin Investment Board (5)
P.O. Box 7842
Madison, Wisconsin 53707................................... 1,520,000 7.6%
Dimensional Fund Advisors Inc. (6)
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401..................................... 1,396,200 7.0%
Michael T. Jones (7)....................................... 104,748 (8)
Harvey L. Goth (9)......................................... 16,345 (8)
Pamela S. Jones (2)(10).................................... 104,748 (8)
David L. Oyler (11)........................................ 29,158 (8)
Martin T. Hart (12)........................................ 21,467 (8)
Bert T. Kobayashi (13)..................................... 22,375 (8)
Thomas A. Bevilacqua (14).................................. 11,875 (8)
All directors and executive officers as a group (9 persons)
(2)(15).................................................... 11,119,883 55.5%
</TABLE>
- ------------------------
(1) Excludes 32,101 shares, of which Mr. Schuler has no voting or investment
power, owned by Mrs. Schuler. Mr. Schuler had sole voting power with respect
to 10,331,928 shares.
(2) Includes 500,000 shares held by a nonprofit corporation for which Mr.
Schuler and Ms. Jones serve as directors. The other four directors consist
of Mr. Schuler's wife and three of their respective children not sharing the
same household. Ms. Jones disclaims beneficial ownership of such shares.
(3) Information as of December 31, 1998, per Schedule 13G filed pursuant to Rule
13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934, as amended.
Loomis, Sayles & Company, L.P. had sole voting power with respect to
1,435,536 shares.
13
<PAGE>
(4) Information as of December 31, 1998 per Schedule 13G filed pursuant to Rule
13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934, as amended.
Such shares are owned by one or more closed-end investment companies or
other managed accountants which are advised by subsidiaries of Franklin
Resources, Inc. ("FRI"), which subsidiaries have sole voting and investment
power over such shares. The Schedule 13G was filed by FRI, Charles B.
Johnson and Rupert H. Johnson, Jr., (each of whom owns in excess of 10% of
the outstanding Common Stock of FRI), both with the same address, and
Templeton Investment Counsel, Inc. (investment advisor to Franklin
Resources, Inc.), 500 E. Broward Blvd., Suite 2100, Ft. Lauderdale, FL
33394.
(5) Information as of December 31, 1998 per Schedule 13G filed pursuant to Rule
13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934, as amended. The
State of Wisconsin Investment Board retains sole voting and dispositive
power for all shares.
(6) Information as of December 31, 1998 per Schedule 13G filed pursuant to Rule
13d-1(b) or 13d-2(b) of the Securities Exchange Act of 1934, as amended.
Dimensional Fund Advisors Inc. ("Dimensional"), an investment advisor
registered under Section 203 of the Investment Advisors Act of 1940,
furnishes investment advice to four investment companies registered under
the Investment Company Act of 1940, and serves as investment manager to
certain other investment vehicles, including commingled group trusts. (These
investment companies and investment vehicles are the "Portfolios"). In its
role as investment advisor and investment manager, Dimensional possesses
both voting and investment power over the securities of the Issuer described
in this schedule that are owned by the Portfolios. All securities reported
in this schedule are owned by the Portfolios, and Dimensional disclaims
beneficial ownership of such securities.
(7) Includes (i) 1 share, of which Mr. Jones has no voting or investment power,
owned by Ms. Jones, (ii) 14,000 shares, of which Mr. Jones and Ms. Jones
have shared voting and investment power, held by Mr. Jones and Ms. Jones as
custodian for their children, (iii) 38,033 shares which Mr. Jones has the
option to purchase within 60 days of March 31, 1999, and (iv) 37,283 shares
which Ms. Jones has the option to purchase within 60 days of March 31, 1999.
(8) Less than 1%.
(9) Includes 3,626 shares which Mr. Goth has the option to purchase within 60
days of March 31, 1999.
(10) Includes (i) 1 share, of which Ms. Jones has no voting or investment power,
owned by Mr. Jones, (ii) 14,000 shares, of which Mr. Jones and Ms. Jones
have shared voting and investment power, held by Mr. Jones and Ms. Jones as
custodian for their children, (iii) 37,283 shares which Ms. Jones has the
option to purchase within 60 days of March 31, 1999, and (iv) 38,033 shares
which Mr. Jones has the option to purchase within 60 days of March 31, 1999.
(11) Includes 21,875 shares which Mr. Oyler has the option to purchase within 60
days of March 31, 1999.
(12) Represents 21,467 shares which Mr. Hart has the option to purchase within
60 days of March 31, 1999.
