e424b5
We will amend and complete the information
in this prospectus supplement. This prospectus supplement and
the prospectuses are part of effective registration statements
filed with the SEC. This prospectus supplement and the
prospectuses are not offers to sell these securities or our
solicitation of your offer to buy these securities in any
jurisdiction where that would not be permitted or legal.
|
Filed Pursuant to Rule
424(b)(5)
Registration Nos. 333-58793
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PRELIMINARY PROSPECTUS SUPPLEMENT |
Subject to completion, February 23, 2005 |
(To prospectus dated May 14, 2002
and prospectus dated July 27, 1998)
1,500,000 Shares
Common Stock
We are offering 900,000 shares of our common stock, and the
selling securityholders identified in this prospectus supplement
are offering 600,000 shares. We will not receive any
proceeds from the sale of the shares by the selling
securityholders.
Our common stock is traded on the New York Stock Exchange under
the symbol MTH. On February 22, 2005 the last
reported sale price of our common stock on the New York Stock
Exchange was $68.63 per share.
Investing in our common stock involves a high degree of risk.
Before buying any shares, you should read the discussion of
material risks of investing in our common stock in Risk
factors beginning on page S-11 of this prospectus
supplement.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
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Per | |
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share | |
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Total | |
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Public offering price
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$ |
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$ |
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Underwriting discounts and commissions
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$ |
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$ |
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Proceeds, before expenses, to Meritage Homes Corporation
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$ |
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$ |
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Proceeds to selling securityholders
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$ |
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$ |
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The underwriters may also purchase up to an additional
135,000 shares of common stock from us at the public
offering price, less the underwriting discount and commissions
payable by us to cover over-allotments, if any, within
30 days from the date of this prospectus. If the
underwriters exercise the option in full, the total underwriting
discounts and commissions will be
$ ,
and the total proceeds, before expenses to us will be
$ .
Concurrently with this offering we are (1) offering to
repurchase up to all of our
93/4% senior
notes due 2011, which total $280 million, through a tender
offer for those notes and (2) offering $300 million
aggregate principal amount of new senior notes due 2015 in a
private placement.
Delivery of the shares of common stock will be made on or
about ,
2005.
Joint Book-Running Managers
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UBS Investment Bank |
Citigroup |
Deutsche Bank Securities
JMP Securities
A.G. Edwards
The date of this prospectus supplement is
February , 2005
TABLE OF CONTENTS
Prospectus
Supplement
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S-1 |
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S-11 |
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S-18 |
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S-19 |
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S-20 |
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S-21 |
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S-22 |
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S-24 |
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S-25 |
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S-25 |
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S-26 |
Prospectus Dated
May 14, 2002
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Prospectus Dated
July 27, 1998
ABOUT THIS PROSPECTUS SUPPLEMENT
This prospectus supplement supplements two different
prospectuses, which are separately included as part of two
different registration statements. The prospectus dated
May 14, 2002, which is a part of Registration Statement
No. 333-87398 and which we refer to as the company
prospectus, relates to the offering by us of the securities
described in the company prospectus up to $300 million, of
which this offering is a part. The prospectus dated
July 27, 1998, which is a part of the Registration
Statement No. 333-58793 and which we refer to as the
selling securityholder prospectus, relates to the offering of
common stock by the selling securityholders. We refer
collectively to the company prospectus and the selling
securityholder prospectus as the accompanying
prospectuses.
This document has three parts. The first part is the prospectus
supplement, which describes the specific terms of this offering
and also adds to and updates information contained in the
accompanying prospectuses and the documents incorporated by
reference. The second and third parts are the two accompanying
prospectuses, which give more general information, some of which
may not apply to this offering. TO THE EXTENT THERE IS A
CONFLICT BETWEEN THE INFORMATION CONTAINED IN THIS PROSPECTUS
SUPPLEMENT, THE INFORMATION CONTAINED IN THE ACCOMPANYING
PROSPECTUSES OR THE INFORMATION CONTAINED IN ANY DOCUMENT
INCORPORATED BY REFERENCE HEREIN OR THEREIN, THE INFORMATION
CONTAINED IN THE MOST RECENTLY DATED DOCUMENT SHALL CONTROL.
It is important for you to read and consider all information
contained in this prospectus supplement and each accompanying
prospectus, including the documents incorporated by reference
herein and therein, in making your investment decision. This
prospectus supplement and the accompanying prospectuses
incorporate important business and financial information about
us and our subsidiaries that is not included in or delivered
with these documents. This information is available without
charge to security holders upon written or oral request.
You should rely only on the information contained, incorporated
or deemed incorporated by reference in this prospectus
supplement and the accompanying prospectuses. We have not
authorized anyone to give any information or to make any
representation not contained, incorporated or deemed
incorporated by reference in this prospectus supplement or the
applicable accompanying prospectuses in connection with the
offering of shares of common stock in this offering. You should
not assume that the information contained in this prospectus
supplement and the accompanying prospectuses is correct as of
any date after the respective dates of this prospectus
supplement and the accompanying prospectuses, even though this
prospectus supplement and the accompanying prospectuses are
delivered or these shares of common stock are offered or sold on
a later date.
This prospectus supplement is not, and neither of the
accompanying prospectuses are, an offer to sell any security
other than the common stock and they are not soliciting an offer
to buy any security other than the common stock. This prospectus
supplement is not, and neither of the accompanying prospectuses
are, an offer to sell this common stock to any person, and they
are not soliciting an offer from any person to buy the common
stock, in any jurisdiction where the offer or sale to that
person is not permitted.
Prospectus supplement summary
This summary is not complete and does not contain all of the
information that you should consider before investing in our
common stock. You should read the entire prospectus supplement
and the accompanying prospectuses carefully, especially the
risks discussed under the Risk Factors section
beginning on page S-11 of this prospectus supplement, and
our consolidated financial statements and the notes to those
statements. Unless the context otherwise requires, all
references to Meritage, we,
us or our include Meritage Homes
Corporation and its subsidiaries and predecessors as a combined
entity. Unless indicated otherwise, all information in this
prospectus supplement assumes that the underwriters do not
exercise the over-allotment option described in
Underwriting. All per share amounts in this
prospectus supplement have been adjusted for a 2-for-1 stock
split (in the form of a stock dividend) effected on
January 7, 2005.
