<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
INCO HOMES CORPORATION
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF INCO HOMES]
----------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 11, 1998
----------------
TO OUR STOCKHOLDERS:
You are hereby notified of, and invited to attend, a Special Meeting of
Stockholders of INCO HOMES CORPORATION, a Delaware corporation (the "Company")
which will be held at the Company's principal executive offices, 1282 West
Arrow Highway, Upland, California at 10:00 a.m. Pacific Standard Time on
December 11, 1998. The purpose of the meeting is to:
(1) approve the issuance of a three-year warrant (the "Warrant") to
purchase up to an aggregate of 200,000 shares of the Common Stock of
the Company to the Norris Living Trust (the "Norris Trust"), a
principal stockholder of the Company and a trust created by and for the
benefit of the Company's Chairman of the Board, President and Chief
Executive Officer and his family;
(2) approve the issuance of 32,970 shares of the Company's Common Stock to
certain of the Company's current and former directors as payment in
full for an aggregate of $90,000 in unpaid director fees owed by the
Company to such individuals;
(3) approve future issuances of shares of the Company's Common Stock to the
non-employee directors of the Company in lieu of paying each of them
$2,500 per quarter in director fees for the fourth quarter of 1998 and
for each of the fiscal quarters of 1999;
(4) approve an amendment to the Company's Certificate of Incorporation
reducing the total number of authorized shares of Common Stock from
20,000,000 to 5,000,000; and
(5) act upon such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The Board of Directors has authorized the issuance of the Warrant to the
Norris Trust in consideration of the accommodation made by it to arrange a
$1,000,000 line of credit for Huntington Homes LLC, a wholly owned subsidiary
of the Company. The exercise price of the Warrant will be the fair market
value of the Common Stock as of the date stockholder approval for its issuance
is obtained. The Company is seeking stockholder approval for the issuance of
the Warrant in order to comply with the rules of the Nasdaq SmallCap Market,
the market where the Company's Common Stock is listed.
The Board of Directors has authorized the issuance of 32,970 shares of
Common Stock to Ronald Neeley, Robert Daskal, John Seymour, Thomas Gibbs and
Thomas Hantges, current or former directors of the Company as payment in full
for unpaid director retainer fees. The Company is seeking stockholder approval
for the issuance of the Common Stock in order to comply with the rules of the
Nasdaq SmallCap Market.
<PAGE>
The Board of Directors has authorized future issuances of shares of Common
Stock to the non-employee directors of the Company in lieu of paying each
$2,500 per quarter in director fees for the fourth quarter of 1998 and for
each of the fiscal quarters of 1999. The Company is seeking stockholder
approval for the issuances of the Common Stock in order to comply with the
rules of the Nasdaq SmallCap Market.
The Board of Directors has authorized an amendment to the Company's
Certificate of Incorporation that would reduce the number of authorized shares
of Common Stock of the Company from 20,000,000 to 5,000,000. The purpose for
the amendment is to reduce the Company's annual franchise tax obligation to
the State of Delaware. The Company is seeking stockholder approval for the
amendment to the Certificate of Incorporation to comply with Section 242 of
the Delaware General Corporation Law.
The Board of Directors has fixed the close of business on October 27, 1998
as the record date for determining those stockholders who will be entitled to
vote at the meeting. The stock transfer books will not be closed between the
record date and the date of the meeting.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. Accordingly, it is
important that your shares be represented at the meeting. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE. Your proxy may be revoked at any
time prior to the time it is voted.
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,
David A. Fogg
Secretary
Upland, California
November , 1998
<PAGE>
STOCKHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT
CAREFULLY PRIOR TO RETURNING THEIR PROXIES
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PROXY STATEMENT
FOR SPECIAL MEETING OF STOCKHOLDERS OF
INCO HOMES CORPORATION
----------------
TO BE HELD DECEMBER 11, 1998
This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors of INCO HOMES CORPORATION, a Delaware corporation (the
"Company"), on behalf of the Company, of proxies to be voted at the Special
Meeting of Stockholders to be held at 10:00 a.m. Pacific Standard Time on
December 11, 1998 at the Company's principal executive offices, 1282 West
Arrow Highway, Upland, California 91786 or at any adjournments or
postponements thereof, for the purposes set forth below. This Proxy Statement
and the proxy card were first mailed to stockholders on or about November ,
1998.
VOTING RIGHTS AND SOLICITATION
The Board of Directors has fixed the close of business on October 27, 1998
as the record date (the "Record Date") for determining those stockholders who
will be entitled to vote at the meeting. As of the Record Date, the Company
had 2,095,764 shares of Common Stock, $.01 par value per share (the "Common
Stock"), issued and outstanding. All of the shares of the Company's Common
Stock outstanding on the Record Date are entitled to vote at the Special
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. Holders
of the Company's Preferred Stock are not entitled to vote at the meeting.
Shares of the Company's Common Stock represented by proxies in the
accompanying form which are properly executed and returned to the Company will
be voted at the Special 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
issuance of the Warrant to the Norris Trust, FOR the issuance of an aggregate
of 32,970 shares of Common Stock to Ronald Neeley, Robert Daskal, John
Seymour, Thomas Gibbs and Thomas Hantges, FOR the future issuances of Common
Stock to the non-employee directors of the Company in lieu of paying each
$2,500 per quarter for the fourth quarter of 1998 and for each of the fiscal
quarters of 1999 and FOR the amendment of the Company's Certificate of
Incorporation reducing the authorized shares of Common Stock from 20,000,000
to 5,000,000. Management does not know of any matters to be presented at this
Special 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. A quorum must be present,
either in person or by proxy for the transaction of any business 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 as votes cast against a proposal presented to stockholders,
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 the Company. 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 the officers and non-officer employees of the Company 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.