(13) Includes 21,875 shares which Mr. Kobayashi has the option to purchase
within 60 days of March 31, 1999.
(14) Represents 11,875 shares which Mr. Bevilacqua has the option to purchase
within 60 days of March 31, 1999.
(15) Includes shares which the directors and executive officers have the option
to purchase within 60 days of March 31, 1999. Does not include an aggregate
of 151,200 shares issuable upon exercise of stock options which are not
currently exercisable and will not be exercisable within 60 days of March
31, 1999. See also footnotes 7 and 10 above.
14
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the Company's four other highest-paid executive
officers for services rendered in all capacities to the Company and its
subsidiaries for the fiscal years ended December 31, 1998, 1997 and 1996,
respectively. No other executive officer who would otherwise have been included
in such table on the basis of salary and bonus for fiscal year 1998 has been
excluded by reason of his or her termination of employment or change in
executive status during that year. The listed individuals shall be hereinafter
referred to as the "Named Executive Officers."
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
--------------
AWARDS
ANNUAL COMPENSATION --------------
--------------------------------- SECURITIES ALL OTHER
SALARY UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) BONUS($) OPTIONS ($)(2)
- -------------------------------------------------- --------- ---------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C>
James K. Schuler 1998 $ 650,000 $ 210,930 -- --
Chairman of the Board, President and Chief 1997 $ 650,000 -- -- --
Executive Officer 1996 $ 650,000 -- -- --
Michael T. Jones 1998 $ 185,000 $ 20,274 25,000 $ 2,253
Executive Vice President of Operations/ Hawaii 1997 $ 185,000 $ 15,000 41,900(3) $ 1,200
Division President, Director 1996 $ 181,253 -- 15,000 $ 5,422
Harvey L. Goth 1998 $ 149,000 $ 52,733 3,500 $ 2,377
Senior Vice President of Acquisition and 1997 $ 149,000 $ 15,000 19,700(3) $ 2,235
Development 1996 $ 149,000 -- 5,000 $ 8,625
Pamela S. Jones 1998 $ 157,500 $ 105,465 35,000 $ 1,975
Senior Vice President of Finance and Chief 1997 $ 150,000 $ 50,000 40,900(3) $ 1,200
Financial Officer, Director 1996 $ 137,784 -- 10,000 $ 4,478
David L. Oyler 1998 $ 139,256 $ 459,027 15,000 $ 8,500(4)
Vice President/Colorado Division President-Melody 1997 $ 139,256 $ 397,932 30,000 $ 2,375
Homes, Inc.
</TABLE>
- ------------------------
(1) Salary includes amounts deferred pursuant to the 401(k) Retirement Savings
Plan.
(2) Represents the Company's discretionary and matching contributions made to
the 401(k) Retirement Savings Plan.
(3) Includes options granted in 1997 at a new exercise price in cancellation of
pre-existing options originally granted from 1992 to 1995 but with a higher
exercise price as follows:
<TABLE>
<S> <C>
Michael T. Jones 36,900
Harvey L. Goth 14,700
Pamela S. Jones 35,900
</TABLE>
(4) Includes automobile allowance of $6,000.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options under the Company's 1992 Stock Option Plan for the 1998 fiscal year to
the Named Executive Officers. Except for the limited stock appreciation rights
described in footnote 6 below, no stock appreciation rights were granted to the
15
<PAGE>
named executive officers during such fiscal year. The table also lists potential
realizable values of such options on the basis of assumed annual compounded
stock appreciation rates of 5% and 10% over the life of the options which are
set at a maximum of 10 years.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- --------------------------------------------------------------------------------------------- POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
NUMBER OF OPTIONS ANNUAL RATE OF STOCK
SECURITIES GRANTED TO PRICE APPRECIATION FOR
UNDERLYING EMPLOYEES IN EXERCISE OR OPTION TERM
OPTIONS FISCAL BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR(1) ($/SH)(2) DATE 5% ($)(3) 10% ($)(3)
- ------------------------------------ --------------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James K. Schuler (4)................ 0 0 -- -- 0 0
Michael T. Jones.................... 25,000(5)(6) 15.6% $ 6.875 03/16/08 $ 108,091 $ 273,924
Harvey L. Goth...................... 3,500(5)(6) 2.2% $ 6.875 03/16/08 $ 15,133 $ 38,349
Pamela S. Jones..................... 35,000(5)(6) 21.8% $ 6.875 03/16/08 $ 151,328 $ 383,494
David L. Oyler...................... 15,000(5)(6) 9.4% $ 6.875 03/16/08 $ 64,855 $ 164,355
</TABLE>
- ------------------------
(1) Based on options for a total of 160,350 shares granted to employees during
fiscal 1998.