THE COMPANY
We are a leading designer and builder of single-family homes in
the fast-growing Southern and Western United States, based on
the number of home closings. We focus on providing a broad range
of first-time, move-up and luxury homes to our targeted customer
base. We and our predecessors have operated in Arizona since
1985, in Texas since 1987, in Northern California since 1989 and
in Nevada since 1993. In 2004, we entered the Inland Empire
market of Southern California with our acquisition of Citation
Homes of Southern California and began start-up operations in
the Denver, Colorado and Orlando, Florida markets. In February
2005, we expanded our Florida operations by acquiring the Fort
Myers/Naples-based operations of Colonial Homes.
We believe that the relatively strong population, job and income
growth as well as the favorable migration characteristics of our
markets will continue to provide significant growth
opportunities for us. According to U.S. Housing Markets, a
leading real estate and homebuilding publication of the Meyers
Group, six of our twelve markets, Los Angeles, California,
Phoenix/ Scottsdale, Arizona, Dallas/ Ft. Worth and
Houston, Texas, Las Vegas, Nevada and Orlando, Florida, are
among or part of the top 10 national housing markets based on
annual single-family housing permits issued in 2003, with
Dallas/ Ft. Worth, Houston, Phoenix/ Scottsdale and Los
Angeles comprising four of the top six single-family housing
markets.
At December 31, 2004, we were actively selling homes in 139
communities, with base prices ranging from approximately $96,000
to $927,000. We develop a design and marketing concept tailored
to each community, which includes determination of the size,
style and price range of homes, street layout, size and layout
of individual lots and overall community design. The home
designs offered in a particular community also depend upon
factors such as the housing generally available in the area, the
consumer demands of a particular market and our lot costs for
the project.
We seek to minimize land risk by purchasing a significant
portion of our property after full entitlements that will allow
us to construct homes have been obtained and typically begin
development or construction immediately after close. We acquire
land primarily through rolling option contracts, allowing us to
purchase individual lots as our building needs dictate. These
arrangements allow us to control lot inventory typically on a
non-recourse basis without incurring the risks of land ownership
or financial commitments other than relatively small
non-refundable deposits. Recently, we have begun to purchase
larger tracts of land through joint ventures. In some cases
these joint ventures purchase undeveloped land and develop the
land themselves. At December 31, 2004, we owned or had
options to acquire approximately 39,000 housing lots, of which
approximately 89% were under rolling option and land purchase
contracts. We believe that the lots we own or have the right to
acquire represent approximately a five and one half year supply.
S- 1
RECENT DEVELOPMENTS
We have consistently achieved strong financial results while
maintaining conservative fiscal policies. For the year ended
December 31, 2004, our revenues were $2.04 billion and
our net earnings were $139.0 million, as compared to
$1.47 billion and $94.4 million, respectively, for the
year ended December 31, 2003, an increase of 38.8% and
47.2%, respectively.
We believe that we are well positioned for future growth. Our
backlog increased to 4,408 homes with a value of
$1.32 billion at December 31, 2004, up from
2,580 homes with a value of $710.8 million at
December 31, 2003, an 85.8% increase in dollars. New home
orders increased to 2,055 homes with a value of
$669.9 million for the quarter ended December 31, 2004
from 1,147 homes with a value of $343.2 million in the
comparable 2003 period, a 95.2% increase in dollars. New home
orders increased to 9,007 with a value of $2.60 billion for
the year ended December 31, 2004 from 6,152 homes with
a value of $1.63 billion in 2003, a 59.5% increase in
dollars.
The table below summarizes our unaudited results of operations,
balance sheet data and other financial data as of and for the
quarter and year ended December 31, 2004.
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Three Months Ended | |
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Year Ended | |
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December 31, | |
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December 31, | |
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2004 | |
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2004 | |
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(unaudited) | |
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(in thousands) | |
Statement of Earnings and Other Operating Data:
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Total closing revenue
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$ |
699,819 |
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$ |
2,040,004 |
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Total cost of closings
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(556,193 |
) |
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(1,631,534 |
) |
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Gross profit
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143,626 |
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408,470 |
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Net earnings
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51,812 |
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138,968 |
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Basic earnings per share
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$ |
2.01 |
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$ |
5.33 |
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Diluted earnings per share
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$ |
1.88 |
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$ |
5.03 |
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Gross profit margin
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20.5 |
% |
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20.0 |
% |
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As of | |
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December 31, 2004 | |
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(unaudited) | |
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(in thousands) | |
Balance Sheet Data:
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Cash and cash equivalents
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$ |
47,876 |
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Real estate
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867,218 |
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Total assets
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1,265,394 |
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Total liabilities and minority interest
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742,839 |
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Notes and loans payable and other borrowings
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471,415 |
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Stockholders equity
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522,555 |
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S- 2
The table provided below shows comparative operating and
financial data regarding our homebuilding activities. Through
December 31, 2004, we have had no sales or closings from
our Denver, Colorado or Orlando, Florida start-up operations. We
anticipate that we will begin delivering our first homes in
Denver and Orlando during the latter part of 2005. In connection
with our acquisition of Colonial Homes, we began selling and
delivering homes in our Fort Myers/Naples division in February
2005.