<PAGE>
PROPOSAL 1: TO APPROVE THE ISSUANCE OF A WARRANT TO PURCHASE
UP TO 200,000 SHARES OF COMMON STOCK TO THE NORRIS TRUST
BACKGROUND FOR PROPOSAL
The homebuilding industry is capital intensive and often involves high
leverage and significant up-front expenditures to acquire land and begin
development. Accordingly, the Company incurs substantial indebtedness to
finance its homebuilding activities, and its business and earnings are
substantially dependent on its ability to obtain bank or other debt financing
on acceptable terms. Over the last few years, the Company has had a difficult
time financing its operations due to the limited amount of working capital it
has had available. The Company has been having ongoing discussions with
various providers of capital regarding additional investments in the Company
in its efforts to seek funding for working capital shortfalls and to reduce
old payables, as well as to finance the acquisition of additional land for the
development of future homes.
In June 1998, the Company began discussions with certain lenders seeking a
line of credit of up to $1,000,000 to provide needed working capital to help
finance its operations. None of the lenders was willing to provide the Company
with a line of credit except for the Business Bank of California ("Business
Bank"). While Business Bank was willing to provide a $1,000,000 non-revolving
line of credit (the "Line of Credit"), because of the Company's recent history
of losses, Business Bank provided the Line of Credit directly to the Norris
Living Trust (the "Norris Trust") with the understanding that funds drawn on
the Line of Credit would, in turn, be made available by the borrower to the
Company's wholly owned subsidiary Huntington Homes LLC ("Huntington Homes").
By structuring the loan in this manner, Business Bank would be able to look
directly to a financially creditworthy borrower as the principal obligor in
the event of a default and not be mired with numerous competing creditors
which might be the case if the Line of Credit were extended directly to the
Company or Huntington Homes. For a description of the Line of Credit, see "--
Terms of the Line of Credit."
Since a borrower who would accommodate the Company in this manner (the
"Accommodating Borrower") would be at substantial personal risk under the Line
of Credit, the Board of Directors felt it reasonable to compensate the
Accommodating Borrower for incurring this risk for the Company. The Board
determined that fair compensation would be to issue a three-year warrant to
purchase up to an aggregate of 200,000 shares of Common Stock (the "Warrant")
to the Accommodating Borrower. For a description of the Warrant, see "--Terms
of the Warrant."
Ira C. Norris, the Company's Chairman of the Board, President and Chief
Executive Officer, advised the Board of Directors of his willingness to obtain
the Line of Credit on behalf of Huntington Homes in this manner. Accordingly,
on July 15, 1998, Mr. Norris, using the Norris Trust he created for the
benefit of himself and his family, obtained the Line of Credit and has agreed
to furnish the proceeds drawn under the Line of Credit to Huntington Homes.
Accordingly, if stockholders approve the issuance of the Warrant, the Norris
Trust would receive a Warrant to purchase 200,000 shares of Common Stock.
Except for Mr. Norris (through the Norris Trust), the Warrant will not be
issued to any of the Company's current executive officers, any of the
Company's current directors who are not executive officers or any of the
Company's employees who are not executive officers. Neither the Company, nor
the Norris Trust intends to renew the line of credit after its expiration, but
may do so if Business Bank, the Company and the Norris Trust agree, and if the
Company is unable to obtain future financing under more favorable terms
sufficient to meet its working capital requirements.
REASON FOR STOCKHOLDER APPROVAL
Under the rules of the National Association of Securities Dealers, Inc.,
issuers whose securities are listed on the Nasdaq SmallCap Market, the market
where the Company's Common Stock is listed, are required to obtain stockholder
approval, prior to the issuance of securities, "when a stock option or
purchase plan is to be
2
<PAGE>
established or other arrangement made pursuant to which stock may be acquired
by officers or directors, except for warrants or rights issued generally to
security holders of the company or broadly based plans or arrangements
including other employees." (Emphasis added).
TERMS OF THE LINE OF CREDIT
The Line of Credit provides for advances of up to $1,000,000 to the Norris
Trust in exchange for the execution of a promissory note (the "Note") to pay
the principal plus interest accrued from the time of each advance. Once the
total amount of the principal has been advanced, the Norris Trust is not
entitled to further advances. The Note is due and payable in full by July 2,
1999. The interest rate on the Note is a variable interest rate determined by
adding 1.5% to the Business Bank Base Rate (the "Base Rate"). The Base Rate at
the time of the extension of the Line of Credit was 8.5%, and thus, the
initial interest rate on advances made under the Line of Credit was 10.0%.
A promissory note, identical to the one the Norris Trust has signed in favor
of Business Bank, has been made by Huntington Homes in favor of, and has been
delivered to, the Norris Trust. On July 15, 1998, the Norris Trust, at the
direction of the Company, borrowed $1,000,000 under the Line of Credit and
these funds were furnished to Huntington Homes.
