<PAGE>
INCO HOMES CORPORATION
1282 WEST ARROW HIGHWAY
UPLAND, CA 91786
_______________
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 15, 1997
_______________
To the Stockholders of Inco Homes Corporations:
A Special Meeting of Stockholders of Inco Homes Corporation, a Delaware
corporation (the "Company"), will be held on January 15, 1997, at 10:00 a.m.,
local time, at the Ontario Hilton Hotel, 700 North Haven Avenue, Ontario,
California 91764, to consider and take action with respect to the following
matters:
1. To approve an amendment to the Company's Restated Certificate of
Incorporation to effect a reverse stock split of the Company's Common Stock
such that every six (6) shares of Common Stock outstanding would be
converted into one (1) share of Common Stock.
2. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on December 11, 1996
as the record date for determination of stockholders entitled to notice of and
to vote at the meeting or any adjournments or postponements thereof, either in
person or by proxy.
You are cordially invited to attend the meeting and, if you do so, you may
personally vote your shares regardless of whether you have signed and returned a
completed proxy. YOU ARE URGED TO DATE, MARK, AND SIGN THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ACCOMPANYING ENVELOPE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING.
By Order of the Board of Directors,
/s/ Ira C. Norris
-------------------------------------
Ira C. Norris,
Chairman of the Board,
President and Chief Executive Officer
Upland, California
December 16, 1996
<PAGE>
INCO HOMES CORPORATION
1282 WEST ARROW HIGHWAY
UPLAND, CA 91786
_______________
PROXY STATEMENT
FOR
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 15, 1997
_______________
INTRODUCTION
GENERAL INFORMATION
This Proxy Statement and the enclosed Proxy are furnished in connection
with the solicitation of proxies by the Board of Directors of Inco Homes
Corporation, a Delaware corporation (the "Company"), for use at the Special
Meeting of Stockholders to be held on January 15, 1997, at 10:00 a.m., local
time, at the Ontario Hilton Hotel, 700 North Haven Avenue, Ontario, California
91764 (together with any and all adjournments and postponements, the "Special
Meeting").
If Proxies in the accompanying form are properly executed and returned,
unless contrary instructions are indicated thereon, the shares of Common Stock
represented thereby will be voted for the adoption of an amendment to the
Restated Certificate of Incorporation of the Company effecting a reverse split
of the Common Stock on the basis of one (1) new share of Common Stock for each
six (6) shares of Common Stock issued as of the effective date of such amendment
(the "Reverse Split"). The approval of the Amendment to the Company's Restated
Certificate of Incorporation effecting the Reverse Split requires the
affirmative vote of a majority of the outstanding shares of the Common Stock
entitled to vote thereon at the Special Meeting.
RECORD DATE, QUORUM, MAILING
All holders of record of the Company's common stock, $.01 par value per
share ("Common Stock"), at the close of business on December 11, 1996, are
entitled to notice of and to vote at the Special Meeting. At the close of
business on such date, the Company had 8,622,573 shares of Common Stock
outstanding. A majority of the outstanding shares of Common Stock represented
in person or by Proxy will constitute a quorum for the transaction of business
at the Special Meeting.
The Company anticipates that the mailing to stockholders of this Proxy
Statement and the enclosed Proxy will commence on or about December 16, 1996.
VOTE BY AND REVOCATION OF PROXIES
At the Special Meeting, the designated Proxy holder will vote the shares of
Common Stock represented by Proxies which have been received and not revoked.
Where the Stockholder specifies a choice on the Proxy Card with respect to the
matter to be acted upon, the shares of Common Stock will be voted in accordance
with the choice specified. Where no choice is specified, the shares represented
by a signed Proxy Card will be voted in favor of the proposal for the adoption
of an amendment to the Restated Certificate of Incorporation of the Company
effecting the Reverse Split.
Any Proxy may be revoked at any time prior to its exercise by notifying the
Secretary of the Company in writing, by delivering a duly executed Proxy bearing
a later date or by attending the Special Meeting and voting in person.
Attendance in person at the Special Meeting does not itself revoke an otherwise
valid Proxy; however, any stockholder who attends the Special Meeting may orally
revoke his or her Proxy at the Special Meeting and vote in person. If your
shares are held of record by a broker, bank, or other nominee and you wish to
attend and vote
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your shares at the Special Meeting, you must obtain a letter from the broker,
bank, or nominee confirming your beneficial ownership of the shares and a
written Proxy from the holder issued in your name, and bring it to the Special
Meeting.
VOTING RIGHTS AND SOLICITATION
Each holder of Common Stock is entitled to one vote for each share held.