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Three Months Ended December 31, |
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Year Ended December 31, |
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2004 |
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2003 |
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2004 |
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2003 |
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Homes |
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$ |
|
Homes | |
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$ |
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Homes | |
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$ |
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Homes | |
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$ |
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(unaudited) |
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(dollars in thousands) |
Homes Ordered:
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Texas
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744 |
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159,041 |
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458 |
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100,931 |
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3,518 |
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752,770 |
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2,862 |
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599,850 |
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Arizona
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713 |
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195,030 |
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348 |
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106,087 |
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3,490 |
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884,771 |
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1,881 |
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509,913 |
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California(1)
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439 |
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260,065 |
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239 |
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109,687 |
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1,582 |
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821,266 |
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807 |
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375,105 |
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Nevada
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159 |
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55,788 |
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102 |
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26,543 |
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417 |
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146,141 |
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602 |
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150,120 |
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Total
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2,055 |
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669,884 |
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1,147 |
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343,248 |
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9,007 |
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2,604,948 |
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6,152 |
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1,634,988 |
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Homes Closed:
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Texas
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981 |
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211,390 |
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840 |
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172,079 |
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3,152 |
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|
681,099 |
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2,828 |
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|
577,330 |
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Arizona
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|
917 |
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244,760 |
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|
649 |
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181,626 |
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|
2,331 |
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|
585,743 |
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|
1,515 |
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415,709 |
|
California
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|
399 |
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206,795 |
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|
195 |
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|
92,963 |
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|
1,367 |
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628,324 |
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|
735 |
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334,677 |
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Nevada
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|
97 |
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35,309 |
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|
100 |
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25,418 |
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|
404 |
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|
120,576 |
|
|
564 |
|
|
134,265 |
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Total
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2,394 |
|
698,254 |
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|
1,784 |
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|
472,086 |
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|
7,254 |
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|
2,015,042 |
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|
5,642 |
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|
1,461,981 |
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|
Order Backlog:
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|
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|
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|
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|
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|
Texas
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|
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|
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1,485 |
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|
313,090 |
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|
1,119 |
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|
241,419 |
|
Arizona
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|
|
|
|
|
|
|
|
|
|
|
|
1,991 |
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|
537,387 |
|
|
832 |
|
|
238,359 |
|
California
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|
|
|
|
|
|
|
|
|
|
|
|
695 |
|
|
391,271 |
|
|
405 |
|
|
177,355 |
|
Nevada
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|
|
|
|
|
|
|
|
|
|
|
|
237 |
|
|
79,203 |
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|
224 |
|
|
53,638 |
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
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Total
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|
|
|
|
|
|
|
|
|
|
|
4,408 |
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|
1,320,951 |
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|
2,580 |
|
|
710,771 |
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
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|
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(1) |
Does not include 75 homes that were acquired in connection
with our acquisition of Citation Homes in January 2004 and which
were closed by us in 2004. |
Other recent events
Colonial Homes Acquisition. On February 11,
2005, we completed the acquisition of substantially all of the
homebuilding assets of Colonial Homes of Fort Myers/Naples,
Florida. The purchase price was approximately $64 million
in cash plus the assumption of accrued liabilities of
approximately $9 million.
In addition, we have the right to acquire approximately
1,800 lots over a four-year period pursuant to an option
agreement entered into between Meritage and Colonial. Colonial
closed 355 homes in 2004 at an average selling price of
approximately $347,000, resulting in home closing revenue of
approximately $123 million. We anticipate that the Colonial
acquisition will allow us to expand our presence in the Florida
market. In addition to single-family homes, Colonial Homes is
also involved in the construction and sale of multi-story
condominiums. Of the 355 homes closed by Colonial in 2004,
56 units represented condominium sales. We plan to develop
condominium units in our Fort Myers/ Naples market.
Concurrent Transactions. Concurrently with this
offering we are (1) offering to repurchase up to all of our
93/4%
senior notes due 2011, which total $280 million, through a
tender offer for those notes and (2) offering
$300 million aggregate principal amount of new senior notes
due 2015 in a private placement.
S- 3
Accounting Treatment of Model Home Leases; Internal
Controls. Historically, the construction costs and
related debt associated with model homes which are owned and
leased to us by others and that we use to market our communities
were not included in our balance sheet. In January 2005 we
determined that the costs associated with these models are
required to be included as assets on our balance sheet and that
the lease payments needed to be recharacterized as interest and
that such interest should be capitalized and allocated to cost
of sales. As a result, we restated our Quarterly Reports on
Form 10-Q for the quarters ended June 30, 2004 and
September 30, 2004. We have determined that the effect on
our quarterly and year-end financial statements for 2003 and the
quarter ended March 31, 2004 is immaterial.
In connection with the audit of our 2004 financial statements,
our registered public accounting firm informed management that
they believed our previous accounting treatment for our model
lease program is a material weakness under Section 404 of
the Sarbanes-Oxley Act of 2002 and PCAOB Auditing Standard
No. 2. We agree with this assessment but believe that this
is an isolated reportable condition and have made the
appropriate adjustments to our financial statements for the year
ended December 31, 2004. If our 2003 financial statements
had been restated to conform to the 2004 treatment, the effect
would have been an increase in total assets of less than 3% at
year-end, an increase in cost of sales of less than 1% for the
year (with an offsetting reclassification from commissions and
other sales costs) and no change in net earnings for the year.
Our principal executive office in Arizona is located at 8501
East Princess Drive, Suite 290, Scottsdale, Arizona 85255, and
our telephone number there is (877) 400-7888. Our principal
executive office in Texas is located at 2745 North Dallas
Parkway, Suite 600, Plano, Texas 75093, and our telephone
number there is (800) 210-6004. Information about our
company and communities is provided through our website
www.meritagehomes.com. Information on this website is not
incorporated by reference in or otherwise part of this
prospectus supplement or the accompanying prospectuses.
S- 4
The offering
The following summary is not intended to be complete. For a more
detailed description of our common stock, see Description
of capital stock in the accompanying company prospectus.