TERMS OF THE WARRANT
If approved by stockholders, the Company will issue to the Norris Trust a
Warrant to purchase an aggregate of up to 200,000 shares of Common Stock. The
per share exercise price of the Warrant will be the fair market value per
share of the Company's Common Stock on the date stockholders approve its
issue. The Warrant will have a term expiring three-years following its
issuance. To exercise the Warrant, the holder must present full payment for
the Common Stock to be purchased (the "Warrant Shares") in cash or cash
equivalents, or if approved by the Board of Directors of the Company at the
time of exercise: (i) in the form of unrestricted Stock already owned by the
Holder, (ii) by cancellation of any indebtedness owed by the Company to the
Holder, (iii) by requesting that the Company withhold whole shares of Common
Stock then issuable upon exercise of the Warrant (based on the Fair Market
Value of the Common Stock on the date the Warrant is exercised, as determined
by the Board of Directors of the Corporation in its sole discretion), (iv) by
arrangement with a broker which is acceptable to the Board of Directors where
payment of the Exercise Price is made pursuant to an irrevocable direction to
a broker to deliver all or part of the proceeds from the sale of the shares
underlying the Warrant to the Company, or (v) by any combination of the
foregoing. When the Warrant is surrendered for the Warrant Shares being
purchased, and the full price has been paid, the Company will deliver a
certificate evidencing the Warrant Shares purchased. The holder of the Warrant
Shares will receive "restricted stock" that will be tradeable in accordance
with Rule 144, as promulgated under the Securities Act of 1933, as amended
unless such Warrant Shares are registered under the Securities Act of 1933.
The Warrant is transferable only on the books of the Company upon delivery
of the Warrant duly endorsed with signatures guaranteed by a commercial bank
or securities brokerage firm, and accompanied by proper evidence of
succession, assignment, or authority to transfer. Upon any registration or
transfer, the Company will deliver a new Warrant or Warrants to the Norris
Trust. The Company will pay all documentary stamp taxes, if any, that are
attributable to the initial issuance of Warrant Shares upon the exercise of
the Warrant. However, the Company is not required to pay any taxes involved in
the issuance or delivery of any Warrants in a name other than that of the
registered holder. If the Warrant is stolen, lost or destroyed, the Company
may cancel it and issue a replacement Warrant; but this may only be done upon
evidence satisfactory to the Company of the loss, theft or destruction of the
Warrant. In the event of any merger, reorganization, consolidation,
recapitalization, stock split, stock dividend, or other change in corporate
structure affecting the Common Stock of the Company, an adjustment will be
made in (i) the aggregate number of shares reserved for issuance under the
3
<PAGE>
Warrant, and (ii) the kind, number and exercise price of the Warrant Shares,
provided that the number of Warrant Shares shall always be a whole number. The
Company will not be required to issue fractional Warrant Shares on the
exercise of the Warrant. If any fraction of a Warrant Share would be issuable
on the exercise of the Warrant, the Company will pay an amount in cash equal
to the then current market price per Warrant Share multiplied by the fraction.
The Company may reduce the exercise price of the Warrant at any time before
the expiration of the Warrant if the stockholders approve the reduction.
VOTE REQUIRED
The Board of Directors believes that the Line of Credit is in the best
interest of the Company and its stockholders and likewise believes that the
issuance of the Warrant to the Norris Trust in consideration of its
accommodations in obtaining the Line of Credit for the Company is in the best
interest of the stockholders. The Board of Directors recommends that
stockholders vote FOR the issuance of Warrant to the Norris Trust.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. The affirmative votes
of a majority of those shares present at the meeting in person or by proxy is
required to approve the issuance of Warrant to the Norris Trust.
At the Record Date, the Norris Trust beneficially owned 407,405 shares of
Common Stock entitled to vote at the meeting, or 19.4% then outstanding. See
"Security Ownership of Certain Beneficial Owners and Management." The Norris
Trust has advised the Company that it plans to vote in favor of approving the
issuance of the Warrant.
PROPOSAL 2: TO APPROVE THE ISSUANCE OF 32,970 SHARES OF THE COMPANY'S COMMON
STOCK TO CERTAIN OF THE COMPANY'S CURRENT AND FORMER DIRECTORS AS PAYMENT IN
FULL FOR AN AGGREGATE OF $90,000 IN UNPAID DIRECTOR FEES
BACKGROUND FOR PROPOSAL
In an effort to attract and retain qualified directors necessary for the
successful operation of the Company's business, the Company has promised to
pay its non-employee directors an annual retainer fee of $10,000, payable
quarterly, and to be reimbursed for all out-of-pocket costs incurred in
connection with attendance at meetings of the Board of Directors of the
Company. The Company did not pay an aggregate of $90,000 in directors fees for
1996, 1997 and the first three quarters of 1998. As such, the Board of
Directors has recommended that the Company issue 32,970 shares of Common Stock
as payment in full for such unpaid director fees. The calculation of the
number of shares owed to each director was determined by the Board of
Directors by dividing $2,500 by (1) the closing price of the Common Stock as
reported by Nasdaq on the day of the quarter's Board of Directors meeting, or
if a Board of Directors meeting was not held in a particular calendar quarter,
(2) the closing price of the Common Stock as reported by Nasdaq on the last
trading day of such calendar quarter.
4
<PAGE>
The table below sets forth: (a) the fiscal quarters for 1996, 1997 and 1998
in which director fees were not paid; (b) the Board of Directors' quarterly
meeting date for said quarter, if any; (c) the closing price of the Company's
Common Stock, as reported by Nasdaq on the meeting date, or if none, on the
last day of said quarter; (d) the number of shares of Common Stock to be
issued to each of the outside directors as payment in full for the unpaid
retainer fee of $2,500 per quarter; and (e) the names of the directors to whom
such shares will be issued. All fractions were rounded to the nearest whole
share.