There are no cumulative voting rights with respect to the matters to be voted
upon. Abstentions and broker non-votes are counted as shares of Common Stock
represented at the Special Meeting for purposes of determining a quorum.
Abstentions will have the same effect as negative votes with respect to all
matters to come before the Special Meeting. Broker non-votes will have the
same effect as negative votes with respect to all matters to come before the
Meeting. With respect to Proxies that are executed by the record holders but
are not marked to indicate how the holder is voting, such Proxies will be voted
in favor of the item being considered at the Special Meeting.
The expenses of this solicitation of proxies for the Special Meeting will
be paid by the Company. In addition to the mailing of the proxy materials, such
solicitation may be made in person or by telephone or other means of
communication by directors, officers or regular employees of the Company, but
such persons will not be specifically compensated for such services. The
Company may also reimburse brokers, banks, custodians, nominees and other
fiduciaries for their reasonable charges and expenses in forwarding the proxy
materials to beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table contains information with respect to each person known
to the Company to be the beneficial owner of more than five percent of the
Company's outstanding Common Stock as of October 31, 1996. To the Company's
knowledge, unless otherwise indicated in the notes below, each beneficial owner
has sole voting and investment power with respect to the Common Stock set forth
opposite his or her name in the following table:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF NUMBER OF PERCENT OF TOTAL
BENEFICIAL OWNER SHARES SHARES
---------------- ------ OUTSTANDING
-----------
<S> <C> <C>
Wellington Management Company(1) 768,100 8.91
75 State Street
Boston, MA 02109
First Financial Fund, Inc.(2) 768,100 8.91
One Seaport Plaza
25th Floor
New York, NY 10292
Ira C. Norris(3) 2,457,506 28.50
Ronald L. Neeley(4) 849,295 9.78
</TABLE>
- ----------------
(1) Beneficial ownership is as of December 31, 1995, per Schedule 13G, that
states that in its capacity as investment advisor, it may be deemed
beneficial owner of the shares owned by its investment counselling clients.
The Schedule 13G indicates that Wellington Management Company has no voting
power and shared dispositive power.
(2) Beneficial ownership is as of December 31, 1995, per Schedule 13G, that
states that in its capacity as an investment company, it may be deemed
beneficial owner of the shares. The Schedule 13G indicates that First
Financial Fund, Inc. has sole voting power and shared dispositive power.
2
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(3) See note 1 under table below relating to stock ownership by directors and
executive officers.
(4) See notes 2, 3 and 4 under table below relating to stock ownership by
directors and executive officers.
The following table sets forth existing stock ownership by directors,
executive officers, and all directors and executive officers as a group as of
October 31, 1996:
<TABLE>
<CAPTION>
PERCENT OF TOTAL
NAME NUMBER OF SHARES* SHARES OUTSTANDING
---- ----------------- ------------------
<S> <C> <C>
Ira C. Norris(1) 2,457,506 28.50
Ronald L. Neeley(2)(3)(4) 849,295 9.78
Robert H. Daskal(5) 76,500 **
John F. Seymour, Jr.(6) 8,300 **
Thomas E. Gibbs, Jr.(7)(8) 7,600 **
All Directors and Executive Officers as a 3,399,201 38.73
group (5 persons)(1)(2)(3)(4)(5)(6)(7)(8)
</TABLE>
- ---------------
* Unless otherwise indicated in the notes below, to the Company's knowledge
the shares indicated are owned directly.
** Less than one percent.
(1) Includes (i) 2,024,505 shares of Common Stock owned by Norris Living Trust
Dated 2/17/89, a family trust of which Mr. Norris and his wife, Nancy D.
Norris, serve as trustees, (ii) 5,000 shares of Common Stock owned by Mr.
Norris and his wife jointly, and (iii) 15,938 shares of Common Stock owned
of record by Mr. Norris' wife.
(2) Includes 784,275 shares of Common Stock owned by Neeley Revocable Family
Trust Dated 9/15/81, as amended, of which Mr. Neeley is a co-trustee with
his wife.
(3) Includes warrants to purchase 47,520 shares of the Company's Common Stock,
currently exercisable at $10.00 per share, which were granted to the Neeley
Revocable Family Trust Dated 9/15/81, as amended.
(4) Includes options held by Mr. Neeley to purchase 7,500 shares of Common
Stock currently exercisable at a price of $9.375 per share, 5,000 shares of
Common Stock currently exercisable at a price of $4.25 per share and 5,000
shares of Common Stock currently exercisable at a price of $1.875 per
share. These options were granted pursuant to the Company's automatic
option grant program for non-employee Board members.
(5) Includes options held by Mr. Daskal to purchase 75,000 shares of Common
Stock currently exercisable at a price of $1.125 per share. These options
were granted pursuant to the Company's 1992 Stock Option/Stock Issuance
Plan.