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Common stock offered by us |
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900,000 shares (1) |
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Common stock offered by the selling securityholders |
|
600,000 shares |
|
Common stock to be outstanding after this offering |
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26,749,798 shares (2) |
|
Use of proceeds |
|
We estimate that the net proceeds to us from the offering after
deducting underwriting discounts and commissions but before
deducting the estimated offering expenses will be approximately
$59.3 million. We intend to use the proceeds received by us
in this offering together with the proceeds from our offering of
$300 million aggregate principal amount of senior notes due
2015, to repurchase up to all of our
93/4%
senior notes due 2011 pursuant to a concurrent tender offer, to
repay a portion of our senior unsecured credit facility and to
pay related fees and expenses. We will not receive any of the
proceeds from the sale of common stock by the selling
securityholders. |
|
New York Stock Exchange Symbol |
|
MTH |
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|
(1) |
Does not include the exercise of the underwriters
over-allotment option. |
|
(2) |
The number of shares of common stock outstanding after the
offering is based upon the number of shares outstanding as of
February 18, 2005 and excludes up to 2,814,330 shares of
common stock issuable upon the exercise of options outstanding,
of which 806,268 shares are immediately exercisable at a
weighted average price of $9.94. |
S- 5
Summary financial information
The following table presents summary historical consolidated
financial and operating data of Meritage Homes Corporation and
subsidiaries as of and for each of the three years in the period
ended December 31, 2003 and as of September 30, 2004
and for the nine months ended September 30 for each of the
last two years. The consolidated statement of earnings data for
the years ended December 31, 2003, 2002 and 2001 have been
derived from Meritage Home Corporations audited
consolidated financial statements. The consolidated statements
of earnings data for the nine months ended September 30,
2004 and 2003 have been derived from Meritage Home
Corporations unaudited consolidated financial statements.
These financial statements have been prepared on a basis
consistent with our audited consolidated financial statements
and reflect all adjustments, consisting of normal recurring
adjustments, which are, in the opinion of management, necessary
for fair presentation of the financial position and results of
operations for the periods presented. You should read this data
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and related notes
contained in the annual, quarterly and other reports filed by us
with the SEC, which we have incorporated by reference into this
prospectus supplement. The data below includes the operations of
Hancock Communities, Hammonds Homes, Perma-Bilt Homes and
Citation Homes since their dates of acquisition, June 1,
2001, July 1, 2002, October 1, 2002 and
January 1, 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003(1) | |
|
2002(1) | |
|
2001(1) | |
|
2004 | |
|
2003(1) | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands, except per share data) | |
Statement of Earnings Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total closing revenue
|
|
$ |
1,471,001 |
|
|
$ |
1,119,817 |
|
|
$ |
744,174 |
|
|
$ |
1,340,185 |
|
|
$ |
997,995 |
|
|
Total cost of closings
|
|
|
(1,178,484 |
) |
|
|
(904,921 |
) |
|
|
(586,914 |
) |
|
|
(1,075,341 |
) |
|
|
(798,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
292,517 |
|
|
|
214,896 |
|
|
|
157,260 |
|
|
|
264,844 |
|
|
|
199,698 |
|
|
Commissions and other sales costs
|
|
|
(92,904 |
) |
|
|
(65,291 |
) |
|
|
(41,085 |
) |
|
|
(79,906 |
) |
|
|
(64,534 |
) |
|
General and administrative expenses(2)
|
|
|
(53,929 |
) |
|
|
(41,496 |
) |
|
|
(36,105 |
) |
|
|
(52,672 |
) |
|
|
(38,691 |
) |
|
Other income, net
|
|
|
5,776 |
|
|
|
5,435 |
|
|
|
2,884 |
|
|
|
8,535 |
|
|
|
3,911 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before provision for income taxes
|
|
|
151,460 |
|
|
|
113,544 |
|
|
|
82,954 |
|
|
|
140,801 |
|
|
|
100,384 |
|
|
Provision for income taxes(2)
|
|
|
(57,054 |
) |
|
|
(43,607 |
) |
|
|
(32,295 |
) |
|
|
(53,645 |
) |
|
|
(37,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
94,406 |
|
|
$ |
69,937 |
|
|
$ |
50,659 |
|
|
$ |
87,156 |
|
|
$ |
62,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$ |
3.62 |
|
|
$ |
2.82 |
|
|
$ |
2.39 |
|
|
$ |
3.33 |
|
|
$ |
2.42 |
|
|
Diluted earning per share
|
|
$ |
3.42 |
|
|
$ |
2.66 |
|
|
$ |
2.15 |
|
|
$ |
3.14 |
|
|
$ |
2.29 |
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit margin
|
|
|
19.9 |
% |
|
|
19.2 |
% |
|
|
21.1 |
% |
|
|
19.8 |
% |
|
|
20.0 |
% |
|
EBITDA(3)
|
|
$ |
182,283 |
|
|
$ |
139,583 |
|
|
$ |
101,998 |
|
|
$ |
171,151 |
|
|
$ |
120,628 |
|
S- 6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
At September 30, | |
|
|
| |
|
| |
|
|
2003(1) | |
|
2002(1) | |
|
2001(1) | |
|
2004 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
4,799 |
|
|
$ |
6,600 |
|
|
$ |
3,383 |
|
|
$ |
19,340 |
|
|
Real estate
|
|
|
678,001 |
|
|
|
484,970 |
|
|
|
330,238 |
|
|
|