<TABLE>
<CAPTION>
MEETING CLOSING NUMBER OF
QUARTER ENDED DATE PRICE($) SHARES DIRECTORS
------------- ------- -------- --------- ---------
<S> <C> <C> <C> <C>
March 31, 1996 None 5.625 445 Neeley, Gibbs, Seymour
June 30, 1996 May 14 4.875 513 Neeley, Gibbs, Seymour
September 30, 1996 August 21 5.250 476 Neeley, Gibbs, Seymour
December 31, 1996 October 31 3.375 741 Neeley, Gibbs, Seymour
March 31, 1997 March 3 3.250 769 Neeley, Gibbs, Seymour, Daskal
June 30, 1997 None 3.000 833 Neeley, Gibbs, Seymour, Daskal
September 30, 1997 September 8 1.000 2,500 Neeley, Seymour, Daskal
December 31, 1997 December 12 2.000 1,250 Neeley, Seymour, Daskal
March 31, 1998 None 2.875 870 Neeley, Daskal, Seymour, Hantges
June 30, 1998 June 3 3.250 769 Daskal, Seymour, Hantges
September 30, 1998 None 2.500 1,000 Daskal, Seymour, Hantges
</TABLE>
The Company owes Messrs. Neeley, Seymour, Gibbs, Daskal and Hantges $22,500,
$27,500, $15,000, $17,500 and $7,500 in unpaid directors' fees, respectively.
If the issuance of the shares is approved by the stockholders, Messrs. Neeley,
Seymour, Gibbs, Daskal and Hantges will receive 8,397, 10,166, 3,777, 7,991
and 2,639 shares of newly issued Common Stock, respectively. None of the
Company's executive officers or employees will receive any shares under this
proposal, if approved by the stockholders.
REASON FOR STOCKHOLDER APPROVAL
Under the rules of the National Association of Securities Dealers, Inc.,
issuers whose securities are listed on the Nasdaq SmallCap Market are required
to obtain stockholder approval, prior to the issuance of securities, "when a
stock option or purchase plan is to be established or other arrangement made
pursuant to which stock may be acquired by officers or directors, except for
warrants or rights issued generally to security holders of the company or
broadly based plans or arrangements including other employees." (Emphasis
added).
VOTE REQUIRED
The Board of Directors believes that the issuance of the Common Stock as
payment in full for the unpaid directors' fees is in the best interest of the
Company and its stockholders. The Board of Directors recommends that
stockholders vote FOR the issuance of the shares to Ronald Neeley, Robert
Daskal, John Seymour, Thomas Gibbs and Thomas Hantges. Representation of at
least a majority of all outstanding shares of Common Stock of the Company is
required to constitute a quorum. The affirmative votes of a majority of those
shares present at the meeting in person or by proxy is required to approve the
issuance of the shares to the aforementioned current or former directors of
the Company.
At the Record Date, Ronald Neeley, Robert Daskal, John Seymour, Thomas Gibbs
and Thomas Hantges beneficially owned an aggregate of 375,304 shares of Common
Stock entitled to vote at the meeting, or 17.9% then outstanding. See
"Security Ownership of Certain Beneficial Owners and Management" for the
number of shares beneficially owned by Messrs. Daskal, Seymour and Hantges.
Each of the aforementioned former and current directors has advised the
Company that he plans to vote in favor of approving the issuance of the
shares.
5
<PAGE>
PROPOSAL 3: TO APPROVE FUTURE ISSUANCES OF STOCK TO THE NON-EMPLOYEE DIRECTORS
OF THE COMPANY IN LIEU OF PAYING EACH $2,500 PER QUARTER IN DIRECTOR FEES FOR
THE FOURTH QUARTER OF 1998 AND EACH OF THE FISCAL QUARTERS OF 1999
BACKGROUND FOR PROPOSAL
In an effort to attract and retain qualified directors necessary for the
successful operation of the Company's business, the Company has promised to
pay its non-employee directors an annual retainer fee of $10,000, payable
quarterly, and to be reimbursed for all out-of-pocket costs incurred in
connection with attendance at meetings of the Board of Directors of the
Company. Because of the Company's recent liquidity problems, the Board of
Directors has approved a proposal that would permit the Company to pay its
quarterly director fee obligations in the Common Stock of the Company in lieu
of cash for the fourth quarter of 1998 and for each of the fiscal quarters of
1999 subject to stockholder approval. The calculation of the number of shares
to be owed to each director will be determined by the Board of Directors by
dividing $2,500 by (1) the closing price of the Common Stock as reported by
Nasdaq on the day of the quarter's Board of Directors meeting, or if a Board
of Directors meeting is not held in a particular calendar quarter, (2) the
closing price of the Common Stock as reported by Nasdaq on the last trading
day of such calendar quarter. If the Company's financial condition and
liquidity improve prior to the end of fiscal 1999, the Company may elect to
resume paying non-employee director fees in cash, if the Board of Directors
deems such to be in the best interest of the Company and its stockholders.
None of the Company's executive officers or employees will receive any shares
under this proposal, if approved by the stockholders.
REASON FOR STOCKHOLDER APPROVAL
Under the rules of the National Association of Securities Dealers, Inc.,
issuers whose securities are listed on the Nasdaq SmallCap Market are required
to obtain stockholder approval, prior to the issuance of securities, "when a
stock option or purchase plan is to be established or other arrangement made
pursuant to which stock may be acquired by officers or directors, except for
warrants or rights issued generally to security holders of the company or
broadly based plans or arrangements including other employees." (Emphasis
added).