(6) Includes options held by Mr. Seymour to purchase 7,500 shares of Common
Stock currently exercisable at a price of $1.00 per share. These options
were granted pursuant to the Company's automatic option grant program for
non-employee Board members.
3
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(7) Includes 100 shares of Common Stock owned by Gibbs Family Trust Dated
2/19/93, a family trust in which Mr. Gibbs and his wife, Meredith, serve as
trustees.
(8) Includes options held by Mr. Gibbs to purchase 7,500 shares of Common Stock
currently exercisable at a price of $1.00 per share. These options were
granted pursuant to the Company's automatic option grant program for non-
employee Board members.
EXECUTIVE OFFICERS OF THE COMPANY
The following are the names and respective ages as of October 31, 1996 of
the executive officers of the Company. The Company's executive officers are
elected by, and serve at, the discretion of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Ira C. Norris 60 Chairman of the Board, President
and Chief Executive Officer
Robert H. Daskal 55 Executive Vice President and
Chief Financial Officer
</TABLE>
Ira C. Norris founded the Company in 1976, and has served as the Chairman
of the Board, President and Chief Executive Officer since that time. From 1968
to 1976, Mr. Norris served as a Corporate Vice President and Division Operating
Manager of Kaufman and Broad, Inc., a company engaged in the real estate and
life insurance business. From 1960 to 1968, he was an independent
builder/developer in Los Angeles and the San Fernando Valley suburbs.
Robert H. Daskal has been Executive Vice President and Chief Financial
Officer since October 1994. Prior to joining the Company, Mr. Daskal was
Executive Vice President-Finance and Chief Financial Officer of UDC Homes, Inc.,
a homebuilder in Tempe, Arizona, from 1985 to 1994. UDC Homes, Inc. filed a
petition for relief under Chapter 11 of the U.S. Bankruptcy code in May 1995.
APPROVAL OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION
TO EFFECT A REVERSE STOCK SPLIT OF THE COMMON STOCK
GENERAL
The Board of Directors of the Company has unanimously approved, and is
hereby soliciting stockholder approval of, an amendment to the Company's
Restated Certificate of Incorporation, in the form of Exhibit "A" attached to
this Proxy Statement (the "Amendment"), effecting the Reverse Split with respect
to all issued shares of Common Stock. As a result of the Reverse Split, every
six (6) shares of existing Common Stock outstanding ("Old Common Stock") as of
the time of filing of the Amendment with the Delaware Secretary of State (the
"Effective Date") would be automatically converted into one (1) new share of
Common Stock ("New Common Stock").
The Restated Certificate of Incorporation of the Company, as amended to
date, provides for 21,000,000 authorized shares of Common Stock, par value $.01
per share, 8,622,573 of which were issued and outstanding as of the Record Date,
and 1,000,000 shares of Preferred Stock, par value $.01, of which none were
issued and outstanding as of the Record Date.
In order to effect the Reverse Split, the stockholders are being asked to
approve the Amendment. The Board of Directors of the Company believes that the
Reverse Split is in the best interests of both the Company and its stockholders
and has approved the Reverse Split. The Board of Directors of the Company
reserves the right,
4
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notwithstanding stockholder approval and without further action by the
stockholders, to decide not to proceed with the Reverse Split if at any time
prior to its effectiveness it determines, in its sole discretion, that the
Reverse Split is no longer in the best interests of the Company and its
stockholders.
EFFECTS OF THE REVERSE SPLIT
If effected, the Reverse Split would reduce the number of outstanding
shares of Old Common Stock from 8,622,573 as of the Record Date of the Special
Meeting (December 11, 1996) to approximately 1,437,096 shares of New Common
Stock as of the Effective Date. (The foregoing assumes no issuances of Common
Stock between said Record Date and the Effective Date.) The Reverse Split would
have no effect on the number of authorized shares of Common Stock or Preferred
Stock or the par value of the stock.
All outstanding options, warrants, rights and convertible securities that
include provisions for adjustments in the number of shares covered thereby, and
the exercise or conversion price thereof, would be appropriately adjusted for
the Reverse Split automatically on the Effective Date. The Reverse Split would
not affect any stockholder's proportionate equity interest in the Company except
for those stockholders who would receive an additional share of Common Stock, or
cash if the Company so elects, in lieu of fractional shares. None of the rights
currently accruing to holders of the Company's Common Stock, or options or
warrants to purchase Common Stock, will be affected by the Reverse Split.
The Reverse Split will result in some stockholders holding odd lots of the
Company's Common Stock (blocks of less than 100 shares). Because broker/dealers
typically charge a higher commission to complete trades in odd lots of
securities, the transaction costs may increase for those stockholders who will
hold odd lots after the Reverse Split.