898,376 |
|
|
Total assets
|
|
|
954,539 |
|
|
|
691,788 |
|
|
|
436,715 |
|
|
|
1,244,170 |
|
|
Notes and loans payable and other borrowings
|
|
|
351,491 |
|
|
|
264,927 |
|
|
|
177,561 |
|
|
|
516,727 |
|
|
Stockholders equity
|
|
|
411,895 |
|
|
|
317,308 |
|
|
|
176,587 |
|
|
|
468,321 |
|
|
|
(1) |
Historically, the construction costs and related debt
associated with model homes which are owned and leased to us by
others that we use to market our communities were not included
in our balance sheet. See Recent
Developments Other recent events
Accounting Treatment of Model Home Leases; Internal
Controls. |
|
(2) |
2001 includes a $383 loss related to the net effect of early
extinguishments of long-term debt. Previously this amount, net
of the tax effect of $149, was reported as an extraordinary
item. We have reclassified this loss as general and
administrative expense and income tax benefit, respectively, to
conform with the requirements of SFAS 145, which was
effective for fiscal years beginning after May 15, 2002. |
|
(3) |
EBITDA represents net earnings before interest expense,
interest amortized to cost of sales, income taxes, depreciation
and amortization. EBITDA is a non-GAAP financial measure. A
non-GAAP financial measure is a numerical measure of a
registrants historical or future financial performance,
financial position or cash flows that excludes amounts, or is
subject to adjustments that have the effect of excluding
amounts, that are included in the most directly comparable
measure calculated and presented in accordance with GAAP in the
statement of earnings, balance sheet, or statement of cash flows
(or equivalent statements) of the issuer; or includes amounts,
or is subject to adjustments that have the effect of including
amounts, that are excluded from the most directly comparable
measure so calculated and presented. In this regard, GAAP refers
to generally accepted accounting principles in the United
States. We have provided below a reconciliation of this non-GAAP
financial measure to the most directly comparable GAAP
measure. |
EBITDA is presented here because it is used by management to
analyze and compare Meritage with other homebuilding companies
on the basis of operating performance and we believe it is a
financial measure widely used by investors and analysts in the
homebuilding industry. EBITDA as presented may not be comparable
to similarly titled measures reported by other companies because
not all companies calculate EBITDA in an identical manner and,
therefore, it is not necessarily an accurate means of comparison
between companies. EBITDA is not intended to represent cash
flows for the period or funds available for managements
discretionary use nor has it been presented as an alternative to
operating income or earnings or as an indicator of operating
performance and it should not be considered in isolation or as a
substitute for measures of performance prepared in accordance
with generally accepted accounting principles in the United
S- 7
States of America. The reconciliation of EBITDA to net
earnings for each of the respective periods shown is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Net earnings
|
|
$ |
94,406 |
|
|
$ |
69,937 |
|
|
$ |
50,659 |
|
|
$ |
87,156 |
|
|
$ |
62,840 |
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
|
57,054 |
|
|
|
43,607 |
|
|
|
32,295 |
|
|
|
53,645 |
|
|
|
37,544 |
|
|
Interest
|
|
|
22,287 |
|
|
|
19,259 |
|
|
|
13,303 |
|
|
|
21,381 |
|
|
|
14,513 |
|
|
Depreciation and amortization
|
|
|
8,536 |
|
|
|
6,780 |
|
|
|
5,741 |
|
|
|
8,969 |
|
|
|
5,731 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$ |
182,283 |
|
|
$ |
139,583 |
|
|
$ |
101,998 |
|
|
$ |
171,151 |
|
|
$ |
120,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home closing revenue, home orders and order backlog
The tables provided below show operating and financial data
regarding our homebuilding activities. Through December 31,
2004, we have had no sales or closings from our Denver, Colorado
or Orlando, Florida start-up operations. We anticipate that we
will begin delivering our first homes in Denver and Orlando
during the latter part of 2005. In connection with our
acquisition of Colonial Homes, we began selling and delivering
homes in our Fort Myers/ Naples market in February 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Home Closing Revenue
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
1,461,981 |
|
|
$ |
1,112,439 |
|
|
$ |
742,576 |
|
|
$ |
1,317,488 |
|
|
$ |
989,895 |
|
|
Homes closed
|
|
|
5,642 |
|
|
|
4,574 |
|
|
|
3,270 |
|
|
|
4,860 |
|
|
|
3,858 |
|
|
Average sales price
|
|
$ |
259.1 |
|
|
$ |
243.2 |
|
|
$ |
227.1 |
|
|
$ |
271.1 |
|
|
$ |
256.6 |
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
577,330 |
|
|
$ |
387,264 |
|
|
$ |
259,725 |
|
|
$ |
469,709 |
|
|
$ |
405,251 |
|
|
|
|
Homes closed
|
|
|
2,828 |
|
|
|
2,090 |
|
|
|
1,518 |
|
|
|
2,171 |
|
|
|
1,988 |
|
|
|
|
Average sales price
|
|
$ |
204.1 |
|
|
$ |
185.3 |
|
|
$ |
171.1 |
|
|
$ |
216.4 |
|
|
$ |
203.8 |
|
|
|
Arizona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
415,709 |
|
|
$ |
445,275 |
|
|
$ |
325,918 |
|
|
$ |
340,983 |
|
|
$ |
234,083 |
|
|
|
|
Homes closed
|
|
|
1,515 |
|
|
|
1,735 |
|
|
|
1,343 |
|
|
|
1,414 |
|
|
|
866 |
|
|
|
|
Average sales price
|
|
$ |
274.4 |
|
|
$ |
256.6 |
|
|
$ |
242.7 |