VOTE REQUIRED
The Board of Directors believes that the future issuances of the Common
Stock as payment in full for the unpaid directors' fees for the fourth quarter
of 1998 and each of the fiscal quarters of 1999 is in the best interest of the
Company and its stockholders. The Board of Directors recommends that
stockholders vote FOR the future issuances of the shares to its non-employee
directors for such periods in lieu of paying each director in cash.
Representation of at least a majority of all outstanding shares of Common
Stock of the Company is required to constitute a quorum. The affirmative votes
of a majority of those shares present at the meeting in person or by proxy is
required to approve the issuance of the shares to the non-employee directors
of the Company.
At the Record Date, Robert Daskal, John Seymour and Thomas Hantges, the
current non-employee directors of the Company beneficially owned an aggregate
of 244,591 shares of Common Stock entitled to vote at the meeting, or
approximately 11.7% then outstanding. See "Security Ownership of Certain
Beneficial Owners and Management." Each of the aforementioned has advised the
Company that he plans to vote in favor of approving the issuance of the
shares.
6
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the compensation paid by the Company for the
years ended December 31, 1997, 1996, and 1995 to the Company's Chief Executive
Officer, who was the only executive officer of the Company whose total annual
salary and bonus were in excess of $100,000 during the year ended December 31,
1997 (the "Named Executive Officer").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
---------------- ALL OTHER
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2)
- --------------------------- ---- ------- ----- ------------
<S> <C> <C> <C> <C>
Ira C. Norris................................ 1997 240,000(3) 0 5,580(4)
Chairman of the Board, 1996 360,000(5) 0 7,856(6)
President and CEO 1995 360,000 0 10,409(7)
</TABLE>
- --------
(1) Salary includes employee contributions under the Company's 401(k) Plan.
(2) Excludes a nominal amount, not more than $500 per employee annually, for
life insurance premiums.
(3) Includes $42,500 accrued in 1997, but not yet paid.
(4) Represents medical expenses of $2,477 and auto expenses of $2,303 paid by
the Company, and $800 of the Company's contribution under the Company's
401(k) plan.
(5) Includes $75,000 accrued in 1996, but not yet paid.
(6) Represents medical expenses of $4,849 and auto expenses of $2,072 paid by
the Company, and $935 of the Company's contribution under the Company's
401(k) Plan.
(7) Represents medical expenses of $6,846 and auto expenses of $3,563 paid by
the Company.
STOCK OPTIONS
There were no grants of stock options under the Company's 1992 Stock
Option/Stock Issuance Plan for the 1997 fiscal year to the Named Executive
Officer.
OPTION/SAR EXERCISES AND HOLDINGS
There were no unexercised options held as of the end of the last fiscal year
with respect to the Named Executive Officer.
DIRECTOR REMUNERATION
Each non-employee member of the Board is entitled to an annual retainer fee
of $10,000 and to be reimbursed for all out-of-pocket costs incurred in
connection with attendance at meetings of the Board of Directors of the
Company. The Company did not pay an aggregate of $90,000 in directors fees for
1996, 1997 and the first three quarters of 1998. The Company intends to issue
32,970 shares of its Common Stock as payment in full for the outstanding
directors' fees. See "Proposal No. 2: to Approve the Issuance of 32,970 Shares
of the Company's Common Stock to Certain of the Company's Current and Former
Directors as Payment in Full for an Aggregate of $90,000 in Unpaid Director
Fees."
Upon joining the Board, the Company granted to each non-employee director
options to purchase 1,250 shares of Common Stock pursuant to the Company's
automatic option grant program under the Company's
7
<PAGE>
1992 Stock Option/Stock Issuance Plan. The options have a maximum term of ten
years from the date of grant at exercise prices per share equal to the fair
market value on the date of grant as follows: Ronald L. Neeley--$56.25; John
F. Seymour Jr.--$6.00; Robert H. Daskal--$2.622; and Thomas A. Hantges--$2.00.
The Company made and makes similar automatic option grants to purchase 834
shares annually to each continuing non-employee director on the date of each
Annual Meeting of Stockholders, provided that such individual has served on
the Board for at least six months prior to the date of the meeting.
Accordingly, in September 1997, Ronald L. Neeley, John F. Seymour, Jr. and
Robert H. Daskal each received a ten-year option to purchase 834 shares of
Common Stock at an exercise price of $1.563 per share and on June 3, 1998,
Messrs. Daskal and Seymour each received a ten-year option to purchase 834
shares of Common Stock at an exercise price of $3.625 per share. Options
granted under the automatic option program may be exercised in full six months
after the grant date, provided the eligible director remains a member of the
board through that date. Such automatic option grants cease for any non-
employee director who has been granted options to purchase a cumulative total
of options of 5,417 shares of Common Stock. Ronald L. Neeley is no longer a
member of the Board of Directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH IRA C. NORRIS AND ENTITIES CONTROLLED BY IRA C. NORRIS
For the years ended December 31, 1997 and 1996, the Company incurred $45,000
and $47,000, respectively, in model home design fees and $108,400 and
$153,000, respectively, as reimbursement for the cost of the model home
furnishings to Nancy Orman Interiors. Nancy Norris, the wife of Ira C. Norris,
owns Nancy Orman Interiors.