(2) The exercise price of each option may be paid in cash, in shares of Common
Stock valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Company may also finance the option exercise by loaning the optionee
sufficient funds to pay the exercise price for the purchased shares and the
federal and state tax liability incurred in connection with such exercise.
The Compensation Committee has the authority to reprice outstanding options
through the cancellation of those options and the grant of replacement
options with an exercise price equal to the lower fair market value of the
option shares on the regrant date.
(3) The potential realizable value is reported net of the option price, but
before income taxes associated with exercise. These amounts represent
assumed annual compounded rates of appreciation at 5% and 10% only from the
date of grant to the expiration date of the option. These amounts are
calculated based on the requirements of the Securities and Exchange
Commission. There is no assurance provided to any executive officer or any
other holder of the Company's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% and 10%
levels or at any other defined level. Unless the market price of the Common
Stock does in fact appreciate over the option term, no value will be
realized from the option grants made to the executive officers.
(4) James K. Schuler has not been granted options under the 1992 Stock Option
Plan.
(5) Each option will become exercisable for 25% of the option shares upon
completion of one (1) year of service measured from the date of grant and
for the balance of the option shares in a series of 36 successive equal
monthly installments upon the optionee's completion of each additional month
of service thereafter. The option was granted on March 17, 1998.
(6) Each option will become immediately exercisable for all of the option shares
in the event the Company is acquired by merger or sale of substantially all
of the Company's assets or outstanding Common Stock, unless the option is
assumed or otherwise replaced by the acquiring entity. The Compensation
Committee has authority to provide for the acceleration of each option in
connection with certain hostile tender offers or proxy contests for Board
membership. Each option includes a limited stock appreciation right pursuant
to which the option will automatically be cancelled upon the occurrence of
certain hostile tender offers, in return for a cash distribution from the
Company based on the tender offer price per share. Each option has a maximum
term of 10 years, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
16
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information with respect to the Named Executive
Officers concerning the exercise of options during the last fiscal year and
unexercised options held as of the end of the last fiscal year. No stock
appreciation rights were exercised during fiscal year 1998, and except for the
limited stock appreciation rights described in footnote (6) to the Option Grant
Table above, no stock appreciation rights were held by such named executive
officers as of the end of fiscal 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-
MONEY OPTIONS AT FY-END
VALUE ($) (MARKET PRICE OF
REALIZED ($) NUMBER OF SECURITIES SHARES
SHARES (MARKET PRICE UNDERLYING UNEXERCISED AT FY-END ($7.125) LESS
ACQUIRED ON AT EXERCISE, OPTIONS AT FY-END (#) EXERCISE PRICE)
EXERCISE LESS EXERCISE -------------------------- --------------------------
NAME (#) PRICE) EXERCISABLE UNEXERCISED EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
James K. Schuler.............. -- -- -- -- -- --
Michael T. Jones.............. -- -- 28,138 53,763 $ 39,277 $ 46,698
Harvey L. Goth................ 10,682 $ 25,924 1,303 16,215 $ 1,760 $ 19,048
Pamela S. Jones............... -- -- 25,096 60,804 $ 35,691 $ 45,659
David L. Oyler................ -- -- 14,375 30,625 $ 12,578 $ 17,422
</TABLE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors sets
the base salary of the Company's executive officers and approves individual
bonus programs for executive officers. Option grants to executive officers are
made by the Committee, and the Committee has complete discretion in establishing
the terms of each such grant. The following is a summary of policies of the
Committee that affect the compensation paid to executive officers, as reflected
in the tables and text set forth elsewhere in this Proxy Statement.
CEO COMPENSATION
In January 1992, prior to the Company's initial public offering, the Company
entered into an employment agreement with James K. Schuler, the Company's Chief
Executive Officer, providing for the payment of a base annual salary of $420,000
or an amount otherwise agreed upon by the parties. The Committee took action
during 1994 to increase Mr. Schuler's annual base salary to $650,000 effective
April 1, 1994. The employment agreement had an initial term of three years, and
requires Mr. Schuler to devote substantially all of his time to Company affairs.