|
|
$ |
241.1 |
|
|
$ |
270.3 |
|
|
|
California
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
334,677 |
|
|
$ |
245,640 |
|
|
$ |
156,933 |
|
|
$ |
421,529 |
|
|
$ |
241,714 |
|
|
|
|
Homes closed
|
|
|
735 |
|
|
|
594 |
|
|
|
409 |
|
|
|
968 |
|
|
|
540 |
|
|
|
|
Average sales price
|
|
$ |
455.3 |
|
|
$ |
413.5 |
|
|
$ |
383.7 |
|
|
$ |
435.5 |
|
|
$ |
447.6 |
|
S- 8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Nevada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
134,265 |
|
|
$ |
34,260 |
|
|
|
n/a |
|
|
$ |
85,267 |
|
|
$ |
108,847 |
|
|
Homes closed
|
|
|
564 |
|
|
|
155 |
|
|
|
n/a |
|
|
|
307 |
|
|
|
464 |
|
|
Average sales price
|
|
$ |
238.1 |
|
|
$ |
221.0 |
|
|
|
n/a |
|
|
$ |
277.7 |
|
|
$ |
234.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Home Orders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
1,634,988 |
|
|
$ |
1,161,899 |
|
|
$ |
700,104 |
|
|
$ |
1,935,064 |
|
|
$ |
1,291,740 |
|
|
Homes ordered
|
|
|
6,152 |
|
|
|
4,504 |
|
|
|
3,016 |
|
|
|
6,952 |
|
|
|
5,005 |
|
|
Average sales price
|
|
$ |
265.8 |
|
|
$ |
258.0 |
|
|
$ |
232.1 |
|
|
$ |
278.3 |
|
|
$ |
258.1 |
|
|
|
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
599,850 |
|
|
$ |
417,158 |
|
|
$ |
255,811 |
|
|
$ |
593,729 |
|
|
$ |
498,919 |
|
|
|
|
Homes ordered
|
|
|
2,862 |
|
|
|
2,134 |
|
|
|
1,516 |
|
|
|
2,774 |
|
|
|
2,404 |
|
|
|
|
Average sales price
|
|
$ |
209.6 |
|
|
$ |
195.5 |
|
|
$ |
168.7 |
|
|
$ |
214.0 |
|
|
$ |
207.5 |
|
|
|
Arizona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
509,903 |
|
|
$ |
383,445 |
|
|
$ |
309,170 |
|
|
$ |
689,741 |
|
|
$ |
403,826 |
|
|
|
|
Homes ordered
|
|
|
1,881 |
|
|
|
1,425 |
|
|
|
1,165 |
|
|
|
2,777 |
|
|
|
1,533 |
|
|
|
|
Average sales price
|
|
$ |
271.1 |
|
|
$ |
269.1 |
|
|
$ |
265.4 |
|
|
$ |
248.4 |
|
|
$ |
263.4 |
|
|
|
California
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
375,105 |
|
|
$ |
329,252 |
|
|
$ |
135,123 |
|
|
$ |
561,241 |
|
|
$ |
265,418 |
|
|
|
|
Homes ordered
|
|
|
807 |
|
|
|
794 |
|
|
|
335 |
|
|
|
1,143 |
|
|
|
568 |
|
|
|
|
Average sales price
|
|
$ |
464.8 |
|
|
$ |
414.7 |
|
|
$ |
403.4 |
|
|
$ |
491.0 |
|
|
$ |
467.3 |
|
|
|
Nevada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
150,120 |
|
|
$ |
32,044 |
|
|
|
n/a |
|
|
$ |
90,353 |
|
|
$ |
123,577 |
|
|
|
|
Homes ordered
|
|
|
602 |
|
|
|
151 |
|
|
|
n/a |
|
|
|
258 |
|
|
|
500 |
|
|
|
|
Average sales price
|
|
$ |
249.4 |
|
|
$ |
212.2 |
|
|
|
n/a |
|
|
$ |
350.2 |
|
|
$ |
247.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Order Backlog
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
710,771 |
|
|
$ |
537,764 |
|
|
$ |
374,951 |
|
|
$ |
1,349,321 |
|
|
$ |
839,609 |
|
|
Homes in backlog
|
|
|
2,580 |
|
|
|
2,070 |
|
|
|
1,602 |
|
|
|
4,747 |
|
|
|
3,217 |
|
|
Average sales price
|
|
$ |
275.5 |
|
|
$ |
259.8 |
|
|
$ |
234.1 |
|
|
$ |
284.2 |
|
|
$ |
261.0 |
|
S- 9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003 | |
|
2002 | |
|
2001 | |
|
2004 | |
|
2003 | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands) | |
Texas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
241,419 |
|
|
$ |
218,899 |
|
|
$ |
115,651 |
|
|
$ |
365,439 |
|
|
$ |
312,567 |
|
|
Homes in backlog
|
|
|
1,119 |
|
|
|
1,085 |
|
|
|
693 |
|
|
|
1,722 |
|
|
|
1,501 |
|
|
Average sales price
|
|
$ |
215.7 |
|
|
$ |
201.8 |
|
|
$ |
166.9 |
|
|
$ |
212.2 |
|
|
$ |
208.2 |
|
Arizona
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
238,359 |
|
|
$ |
144,155 |
|
|
$ |
205,985 |
|
|
$ |
587,117 |
|
|
$ |
313,898 |
|
|
Homes in backlog
|
|
|
832 |
|
|
|
466 |
|
|
|
776 |
|
|
|
2,195 |
|
|
|
1,133 |
|
|
Average sales price
|
|
$ |
286.5 |
|
|
$ |
309.3 |
|
|
$ |
265.4 |
|
|
$ |
267.5 |
|
|
$ |
277.1 |
|
California
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
177,355 |
|
|
$ |
136,927 |
|
|
$ |
53,315 |
|
|
$ |
338,041 |
|
|
$ |
160,631 |
|
|
Homes in backlog
|
|
|
405 |
|
|
|
333 |
|
|
|
133 |
|
|
|
655 |
|
|
|
361 |
|
|
Average sales price
|
|
$ |
437.9 |
|
|
$ |
411.2 |
|
|
$ |
400.9 |
|
|
$ |
516.1 |
|
|
$ |
445.0 |
|
Nevada
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$ |
53,638 |
|
|
$ |
37,783 |
|
|
|
n/a |
|
|
$ |
58,724 |
|
|
$ |
52,513 |
|
|
Homes in backlog
|
|
|
224 |
|
|
|
186 |
|
|
|
n/a |
|
|
|
175 |
|
|
|
222 |
|
|
Average sales price
|
|
$ |
239.5 |
|
|
$ |
203.1 |
|
|
|
n/a |
|
|
$ |
335.6 |
|
|
$ |
236.5 |
|
S- 10
Risk factors
An investment in our stock involves a high degree of risk.
Before purchasing our common stock, you should consider
carefully the risks described below in this section, risks
described under the heading Risk factors in the
accompanying prospectuses and the risks described in the
documents incorporated by reference in this prospectus. Other
risks including those that we do not currently consider
material, or may not anticipate, may harm our business,
financial condition and results of operations. In this event,
the market price of our common stock could decline and you could
lose all or part of your investment.
RISKS RELATED TO OUR COMMON STOCK
Our issuance of common stock could result in a lowering of
our stock price.
To finance our business or future expansion we may issue
additional shares of common stock. The potential future issuance
of additional shares could create a market overhang that results
in a lower price for our common stock.