For the years ended December 31, 1997 and 1996, the Company incurred
$102,000 and $107,000, respectively, for the use of office space, to Inco
Plaza, Ltd. Inco Plaza, Ltd. is a limited partnership owned 80% by G&N
Investments, Ltd., its sole general partner. G&N Investments, Ltd. is a
limited partnership owned 70% by Nancy and Ira C. Norris, its sole general
partners. Inco Plaza, Ltd. sold the office building it owns in which the
Company leases office space to a third party buyer in December 1997. This
third party buyer assumed the Company's lease. The Company owed Inco Plaza,
Ltd. $91,000 at December 31, 1997.
From September 1996 through November 30, 1997, the Company received advances
of $2,747,000 from Mr. Norris, of which the Company had repaid $460,000. The
advances were unsecured, bore interest at 10% and were due on March 31, 1998.
The balance of these advances at December 23, 1997 was $2,462,000, which
included accrued interest of $171,000. On that date, Mr. Norris agreed to
convert $2,340,000 of this debt into 2,340 shares of Series A Cumulative
Preferred Stock of the Company. The Company issued these shares on December
30, 1997 to the Norris Trust, of which Mr. Norris is a beneficiary and
trustee. An unsecured note to the Norris Trust, bearing interest at 10% and
maturing on December 23, 1998, evidences the balance of indebtedness not
converted for approximately $122,000.
The Series A Preferred Stock has a par value of $0.01, has no voting rights,
is non-participating, and has no conversion features. The stock is redeemable
at the option of the Company for cash at the redemption price of $1,000 per
share plus accumulated but unpaid dividends. The established dividend rate on
the Preferred Stock is $100 per share per annum payable quarterly from
available working capital.
In addition to the loans described above, in June 1997, the Norris Trust
loaned the Company $500,000 secured by undeveloped land owned by the Company
in Victorville and Palmdale, California. This note bears interest at 10% and
was due in June 1998 and has been extended until June 1999. The balance under
this note at June 30, 1998 was $550,712, which includes accrued interest of
approximately $50,712.
The disinterested members of the Company's board of directors unanimously
approved all of the above transactions.
8
<PAGE>
TRANSACTION WITH RONALD NEELEY
In June 1997, the Company signed a note and deed of trust in connection with
a loan of $500,000 from the Neeley Revocable Family Trust. Mr. Neeley, a
director of the Company until May 1, 1998, is a beneficiary and trustee of
this trust. The note bears interest at 15%, was due in June 1998 and has been
extended until June 1999. The balance under this note at June 30, 1998 was
$576,027, which includes accrued interest of approximately $76,027, and is
secured by the same undeveloped land owned by the Company in Victorville and
Palmdale, California which secures the Norris Living Trust loan of $500,000
previously described.
TRANSACTIONS WITH THOMAS GIBBS
The Company is the managing general partner of, and has a 50% interest in,
Triumph-Lancaster Housing Partners ("Triumph"), a limited partnership. The
Gibbs Family Trust, of which Thomas E. Gibbs, Jr. is a beneficiary and
trustee, holds a 50% limited partner's interest in Triumph. Triumph was formed
in August 1996 to purchase land and develop 78 single-family homes in
Lancaster, California. The Gibbs Family Trust contributed $190,000 to Triumph,
$50,000 of which has been repaid. In November 1996, Mr. Gibbs loaned $75,000
to Triumph. In February 1997, Triumph repaid this loan to Mr. Gibbs in full,
including interest at the rate of prime plus 2.5% per annum.
In June 1996, the Company signed a $600,000 Secured Participation Note with
ALG 1996-1 ("ALG"). Mr. Gibbs holds a 25% general partner's interest in ALG.
The note was secured by the Company's Winners Circle project in Adelanto,
California. Due to much slower than expected sales at the project, and based
upon the Company's review of the market and competition in the area, the
Company decided in the second quarter of 1997 not to proceed with any more
development in this project beyond the 11 homes and 3 models previously
constructed. ALG's participating loan was secured by the remaining 148 unbuilt
lots and the 2 remaining models in this project. In August 1997, ALG filed a
notice of default as a result of the Company's delinquent payments of interest
on this loan. As a result, Mr. Gibbs resigned as a member of the Company's
Board of Directors, effective August 1, 1997. A non-judicial sale of the
property was completed on December 11, 1997, and the Company was relieved of
ALG's $600,000 debt.
In October 1996, the Company signed a $1,200,000 Secured Participation Note
with Hunters Ridge Investment Partners ("HRIP"). Mr. Gibbs is the managing
general partner of HRIP, with a 56.3% interest. The note bears interest at 10%
per annum and matures in February 1999. The loan was restructured in November
1997. New financing obtained by the Company at that time reduced HRIP's loan
balance to $474,000 and subordinated the HRIP loan to the new financing.
Principal and interest is payable from net proceeds, if any, from closings of
completed single family homes in a 42 unit subdivision in Fontana, California.
The Company was the managing general partner of, and had a 51.3% interest
in, Palmdale Vistas Housing Developments, Ltd. ("Palmdale Vistas"), a limited
partnership. This partnership was dissolved in December 1997. Mr. Gibbs held a
1.3% limited partner's interest in Palmdale Vistas, and currently holds a 23%
general partner's interest and a 1.4% limited partner's interest in Palmdale
Vistas Housing Investments ("PVHI"), a limited partnership which held a 47.4%
limited partnership interest in Palmdale Vistas. Palmdale Vistas was formed in
June 1989 to purchase land and develop approximately 261 single family homes
in Palmdale, California. Mr. Gibbs contributed $120,000 to Palmdale Vistas,
none of which was repaid. Upon dissolution of Palmdale Vistas, PVHI received
title to a 17 acre undeveloped commercial site owned by Palmdale Vistas. The
Company received title to the balance of the assets of Palmdale Vistas,
consisting of three completed model homes, 11 completed homes for sale, and
approximately 180 unimproved residential lots.