The employment agreement is automatically renewable for a one-year term
commencing on each anniversary of the date of such agreement, unless either
party notifies the other party otherwise. No such notice of termination was
given for any year from 1995 to 1999. The Committee played no role in the
negotiation of this agreement. However, Mr. Schuler's base compensation is
influenced by the following policies.
COMPENSATION PHILOSOPHY
The Committee applies a consistent philosophy to compensation for all
employees, including executive officers. This philosophy is based on the premise
that the achievements of the Company result from the coordinated efforts of all
individuals working toward common objectives. The Company strives to achieve
those objectives through teamwork that is focused on meeting the expectations of
customers and stockholders.
- THE COMPANY PAYS COMPETITIVELY. The Company is committed to providing a
pay program that helps attract and retain quality employees. To ensure
that pay is competitive, the Company compares its
17
<PAGE>
pay practices with those of companies in its industry and in the markets
in which it operates and sets its pay parameters based on this review. The
base salary for the Company's executive officers approximate the average
for the comparison group, reflecting the Company's relative position
within the group. The public homebuilders included in the comparison group
are substantially the ones included in the peer group index reflected on
the Performance Graph.
- THE COMPANY PAYS FOR RELATIVE SUSTAINED PERFORMANCE. Executive officers
are rewarded based upon corporate performance or the performance of
specific divisions, as appropriate. Performance is evaluated by reviewing
the extent to which strategic and business plan goals are met, including
such factors as returns on invested capital, profit margins, and results
of operations.
- THE COMPANY STRIVES FOR FAIRNESS IN THE ADMINISTRATION OF PAY. The Company
strives to balance the compensation paid to a particular individual and
the compensation paid to other persons both inside the Company and at
comparable companies.
GENERAL COMPENSATION POLICY
The Committee's overall policy is to offer the Company's executive officers
competitive cash- and equity-based compensation opportunities based upon their
personal performance, the financial performance of the Company and their
contribution to that performance.
The principal factors taken into account in establishing each executive
officer's compensation package are summarized below. Additional factors may be
taken into account to a lesser degree, and the relative weight given to each
factor varies with each individual in the sole discretion of the Committee. The
Committee may in its discretion apply entirely different factors, such as
different measures of financial performance, for future fiscal years.
CASH-BASED COMPENSATION. The Committee sets base salary for executive
officers on the basis of personal performance, the salary levels in effect for
comparable positions with other companies in the industry (as discussed above)
and in the markets in which the Company operates and internal comparability
considerations. There have been no meaningful increases in the base salaries of
executive officers since 1994. The aggregate amount of the Company's annual
bonus pool is based on a percentage applied to the particular division's or the
overall Company's pretax income. A higher percentage is applied to pretax income
attained in excess of two-thirds of the pretax income goals established per the
applicable calendar year business plan. The business plans are finalized and
approved by the executive officers at the beginning of each calendar year. In
addition, the calculation is progressively tiered such that the percentages to
be applied to pretax income increase when certain higher benchmarks for pretax
profit margins and returns on invested capital are achieved. This amount is
allocated to employees, including the executive officers, taking into
consideration the employee's position within the Company, salary level and
individual performance. The Company also has a 401(k) retirement savings plan to
which it can make a matching contribution to eligible participants. The Company
believes that all employees share the responsibility of achieving profits.
LONG-TERM EQUITY-BASED COMPENSATION. The Committee intends to make stock
option grants on an annual basis. Each grant is designed to align the interests
of the executive officers with those of the stockholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire shares of the Company's Common Stock at
a fixed price per share (the market price on the grant date) over a specified
period of time (up to 10 years), thus providing a return to the officer only if
he or she remains in the employ of the Company and the market price of the
shares appreciates over the option term. The size of the option grant to each
executive officer generally is set at a level that is intended to create a
meaningful opportunity for stock ownership based upon the individual's current
position with the Company, but there is also taken into account the size of
comparable awards made to individuals in similar positions in the industry as
reflected in external surveys, the individual's potential for future
responsibility
18
<PAGE>
and promotion over the option term, the individual's personal performance in
recent periods and the number of options held by the individual at the time of
grant. Generally, as an officer's level of responsibility increases, a greater
portion of his or her total compensation will be dependent upon Company
performance and stock price appreciation rather than base salary. The relative
weight given to these factors varies with each individual in the sole discretion
of the Committee.