Our charter and bylaws and ownership structure could prevent
a third party from acquiring us or limit the price investors
might be willing to pay for shares of our common stock.
We are subject to the Maryland Business Combination Act and the
Maryland Control Share Acquisition Act. The Maryland Business
Combination Act restricts the ability of Maryland corporations
to enter into certain business combination transactions and the
Maryland Control Share Acquisition Act can deter persons from
acquiring control of a Maryland corporation. Our charter and our
bylaws provide for a board of directors comprised of two classes
of directors with staggered terms of office, and impose various
procedural and other requirements. John R. Landon and Steven J.
Hilton, our co-chairman and co-chief executive officers,
together beneficially own approximately 15.6% of our outstanding
common stock (approximately 12.9% after taking into account this
offering). Alone or in combination, these matters may have the
effect of delaying or preventing a change of control that other
stockholders may believe beneficial or limiting the price
investors might be willing to pay for shares of our common stock.
Our stock price is volatile and could decline
substantially.
The stock market has, from time to time, experienced extreme
price and volume fluctuations that are unrelated to the
operating performance of particular companies. Over the course
of the last 12 months, the price of our common stock has
ranged from $53.42 to $75.15 per share. The market price of
our common stock may fluctuate in response to many factors
including:
|
|
4 |
our operating results failing to meet the expectations of
securities analysts or investors in a particular period; |
|
4 |
changes in analysts recommendation and projections; |
|
4 |
changes in general valuations for homebuilding companies; |
|
4 |
material announcements by us or our competitors; |
|
4 |
the markets perception of our prospects and the prospects
of the homebuilding industry in general; |
S- 11
Risk factors
|
|
4 |
changes in general market conditions or economic trends, such as
increasing interest rates; and |
|
4 |
broad market fluctuations. |
Any of these factors could have a material adverse effect on
your investment in our common stock and our common stock may
trade at prices significantly below the offering price. As a
result, you could lose some or all of your investment.
RISKS RELATED TO OUR ACQUISITION OF COLONIAL HOMES
The integration of Colonial Homes may present challenges.
The integration of Colonial Homes into our operations following
the acquisition will involve a number of risks. In particular,
the combined companies may experience attrition among management
and personnel. The integration process could also disrupt the
activities of our current businesses. The combination of the two
companies will require, among other things, coordination of
management, administrative and other functions. Failure to
overcome these challenges or any other problems encountered in
connection with the acquisition of Colonial Homes could cause
our financial condition, results of operations and competitive
position to decline.
We may not achieve the anticipated benefits from the
acquisition.
Our integration of the Colonial Homes acquisition assumes
certain synergies and other benefits. We cannot assure you that
unforeseen factors will not offset the intended benefits of the
acquisition in whole or in part.
Colonial Homes is engaged in the construction and sale of
condominiums.
In connection with our acquisition of Colonial, we will be
involved in the construction and sale of multi-story
condominiums homes. Prior to this acquisition, our business has
involved only the construction and sale of single-family homes.
The construction and sale of condominium homes involves
different construction processes and subcontractors and, to a
degree, different customers. In addition, condominium homes
typically involve more extensive sales and warranty regulations.
Although we now employ most of the Colonial Homes employees that
were involved with the Colonial business (including condominium
construction and sales), we have no prior experience in the
condominium business. In addition, we are exploring expanding
into condominium construction and sales in other markets in
which we operate and we would face similar challenges and risks
with such an endeavor.
RISKS RELATING TO MERITAGE
Increases in interest rates and the unavailability of
mortgage financing can adversely affect housing demand.
In general, housing demand is adversely affected by increases in
interest rates and housing costs and the unavailability of
mortgage financing. Most of our buyers finance their home
purchases through third-party lenders providing mortgage
financing. If mortgage interest rates increase and,
consequently, the ability of prospective buyers to finance home
purchases is adversely affected, home sales, gross margins and
cash flow may also be adversely affected and the impact may be
material. Interest rates are currently near historically low
levels, however, it is impossible to predict future increases or
decreases in market interest rates. In addition, homebuilding
activities depend upon the availability and costs of mortgage
financing for buyers of homes owned by potential customers, as
those customers (move-up buyers) often need to sell their
residences before they purchase our homes. Any reduction of
financing availability could adversely affect home sales.
S- 12
Risk factors
We may continue to consider growth or expansion of our
operations which could have a material adverse effect on our
cash flows or profitability.
We may continue to consider growth or expansion of our
operations in our current markets or in other areas of the
country. Our expansion into new or existing markets could have a
material adverse effect on our cash flows or profitability. The
magnitude, timing and nature of any future expansion will depend
on a number of factors, including suitable acquisition
candidates, the negotiation of acceptable terms, our financial
capabilities and general economic and business conditions.
Acquisitions also involve numerous risks, including difficulties
in the assimilation of the acquired companys operations,
the incurrence of unanticipated liabilities or expenses, the
diversion of managements attention from other business
concerns, risks of entering markets in which we have limited or
no direct experience, and the potential loss of key employees of
the acquired company.
We depend on the continued availability and satisfactory
performance of our subcontractors which, if unavailable, could
have a material adverse effect on our business.
We conduct our construction operations only as a general
contractor. Virtually all architectural and construction work is
performed by unaffiliated third-party subcontractors. As a
consequence, we depend on the continued availability of and
satisfactory performance by these subcontractors for the design
and construction of our homes. We cannot assure you that there
will be sufficient availability of and satisfactory performance
by these unaffiliated third-party subcontractors. In addition,
inadequate subcontractor resources could have a material adverse
affect on our business.
We are dependent on the services of certain key employees and
the loss of their services could harm our business.
Our success largely depends on the continuing services of
certain key employees, including our Co-Chief Executive
Officers, Steven J. Hilton and John R. Landon, and our
continued development depends on our ability to attract and
retain qualified personnel. We have employment agreements with
Messrs. Hilton and Landon, but we do not have employment
agreements with certain other key employees. We believe that
Steven J. Hilton and John R. Landon each possess
valuable industry knowledge and experience and leadership
abilities that would be difficult in the short term to
replicate. The loss of key employees could harm our operations
and business plans.