9
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each
person who is known to the Company to beneficially own more than 5% of the
outstanding shares of the Common Stock of the Company, (ii) each director,
(iii) the Named Executive Officer, 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 PERCENTAGE
SHARES OF SHARES
BENEFICIALLY BENEFICIALLY
NAME OF BENEFICIAL OWNER OWNED(1) OWNED
------------------------ ------------ ------------
<S> <C> <C>
Ira C. Norris(2).................................... 407,405 19.4
1282 West Arrow Highway
Upland, CA 91786
Thomas A. Hantges(3)................................ 238,371 11.3
3900 Paradise Road, Suite 253
Las Vegas, NV 89109
Institutional Equity Partners, LLC(4)............... 204,122 9.7
3900 Paradise Road, Suite 253
Las Vegas, NV 89109
Overland Opportunity Fund, LLC(5)................... 200,000 9.5
147 East Olive Avenue
Monrovia, CA 91016
Wellington Management Company, LLP(6)............... 128,017 6.1
75 State Street
Boston, MA 02109
First Financial Fund, Inc.(7)....................... 128,017 6.1
One Seaport Plaza--25th Floor
New York, NY 10292
Robert H. Daskal(8)................................. 3,168 *
1282 West Arrow Highway
Upland, CA 91786
John F. Seymour, Jr.(9)............................. 3,052 *
1282 West Arrow Highway
Upland, CA 91786
David A. Fogg....................................... -- --
1282 West Arrow Highway
Upland, CA 91786
All directors and executive officers as a group(7
persons)(2)(3)(8)(9)............................... 651,996 31.1
</TABLE>
- --------
* Percentage of shares beneficially owned does not exceed 1% of the class so
owned.
(1) The percentage of beneficial ownership is calculated using 2,095,764
shares of Common Stock which were outstanding on October 27, 1998.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to the securities.
10
<PAGE>
(2) All shares of Common Stock are owned by the Norris Living Trust Dated
2/17/89, a family trust of which Mr. Norris and his wife, Nancy D. Norris,
serve as trustees.
(3) Includes 32,999 shares of Common Stock owned directly by Mr. Hantges and
204,122 shares of Common Stock owned of record by Institutional Equity
Partners, LLC, ("IEP") of which Mr. Hantges has investment and voting
control and options to purchase 1,250 shares of Common Stock, which are
currently exercisable at a per share price of $2.00.
(4) Includes the same shares reflected in this table as owned by Thomas A.
Hantges as described in (2) above. Mr. Hantges owns 66.7% of IEP.
(5) According to a Schedule 13D filed by Overland Opportunity Fund, LLC with
the Securities and Exchange Commission ("SEC"), which states that in its
capacity as a real estate investment company, Overland Opportunity Fund,
LLC may be deemed beneficial owner of the shares. The Schedule 13D
indicates that Overland Opportunity Fund, LLC has sole voting power and
sole dispositive power.
(6) According to a Schedule 13G filed by Wellington Management Company, LLP
with the SEC, which states that in its capacity as investment advisor, it
may be deemed beneficial owner of the shares owned by its investment-
counseling clients. The Schedule 13G indicates that Wellington Management
Company, LLP has no voting power and shared dispositive power with respect
to the shares.
(7) According to a Schedule 13G filed by First Financial Fund, Inc. with the
SEC, which 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 with respect to the shares.
(8) Includes 250 shares of Common Stock owned by Mr. Daskal and his wife
jointly, options held by Mr. Daskal to purchase 1,250 shares of Common
Stock currently exercisable at a per share price of $2.622, options to
purchase 834 shares of Common Stock currently exercisable at a per share
price of $1.563 and options to purchase 834 shares of Common Stock
exercisable December 3, 1998 at a per share price of $3.625.
(9) Includes 134 shares of Common Stock owned by Mr. Seymour, options held by
Mr. Seymour to purchase 1,250 shares of Common Stock currently exercisable
at $6.00 per share, options to purchase 834 shares of Common Stock
currently exercisable at a per share price of $1.563 per share and options
to purchase 834 shares of Common Stock exercisable December 3, 1998 at a
per share price of $3.625.
PROPOSAL 4: APPROVE THE AMENDMENT TO THE COMPANY'S
CERTIFICATE OF INCORPORATION REDUCING THE NUMBER
OF AUTHORIZED SHARES OF COMMON STOCK FROM 20,000,000 TO 5,000,000
BACKGROUND FOR PROPOSAL
As a result of being incorporated under the laws of the State of Delaware,
the Company each year must pay by March 1 an annual franchise tax (the
"Franchise Tax"). The method of calculating the Franchise Tax is set forth
under Section 503 of the Delaware General Corporation Law (the "DGCL"). This
section ostensibly provides for two methods of calculating the Franchise Tax,
with each Delaware corporation being required to pay the lesser of the two
calculations. Both calculations incorporate the number of authorized shares of
capital stock as a factor in determining the Franchise Tax. Under either
method of calculation, the Company's Franchise Tax will be reduced each year
if its authorized Common Stock is reduced from 20,000,000 to 5,000,000. For
the year ended December 31, 1997, the Company incurred $79,420 in Franchise
Tax. If the Company had an authorized capital stock of 5,000,000 for such
year, the Company would have paid $22,820 in Franchise Tax, representing a
reduction of $56,600 for such year. The Company's 1,000,000 shares of
authorized Preferred Stock is included in the calculation of the Franchise
Tax.