Although the Board of Directors believes as of the date of this Proxy
Statement that the Reverse Split is advisable, the Reverse Split may be
abandoned by the Board of Directors at any time before, during or after the
Special Meeting and prior to the Effective Date. In addition, depending upon
prevailing market conditions, the Board of Directors may deem it advisable to
implement the Reverse Split and concurrently or sometime thereafter declare a
Common Stock dividend in an amount to be determined, which Common Stock dividend
would not require stockholder approval. Any such Common Stock dividend would
partially offset the decrease in the number of issued shares of New Common Stock
resulting from the Reverse Split. No such Common Stock dividend is presently
contemplated.
Dissenting stockholders have no appraisal rights under Delaware law or
under the Company's Restated Certificate of Incorporation or Bylaws in
connection with the Reverse Split.
The Board of Directors may make any and all changes to the Amendment that
it deems necessary in order to file the Amendment with the Delaware Secretary of
State and give effect to the Reverse Split.
The Reverse Split could result in a significant increase in possible
dilution to present stockholders' percentage of ownership of the New Common
Stock. Assuming the issuance of all authorized shares of Common Stock, the
current stockholders, in the aggregate, would own approximately 43% under the
Company's present capital structure prior to the Reverse Split, but only
approximately 7% of the outstanding New Common Stock under the capital structure
assuming adoption of the Reverse Split. The Board of Directors has determined
that having 20,000,000 authorized shares may be more attractive for future
possible merger or acquisition candidates, as well as future issuances of stock
to raise capital in private or public transactions, should opportunities arise
and be recommended by the Board of Directors with regard to such matters and
thus has determined not to reduce the authorized number of shares.
REASONS FOR THE REVERSE SPLIT
The Board of Directors believes that the Reverse Split is beneficial to the
Company and the stockholders. The principal reason for the Reverse Split is the
desire to remain eligible for listing on the NASDAQ SmallCap
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Market. Failure to maintain a bid price in excess of $1.00 per share could
result in the future delisting of the Common Stock on the NASDAQ SmallCap
Market, which might adversely affect the trading in and liquidity of the Common
Stock. Until November 11, 1996, the Common Stock was listed for trading on the
NASDAQ National Market System ("NMS"), at which time the Company's listing was
transferred to the NASDAQ SmallCap Market since the Company no longer met the
continuing listing requirements for NMS due to the decline in the trading price
of the Common Stock and the resulting market value of the Company's publicly
held shares exclusive of shares owned by affiliates of the Company. The
Company's trading symbol remained unchanged (INHM).
NASDAQ has required that, as a condition to the Company continuing its
listing in the NASDAQ SmallCap Market, the Company must effect a reverse stock
split by January 17, 1996 in sufficient amount so as to result in an increase in
the trading price of the Common Stock to $1.00 per share or higher. The quoted
high and low closing prices of the Common Stock have been as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
-------------------------------------------------------
<S> <C> <C>
March 31, 1995 2.1250 1.2500
June 30, 1995 2.5630 1.1250
September 30, 1995 1.8750 1.0000
December 31, 1995 1.3750 0.6875
March 31, 1996 1.3750 0.8750
June 30, 1996 1.0625 0.5000
September 30, 1996 0.9375 0.4375
Two Months Ended
November 30, 1996 0.6875 0.2500
</TABLE>
By reason of the Reverse Split, the market value of a share of Common Stock
may increase to a level above the current market trading price. Failure to
maintain a closing bid price in excess of $1.00 per share following the Reverse
Split could result in the future delisting of the Company's Common Stock from
the NASDAQ SmallCap Market, which might adversely affect the trading in and
liquidity of such shares. While the Board of Directors believes that the shares
of Common Stock will trade at higher prices than those which have prevailed in
recent months, there can be no assurance that such increase in the trading price
will occur or, if it does occur, that it will equal or exceed the direct
arithmetical result of the Reverse Split since there are numerous factors and
contingencies which could affect such price. No assurance can be given that the
Company will continue to meet the listing requirements for the NASDAQ SmallCap
Market following the Reverse Split.
MECHANICS OF REVERSE SPLIT
If the Reverse Split is approved by the requisite vote of the Company's
stockholders, the Amendment will be filed no later than January 17, 1997 and the
Reverse Split will thus be effected, unless abandoned by the Board of Directors
as described above. Upon filing of the Amendment, every six (6) issued and
outstanding shares of Old Common Stock will, immediately following filing of the
Amendment, be automatically and without any action on the part of the
stockholders converted into and reconstituted as one (1) share of New Common
Stock.