DEDUCTION LIMIT FOR EXECUTIVE COMPENSATION
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to publicly held companies for compensation exceeding
$1 million paid to certain of the corporation's executive officers. The
limitation applies only to compensation which is not considered to be
performance-based compensation. Compensation which qualifies as
performance-based compensation will not have to be taken into account for
purposes of this limitation. The non-performance based compensation to be paid
to the Company's executive officers for fiscal 1998 did not exceed the $1
million limit per officer, nor is it expected that the non-performance based
compensation to be paid to the Company's executive officers for fiscal 1999 will
exceed that limit. Because it is very unlikely that the compensation payable to
any of the Company's executive officers in the foreseeable future will approach
the $1 million limit, the Committee has not taken any action to limit or
restructure the elements of cash compensation payable to the Company's executive
officers. The Committee will reconsider this matter should the individual
compensation of any executive officer ever approach the $1 million level.
It is the opinion of the Committee that the executive compensation policies
and plans provide the necessary total remuneration program to properly align the
Company's performance and the interests of the Company's stockholders through
the use of competitive and equitable executive compensation in a balanced and
reasonable manner, for both the short and long-term.
Submitted by the Compensation Committee of the Company's Board of Directors:
Martin T. Hart
Bert T. Kobayashi
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PERFORMANCE GRAPH
The following performance graph shows the percentage change in cumulative
total return to a holder of the Company's Common Stock, assuming dividend
reinvestment, compared with the cumulative total return, assuming dividend
reinvestment, of the Standard & Poor's 500 Stock Index and the peer group
indicated below, during the period from March 19, 1992 (the date prior to the
Company's initial public offering) through December 31, 1998.
TOTAL SHAREHOLDER RETURNS(*)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
DOLLARS SCHULER HOMES INC. S&P 500 INDEX NEW PEER GROUP OLD PEER GROUP
<S> <C> <C> <C> <C>
Dec-93 100.00 100.00 100.00 100.00
Dec-94 50.89 101.32 51.08 50.53
Dec-95 27.90 139.40 88.73 87.31
Dec-96 22.32 171.40 85.93 84.21
Dec-97 22.99 228.53 139.10 136.55
Dec-98 25.45 293.91 189.16 184.42
</TABLE>
- ------------------------
* $100 invested on 3/19/92 in stock, group or index.
NEW PEER GROUP COMPANIES
<TABLE>
<S> <C>
CENTEX CORP PRESLEY COMPANIES/DE
DR HORTON PULTE CORP
ENGLE HOMES INC RYLAND GROUP INC.
HOVNANIAN ENTRPRS INC.-CL A STANDARD PACIFIC CP
KAUFMAN & BROAD HOME TOLL BROTHERS INC
LENNAR CORP WEBB (DEL E) CORP
</TABLE>
OLD PEER GROUP COMPANIES
<TABLE>
<S> <C>
CENTEX CORP PRESLEY COMPANIES/DE
CONTINENTAL HOMES HOLDINGS CP PULTE CORP
ENGLE HOMES INC RYLAND GROUP INC.
HOVNANIAN ENTRPRS INC.-CL A STANDARD PACIFIC CP
KAUFMAN & BROAD HOME TOLL BROTHERS INC
LENNAR CORP UDC HOMES INC.-LP
ORIOLE HOMES CORP-CL B WEBB (DEL E) CORP
</TABLE>
20
<PAGE>
The Company has updated its peer group companies to include DR Horton, a
large comparable home builder, and to delete Oriole Homes Corp, as well as to
reflect consolidation in the homebuilding industry.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings made under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended, that might incorporate future
filings made by the Company under those statutes, neither the preceding Stock
Performance Graph nor the Compensation Committee Report is to be incorporated by
reference into any such prior filings, nor shall such graph or report be
incorporated by reference into any future filings made by the Company under
those statutes.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee during 1998 was comprised of independent,
non-employee Directors of the Company, Bert T. Kobayashi and Martin T. Hart.
Neither of these individuals was an officer or employee of the Company at any
time during the 1998 fiscal year or at any other time.
No current executive officer of the Company has ever served as a member of
the board of directors or compensation committee of any other entity that has or
has had one or more executive officers serving as a member of the Company's
Board of Directors or Compensation Committee.
TRANSACTIONS WITH JAMES K. SCHULER AND ENTITIES CONTROLLED BY JAMES K.
SCHULER
The Company and James K. Schuler & Associates, Inc. ("JKS"), a corporation
controlled by James K. Schuler, have entered into a management agreement
pursuant to which certain management and administrative personnel of the Company
will perform certain functions for JKS. JKS will reimburse the Company on a
quarterly basis for its cost in providing such services. During fiscal 1998,
$100,000 was charged to JKS by the Company pursuant to this agreement.