On October 5, 1998, the Company's Board of Directors approved an amendment
to the Company's Certificate of Incorporation reducing the number of
authorized shares of Common Stock from 20,000,000 to 5,000,000. Although the
Company does not anticipate that the proposed amendment to its Certificate of
11
<PAGE>
Incorporation will materially reduce its Franchise Tax obligation for the year
ending December 31, 1998, the Board of Directors believes that the reduction
in its Franchise Tax obligations for subsequent years will benefit the Company
and its stockholders.
REASON FOR STOCKHOLDER APPROVAL
Pursuant to Section 242 of the DGCL, any increase or decrease in the
authorized capital stock of an issuer must be approved by the issuer's
stockholders.
VOTE REQUIRED
The Board of Directors recommends that stockholders vote FOR the amendment
to the Company's Certificate of Incorporation reducing the number of
authorized shares of Common Stock from 20,000,000 to 5,000,000. Representation
of at least a majority of all outstanding shares of Common Stock of the
Company is required to constitute a quorum. The affirmative vote of a majority
of those shares of Common Stock present at the meeting in person or by proxy
is required to approve the amendment to the Company's Certificate of
Incorporation.
STOCKHOLDER PROPOSALS
Stockholders are hereby notified that if they wish a proposal to be included
in the Company's Proxy Statement and form of proxy relating to the 1999 Annual
Meeting of Stockholders, they must deliver a written copy of their proposal no
later than December 31, 1998. Proposals must comply with the proxy rules
relating to stockholder proposals, in particular Rule 14a-8 under the
Securities Exchange Act of 1934 (the "Exchange Act"), to be included in the
Company's proxy materials. Stockholders who wish to submit a proposal for
consideration at the Company's 1999 Annual Meeting of Stockholders, but who do
not wish to submit a proposal for inclusion in the Company's Proxy Statement
pursuant to Rule 14a-8 under the Exchange Act, must deliver a copy of their
proposal no later than March 15, 1999. In either case, proposals should be
delivered to Inco Homes Corporation, 1282 West Arrow Highway, Upland,
California 91786, Attention: Ira C. Norris, Chairman of the Board, President
and Chief Executive Officer. To avoid controversy and establish timely receipt
by the Company, it is suggested that stockholders send their proposals by
certified mail, return receipt requested.
OTHER MATTERS
Management does not know of any matters to be presented at this Special
Meeting other than those set forth herein and in the Notice accompanying this
Proxy Statement.
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,
David A. Fogg
Secretary
November , 1998
Upland, California
12
<PAGE>
INCO HOMES CORPORATION
1998 SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS ON BEHALF OF THE COMPANY
NOVEMBER , 1998
The undersigned stockholder of Inco Homes Corporation, a Delaware corporation
(the "Company"), hereby acknowledges receipt of the Notice of Special Meeting
of Stockholders and Proxy Statement, each dated November , 1998, and hereby
appoints Ira C. Norris and David A. Fogg, and each of them, proxies and
attorneys-in-fact, with full power to each of substitution and resubstitution,
on behalf and in the name of the undersigned, to represent the undersigned at
the 1998 Special Meeting of Stockholders of Inco Homes Corporation, to be held
on December 11, 1998, at 10:00 a.m., Pacific Standard Time, at the Company's
principal executive offices, 1282 West Arrow Highway, Upland, California 91786,
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 matters set forth below:
1. Approve the issuance of a three-year warrant to purchase up to an aggregate
of 200,000 shares of the Common Stock of the Company to the Norris Living
Trust, a principal stockholder of the Company which is a trust created by
and for the benefit of the Company's Chairman of the Board, President and
Chief Executive Officer and his family in consideration of financial
accommodations made by it in connection with securing a $1,000,000 non-
revolving line of credit for the benefit of the Company.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Approve the issuance an aggregate of 32,970 shares of Common Stock to Ronald
Neeley, John Seymour, Thomas Gibbs, Robert Daskal and Thomas Hantges as
payment in full for an aggregate of $90,000 in unpaid director retainer
fees.
[_] FOR [_] AGAINST [_] ABSTAIN
3. Approve future issuances of shares of Common Stock to the non-employee
directors of the Company in lieu of paying each of them $2,500 per quarter
in director fees for the fourth quarter of 1998 and each of the fiscal
quarters of 1999.
[_] FOR [_] AGAINST [_] ABSTAIN
4. Approve the amendment to the Company's Certificate of Incorporation reducing
the number of authorized shares from 20,000,000 to 5,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
and in their discretion, upon such other matter or matters which may properly
come before the meeting or any postponements or adjournments thereof. THIS
PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED OR, IF NO CONTRARY
DIRECTION IS INDICATED, WILL BE VOTED FOR PROPOSALS 1, 2, 3 AND 4 AND AS SAID
PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
Signature ______________________________
Date ___________________________________
Signature ______________________________
Date ___________________________________
PLEASE MARK, SIGN, DATE, AND RETURN THE
PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
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.