As soon as practical after the Effective Date, the Company will forward a
letter of transmittal to each holder of record of shares of Old Common Stock
outstanding as of the Effective Date. The letter of transmittal will set forth
instructions for the surrender of certificates representing shares of Old Common
Stock to the Company's transfer agent in exchange for certificates representing
the number of whole shares of New Common Stock into which the shares of Old
Common Stock have been converted as a result of the Reverse Split. CERTIFICATES
SHOULD NOT BE SENT TO THE COMPANY OR THE TRANSFER AGENT PRIOR TO RECEIPT OF SUCH
LETTER OF TRANSMITTAL FROM THE COMPANY.
Until a stockholder forwards a completed letter of transmittal together
with certificates representing his shares of Old Common Stock to the transfer
agent and receives a certificate representing shares of New Common
6
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Stock, such stockholder's Old Common Stock shall be deemed equal to the number
of whole shares of New Common Stock to which each stockholder is entitled as a
result of the Reverse Split.
No scrip or fractional certificates will be issued in the Reverse Split.
Instead, the Company will issue one additional share of New Common Stock, or
cash if it so elects, in lieu of fractional shares. If the Company elects to
make a cash payment in lieu of fractional shares, such payment will be based on
the average closing price of the New Common Stock on the NASDAQ SmallCap Market
for the five trading days preceeding the Effective Date. Such cash payment, if
elected by the Company, would be made upon surrender to the Company's transfer
agent of stock certificates representing a fractional share interest. The
ownership of a fractional interest will not give the holder thereof any voting,
dividend or other rights except the right to receive payment therefor as
described herein.
FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE SPLIT
The following is a summary of the material anticipated federal income tax
consequences of the Reverse Split to stockholders of the Company. This summary
is based on the provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department Regulations (the "Regulations") issued pursuant
thereto, and published rulings and court decisions in effect as of the date
hereof, all of which are subject to change. This summary does not take into
account possible changes in such laws or interpretations, including amendments
to the Code, applicable statutes, Regulations and proposed Regulations or
changes in judicial or administrative rulings, some of which may have
retroactive effect. No assurance can be given that any such changes will not
adversely affect the discussion of this summary.
This summary is provided for general information only and does not purport
to address all aspects of the possible federal income tax consequences of the
Reverse Split and IS NOT INTENDED AS TAX ADVICE TO ANY PERSON. In particular,
and without limiting the foregoing, this summary does not consider the federal
income tax consequences to stockholders of the Company in light of their
individual investment circumstances or to holders subject to special treatment
under the federal income tax laws (for example, life insurance companies,
regulated investment companies and foreign taxpayers). In addition, this
summary does not address any consequence of the Reverse Split under any state,
local or foreign tax laws. As a result, it is the responsibility of each
stockholder to obtain and rely on advice from his or her personal tax advisor as
to: (i) the effect on his or her personal tax situation of the Reverse Split,
including the application and effect of state, local and foreign income and
other tax laws; (ii) the effect of possible future legislation and Regulations;
and (iii) the reporting of information required in connection with the Reverse
Split on his or her own tax returns. It will be the responsibility of each
stockholder to prepare and file all appropriate federal, state and local tax
returns.
No ruling from the Internal Revenue Service ("Service") or opinion of
counsel will be obtained regarding the federal income tax consequences to the
stockholders of the Company as a result of the Reverse Split. ACCORDINGLY, EACH
STOCKHOLDER IS ENCOURAGED TO CONSULT HIS OR HER TAX ADVISOR REGARDING THE
SPECIFIC TAX CONSEQUENCES OF THE PROPOSED TRANSACTION TO SUCH STOCKHOLDER,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
The Company believes that the Reverse Split will qualify as a
"recapitalization" under Section 368(a)(1)(E) of the Code. As a result, no gain
or loss will be recognized by the Company or its stockholders in connection with
the Reverse Split, except with respect to any cash received in lieu of
fractional shares. A stockholder of the Company who exchanges his or her Old
Common Stock solely for New Common Stock will recognize no gain or loss for
federal income tax purposes. A stockholder's aggregate tax basis in his or her
shares of New Common received from the Company will be the same as his or her
aggregate tax basis in the Old Common Stock exchanged therefor. The holding
period of the New Common Stock received by such stockholder will include the
period during which the Old Common Stock surrendered in exchange therefor was
held, provided all such Common Stock was held as a capital asset on the date of
the exchange. Each stockholder who will receive cash, if any, in lieu of
fractional shares of New Common Stock will recognize capital gain or loss equal
to the difference between the amount of cash received and the stockholder's tax
basis allocable to such fractional shares.