TRANSACTIONS WITH DIRECTORS
From time to time, the Company has engaged the law firm of Kobayashi, Sugita
& Goda to perform legal work. Bert T. Kobayashi, a director of the Company since
June 1992, is a senior partner of this Honolulu law firm. During fiscal 1998,
$14,000 in legal fees to Kobayashi, Sugita & Goda were incurred by the Company.
From time to time, the Company has engaged the law firm of Brobeck, Phleger
& Harrison LLP to perform legal work. Thomas A. Bevilacqua, a director of the
Company since April 1997, was a partner of this law firm in 1998. During fiscal
1998, $308,000 in legal fees to Brobeck, Phleger & Harrison LLP were incurred by
the Company.
All future transactions between the Company and its officers, directors,
principal stockholders and affiliates will be approved by a majority of the
independent and disinterested members of the Board of Directors, and will be on
terms no less favorable to the Company than could be obtained from unaffiliated
third parties.
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
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten-percent stockholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a) reports
they file. Based solely upon review of the copies of such reports furnished to
the Company and written representations that no other reports were required, the
Company believes that there was compliance for the fiscal year ended December
31, 1998 with all
21
<PAGE>
Section 16(a) filing requirements applicable to the Company's officers,
directors and greater than ten-percent beneficial owners, except that a timely
filed Form 4 filed by Mr. Goth inadvertently did not include the Company's full
name in box 2. Upon being notified by the SEC of the error, a corrected Form 4
was immediately filed. However, the initial due date for the Form 4 had already
passed.
ANNUAL REPORT
The Annual Report of the Company for the fiscal year ended December 31, 1998
has been mailed concurrently with the mailing of the Notice of Annual Meeting
and Proxy Statement to all stockholders entitled to notice of and to vote at the
Annual Meeting. The Annual Report is not incorporated into this Proxy Statement
and is not considered proxy soliciting material, In compliance with Rule 14a-3
promulgated under the Securities Exchange Act of 1934, the Company hereby
undertakes to provide without charge to each person upon written request, a copy
of the Company's Annual Report on Form 10-K, including the financial statements
and financial schedules thereto. Requests for such copies should be directed to
Schuler Homes, Inc., 828 Fort Street Mall, Fourth Floor, Honolulu, Hawaii 96813,
Attention: Investor Relations.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Stockholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
/s/ PAMELA S. JONES
Pamela S. Jones
SECRETARY
April 20, 1999
Honolulu, Hawaii
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<PAGE>
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SCHULER HOMES, INC.
PROXY FOR
ANNUAL MEETING OF STOCKHOLDERS
MAY 17, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James K. Schuler and Pamela S. Jones,
and each or either of them as Proxies of the undersigned, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all of the shares of Common Stock of SCHULER
HOMES, INC., held of record by the undersigned on April 5, 1999 at the Annual
Meeting of Stockholders of Schuler Homes, Inc. to be held May 17, 1999, or at
any adjournment thereof.
(Continued and to be marked, dated and signed on other side)
- -------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
<PAGE>
- --------------------------------------------------------------------------------
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NOS. 1, 2 AND 3. THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS SPECIFIED HEREON. THIS PROXY
WILL BE VOTED FOR PROPOSAL NOS. 1, 2 AND 3 IF NO SPECIFICATION IS MADE.
Please mark your votes as indicated in this example /X/
1. ELECTION OF DIRECTORS
Nominee: Bert T. Kobayashi, Jr.
Nominee: Thomas A. Bevilacqua
FOR WITHHOLD
AUTHORITY
/ / / /
INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike
a line through the nominee's name above.
2. To approve the amendment of the Company's 1992 Stock Option Plan to
increase the number of shares of Common Stock available for issuance by
500,000 shares and to further amend the Plan as described in the
accompanying Proxy Statement.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the selection of Ernst & Young LLP as independent public
accountants of the Company.
FOR AGAINST ABSTAIN
/ / / / / /
4. In their discretion, the Proxies are authorized to vote upon such other
matters as may properly come before the meeting.
Please sign exactly as your name(s) is (are) shown on the share certificate to
which the Proxy applies. When shares are held by joint tenants, both should
sign. When signing as an attorney, executor, administrator, trustee or guardian,
please give full title as such. If a corporation, please sign in full corporate
name by President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Signature______________________Signature______________________Date_____________
PLEASE COMPLETE, SIGN AND DATE THIS PROXY AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
-FOLD AND DETACH HERE-