7
<PAGE>
VOTE REQUIRED
The approval of the Amendment to the Company's Restated Certificate of
Incorporation effecting the Reverse Split requires the affirmative vote of a
majority of the outstanding shares of the Common Stock entitled to vote thereon
at the Special Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ABOVE PROPOSAL.
OTHER MATTERS WHICH MAY COME BEFORE THE MEETING
The Company knows of no matters other than as stated above which are to be
brought before the Special Meeting. It is intended that the persons named in
the Proxy will vote their Common Stock represented by duly executed and
delivered Proxies according to their best judgment if any other matters do
properly come before the Special Meeting.
INTEREST OF CERTAIN PERSONS
TRANSACTIONS WITH IRA C. NORRIS AND ENTITIES CONTROLLED BY IRA C. NORRIS
The Company leases its corporate headquarters in Upland, California from
G&N Investments, a California Limited Partnership ("G&N Investments"), as
general partner of Inco Plaza, a California Limited Partnership ("Inco Plaza").
Ira C. Norris is the sole general partner of, and has a 70% interest in the
profits and losses in, G&N Investments. Michael L. Hendrix, the Company's
Director of Production, and three former officers are limited partners of Inco
Plaza with individual 5% interests in the profits and losses of Inco Plaza. The
lease, subject to extension by the Company, expires in September 2000 and
provides for the lease by the Company of approximately 6,800 square feet of
rentable area at an initial monthly base rent of $8,823, increasing annually,
starting October 1996, based upon the Consumer Price Index. The Company
believes that this lease is on as favorable terms as those that could have been
obtained from unaffiliated third parties. For the nine months ended September
30, 1996 and 1995, the Company incurred rental expense of $79,500 and $120,800,
respectively, with Inco Plaza for the use of office space.
The Company advanced funds to Victor Valley Commercial Properties ("Victor
Valley") over several years prior to 1992. G&N Investments owns a 50% profits
interest in Victor Valley. As of December 31, 1995 the Company had an unsecured
receivable from Victor Valley of approximately $293,000. The Company ceased
accruing interest on its financial statements as of December 31, 1993. During
the three months ended June 30, 1996, this advance was assigned by the Company
to Ira C. Norris in exchange for a cash payment of $293,000 to the Company.
Historically, certain of the predecessor subsidiaries of the Company (the
"S Subsidiaries") were treated for federal and state income tax purposes as S
Corporations under Subchapter S of the Internal Revenue Code of 1986, as
amended, and under comparable state tax laws. As a result, the earnings from
the S Subsidiaries through the day preceding the date of termination of the S
Subsidiaries' status as S Corporations, which was April 1993 (the "Termination
Date"), have been or will be, as the case may be, taxed, with certain
exceptions, for federal and state income tax purposes directly to Ira C. Norris,
the sole stockholder of the S Subsidiaries, rather than to the Company. In
March, 1993, the Company and Mr. Norris entered into a Tax Indemnification
Agreement, which generally provided that Mr. Norris would be indemnified by the
Company with respect to federal and state income taxes (plus interest and
penalties) shifted from an S Subsidiary taxable year in which the S Subsidiary
was an S Corporation, and the Company would be indemnified by Mr. Norris with
respect to federal and state income taxes (plus interest and penalties) shifted
from Mr. Norris in a taxable year ending on or before the Termination Date to
the Company for taxable years ending either before or after the Termination
Date. Pursuant to this agreement, Mr. Norris also agreed to indemnify the
Company against any amounts that may be paid to the IRS as a result of tax
8
<PAGE>
deductions disallowed due to excessive compensation paid to him, as well as
fifty percent of all out-of-pocket costs incurred in defending an IRS challenge.
In November 1993, Mr. Norris paid $247,000 to the Company in satisfaction of
such indemnification obligation.
The Company engaged Nancy Orman Interiors ("NOI"), an interior decorating
firm, to decorate certain of the Company's model homes. The firm is owned by
Nancy Norris, who is married to Ira C. Norris. NOI analyzes the demographic
information prepared by the Company, designs the interior areas, purchases the
furnishings, hires the subcontractors and installs the furnishings with the
assistance of the Company's employees. NOI's fees primarily include its direct
costs and a fee for its design services. In 1995, the Company incurred costs of
$95,700 to NOI, of which approximately $49,600 represented reimbursement for
out-of-pocket expenses and items purchased for the Company and approximately
$46,100 represented fees for its design services. The Company believes that
these services were provided on as favorable terms as those that could have been
obtained from unaffiliated third parties. For the nine months ended September
30, 1996 and 1995, the Company incurred $125,800 and $75,600, respectively, in
model home design fees and reimbursements for the cost of the model home
furnishings with NOI
Included in accounts payables and accrued liabilities at September 30, 1996
is an unsecured advance in the amount of $300,000 from Ira C. Norris. This
advance provided to the Company by Mr. Norris in September 1996 for working
capital purposes, is due December 31, 1996, and bears interest at the rate of
10% per annum.
TRANSACTIONS WITH THOMAS E. GIBBS, JR.
In June 1996, the Company executed a $600,000 note, secured by real estate
owned by the Company, payable to ALG 1996-1, a California limited partnership
("ALG"), with interest at prime plus 3.0%, that matures June 26, 1998, in
consideration of a $600,000 loan made to the Company. Thomas E. Gibbs, Jr., a
director of the Company, is a partner of ALG.
The Gibbs Family Trust, of which Mr. Gibbs is a beneficiary and trustee, is
a partner in Triumph-Lancaster Housing Partners ("Triumph Lancaster") which was
formed in August 1996 to develop a 78 unit subdivision in Lancaster, California.
The Company is the general partner and the Gibbs Family Trust is the limited
partner. Each partner has a 50% interest in profits and distributions, subject
to certain priorities, payment of certain fees, and other agreements. As of
September 30, 1996, the Gibbs Family Trust had contributed $190,000 in cash to
Triumph Lancaster, of which $160,000 was used to purchase the first 20 lots
available under a purchase agreement transferred by the Company to Triumph
Lancaster, and the remaining $30,000 was used as an option deposit with regard
to the remaining 58 lots.
Mr. Gibbs is a partner in Palmdale Vistas Housing Investments, a California
limited partnership ("PV Development") which was formed in June 1989 to develop
a 300 unit subdivision in Palmdale, California. Inco Development Corporation, a
wholly-owned subsidiary of the Company, holds a 51.295% general partner's
interest, Palmdale Vistas Housing Investments, a California limited partnership
("PV Investments"), holds a 50% limited partner's interest, and Mr. Gibbs holds
a 1.295% limited partner's interest, in PV Development. Mr. Gibbs is the
general partner of PV Investments and holds a 23% interest as such; he also
holds a 1.376% limited partnership interest in PV Investments. Mr. Gibbs has
contributed $89,000 and has loaned $489,000 to PV Investments.
In October 1996, Hunters Ridge Investment Partners, a California general
partnership ("Hunters Ridge"), in which Mr. Gibbs is the managing general
partner and has a 56.25% profits interest, loaned the Company $900,000, which
was used by the Company to purchase 42 lots and to obtain a purchase option on
an additional 41 lots for development in Fontana, California. This property
secures the loan made by Hunters Ridge. The loan matures December 31, 1998,
bears interest at 10% per annum, is payable interest only monthly, and provides
for a participation by Hunters Ridge of 50% of the net profits, if any, realized
by the Company from development of this project. Hunters Ridge has agreed to
lend an additional $300,000 in installments to the Company in connection with
this project through June 1997; to the extent that such additional loan is not
made, the 50% profit participation interest of Hunters Ridge will be reduced
proportionately.
9
<PAGE>
In 1995, the Company incurred legal fees of approximately $22,000 to Mr.
Gibbs, and through September 30, 1996, the Company incurred approximately
$13,000 in legal fees to Mr. Gibbs.
TRANSACTION WITH RONALD L. NEELEY
In January 1993, the Company entered into a loan agreement with a revocable
trust of Ronald L. Neeley pursuant to which the Company had the right to borrow
up to $3,000,000. $1,760,000 was borrowed under this loan agreement, which
amount was repaid in full in April 1993. No further borrowings can be made
under the terms of this loan agreement. Ten percent of the rights and
obligations under this Agreement were assigned by Mr. Neeley to another
stockholder of the Company. In connection with this loan, the Company issued to
Mr. Neeley and such other stockholder warrants to purchase 47,520 shares and
5,280 shares, respectively, of the Company's Common Stock at an exercise price
of $10.00 per share, the Company's initial public offering price. The warrants
were exercisable in October 1993 and expire in April 1998. As of the date
hereof none of the warrants have been exercised.
It is important that your shares be represented at the Special Meeting,
whether or not you plan to attend in person, and 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 Special 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/ Ira C. Norris
--------------------------------
Ira C. Norris
Chairman of the Board, President
and Chief Executive Officer
December 16, 1996
Upland, California
10
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
INCO HOMES CORPORATION
--------------
SPECIAL MEETING OF STOCKHOLDERS
JANUARY 15, 1997
--------------
The undersigned stockholder of Inco Homes Corporation, a Delaware
corporation, hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement, each dated December 16, 1996, and hereby
appoints each of Ira C. Norris and Robert H. Daskal, and each of them, proxy
and attorney-in-fact, each with full power of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the Special Meeting of Stockholders of Inco Homes Corporation to be held on
January 15, 1997, at 10:00 a.m., local time, at the Ontario Hilton Hotel,
700 North Haven Avenue, Ontario, California 91764, and at any postponements or
adjournments thereof, and to vote all shares of Common Stock which the
undersigned would be entitled to vote if then and there personally present, on
the matter set forth below:
1. APPROVAL OF AN AMENDMENT TO THE RESTATED CERTIFICATE OF INCORPORATION TO
EFFECT A SIX (6) FOR ONE (1) REVERSE STOCK SPLIT OF THE COMPANY'S COMMON STOCK,
PAR VALUE $0.01 PER SHARE.
[_] FOR [_] AGAINST [_] ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL.
2. IN THEIR DISCRETION, THE PROXY IS AUTHORIZED TO VOTE UPON SUCH MATTERS AS
MAY PROPERLY COME BEFORE THE MEETING OR ANY ADJOURNMENT OR POSTPONEMENT
THEREOF.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO
CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2
AS THE NAMED PROXIES CONSIDER ADVISABLE IN THEIR JUDGMENT WITH REGARD TO ANY
OTHER MATTERS PROPERLY BROUGHT TO A VOTE AT THE MEETING.
Dated: _______ , 199
____________________
(Signature)
____________________
(Signature)
(This Proxy must be signed
exactly as your name appears
hereon. Executors,
administrators, trustees,
etc., should give full title
as such. If the stockholder is
a corporation, a duly
authorized officer should sign
on behalf of the corporation
and should indicate his or her
title.)
PLEASE MARK, SIGN, DATE, AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
INCO HOMES CORPORATION (the "Corporation"), a corporation organized
and existing under and by virtue of the Delaware General Corporation Law, DOES
HEREBY CERTIFY:
FIRST: The name of the Corporation is Inco Homes Corporation.
SECOND: The first paragraph of Article FOURTH of the Restated
Certificate of Incorporation of the Corporation is hereby amended in its
entirety to read as follows:
"FOURTH. The Corporation is authorized to issue two classes of
shares to be designated Common Stock ('Common Stock') and Preferred
Stock ('Preferred Stock'), respectively. The total number of shares
which the Corporation is authorized to issue is twenty-one million
(21,000,000). Twenty million (20,000,000) shares shall be Common Stock
and one million (1,000,000) shares shall be Preferred Stock. The
Common Stock shall have a par value of $0.01 per share and the
Preferred Stock shall have a par value of $0.01 per share. Upon the
amendment of this Article, every six (6) issued and outstanding shares
of Common Stock, $0.01 par value per share ('Old Common Stock'), shall
be automatically and without any action on the part of the
stockholders converted into and reconstituted as one (1) share of
Common Stock, $0.01 par value per share ('New Common Stock'), subject
to the treatment of fractional interests as described below. Each
holder of a certificate or certificates which immediately prior to the
Amendment of the Restated Certificate of Incorporation becoming
effective pursuant to the General Corporation Law of the State of
Delaware (the 'Effective Date'), represented outstanding shares of the
Old Common Stock shall be entitled to receive a certificate for the
number of shares of New Common Stock they own by presenting their old
certificate(s) to the Corporation's transfer agent for cancellation
and exchange.
No scrip or fractional certificates will be issued. In lieu of
fractional shares, the Corporation will issue one additional share of
New Common Stock, or cash if it so elects, If the Corporation elects
to make a cash payment in lieu of fractional shares, such payment will
be based on the average closing price of the New Common Stock on the
NASDAQ SmallCap Market for the five trading days preceding the
Effective Date. Such cash payment, if elected by the Corporation,
would be made upon surrender to the Corporation's transfer agent of
stock certificates representing a fractional share interest. The
ownership of a fractional interest will not give the holder thereof
any voting, dividend or other rights except the right to receive
payment therefor as described herein."
THIRD: This Certificate of Amendment of Restated Certificate of
Incorporation shall be effective as of January __, 1997.
FOURTH: This Certificate of Amendment of Restated Certificate of
Incorporation was duly adopted by the requisite vote of the Board of Directors
of the corporation.
1.
<PAGE>
FIFTH: That at a special meeting of stockholders held on January 15, 1997,
in accordance with Section 222 of the General Corporation Law of the State of
Delaware, the necessary number of shares as required by statute were voted in
favor of the amendments.
SIXTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by its duly authorized officers this _____ day of January 1997.
INCO HOMES CORPORATION,
a Delaware corporation
By: _____________________________________
Ira C. Norris, Chairman of the Board,
President and Chief Executive Officer
ATTEST:
By: ___________________________________________
Robert H. Daskal, Executive Vice President,
Chief Financial Officer and Secretary
2.