Our limited geographic diversification could adversely affect
us if the homebuilding industry in our current markets should
decline.
We have operations in Texas, Arizona, California, Nevada,
Colorado and Florida. Our limited geographic diversification
could adversely impact us if the homebuilding business in our
current markets should decline, since there may not be a
balancing opportunity in a stronger market in other geographic
regions.
We face reduced coverages and increased costs of
insurance.
Recently, lawsuits have been filed against builders asserting
claims of personal injury and property damage caused by the
presence of mold in residential dwellings. Some of these
lawsuits have resulted in substantial monetary judgments or
settlements. We believe that we have maintained adequate
insurance coverage to insure against these types of claims for
homes completed before October 1, 2003. Insurance carriers
have begun excluding claims arising from the presence of mold
from policies for many builders and, as of October 1, 2003,
our insurance policy began excluding mold coverage. If our
retentions are not sufficient to protect against these types of
claims or if we are unable to obtain
S- 13
Risk factors
adequate insurance coverage, a material adverse effect on our
business, financial condition and results of operations could
result if we are exposed to claims arising from the presence of
mold in the homes that we sell.
Our business and operating results could be adversely
affected by natural disasters.
We have significant homebuilding operations in Texas, California
and Florida. Some of our markets in Texas and Florida
occasionally experience severe weather conditions, such as
tornadoes or hurricanes. California has experienced a
significant number of earthquakes, flooding, landslides and
other natural disasters in recent years. We do not insure
against some of these risks. These occurrences could damage or
destroy some of our homes under construction or our building
lots, which may result in losses that exceed our insurance
coverage. We could also suffer significant construction delays
or substantial fluctuations in the pricing or availability of
building materials. Any of these events could cause a decrease
in our revenue, cash flow and earnings.
Our future operating results may be adversely impacted by
high inflation.
We, like other homebuilders, may be adversely affected during
periods of high inflation, mainly because of higher land and
construction costs. Also, higher mortgage interest rates may
significantly affect the affordability of mortgage financing to
prospective buyers. Inflation also increases our cost of
financing, materials and labor and could cause our financial
results or growth to decline, which could impact the price of
our stock. We attempt to pass cost increases on to our customers
through higher sales prices. To date, inflation has not had a
material adverse effect on our results of operations; however,
inflation could impact our future operating results.
We are subject to construction defect and home warranty
claims arising in the ordinary course of business which could
lead to additional reserves or expenses that may adversely
affect our business.
Construction defect and home warranty claims are common in the
homebuilding industry and can be costly. While we maintain
product liability insurance and generally require our
subcontractors and design professionals to indemnify us for
liabilities arising from their work, we cannot assure you that
these insurance rights and indemnities will be adequate to cover
all construction defect and warranty claims for which we may be
liable. For example, we may be responsible for applicable
self-insured retentions, which have increased recently, and
certain claims may not be covered by insurance or may exceed
applicable coverage limits.
Our registered public accounting firm informed us of a
material weakness in our system of internal controls, policies
and procedures, which could adversely affect our business or
reputation.
We are evaluating our internal controls over financial reporting
in order to allow management to report on, and our registered
public accounting firm to attest to, our internal controls over
financial reporting, as required by the Sarbanes-Oxley Act
of 2002 and rules and regulations of the SEC, which we refer to
as Section 404. In early 2005, our registered public
accounting firm informed our management and audit committee that
they believe our accounting for our model lease program
constituted a material weakness under Section 404 and PCAOB
Auditing Standard No. 2. We agree with this assessment and
have made the appropriate adjustments to our financial
statements. During the course of our evaluation it is possible
that we may identify other material weaknesses or significant
deficiencies, which could harm our business, reputation or
operating results. As a result, investors could lose confidence
in our reported financial information and the trading price of
our stock could drop significantly.
S- 14
Risk factors
As a participant in the homebuilding industry we are subject
to its fluctuating cycles and other risks that can negatively
affect the demand for, cost of, and pricing of our homes.
The homebuilding industry is cyclical and is significantly
affected by changes in economic and other conditions, such as
employment levels, availability of financing, interest rates,
and consumer confidence. These factors can negatively affect the
demand for and cost of our homes. We are also subject to various
risks, many of which are outside of our control, including
delays in construction schedules, cost overruns, changes in
governmental regulations (such as no- or slow-growth
initiatives), increases in real estate taxes and other local
government fees, and raw materials and labor costs.
We are also subject to the potential for significant variability
and fluctuations in the cost and availability of real estate.
Although historically we have generally developed parcels
ranging from 100 to 300 lots, in order to achieve and maintain
an adequate inventory of lots, we are beginning to purchase
larger parcels, in some cases with a joint venture partner.
Write-downs of our real estate could occur if market conditions
deteriorate and these write-downs could be material in amount.
Write-downs may also occur if we purchase land at higher prices
during stronger economic periods and the value of that land
subsequently declines during slower economic periods.
We experience fluctuations and variability in our operating
results on a quarterly basis and, as a result, our historical
performance may not be a meaningful indicator of future
results.
We historically have experienced, and expect to continue to
experience, variability in home sales and net earnings on a
quarterly basis. As a result of such variability, our historical
performance may not be a meaningful indicator of future results.
Fluctuations in our results could cause the price of our stock
to decline. Factors that contribute to this variability include:
|
|
4 |
timing of home deliveries and land sales; |
|
4 |
our ability to acquire additional land or options for additional
land on acceptable terms; |
|
4 |
conditions of the real estate market in areas where we operate
and of the general economy; |
|
4 |
the cyclical nature of the homebuilding industry, changes in
prevailing interest rates and the availability of mortgage
financing; |
|
4 |
costs and availability of materials and labor; and |
|
4 |
delays in construction schedules due to strikes, adverse
weather, acts of God, reduced subcontractor availability and
governmental restrictions. |
If we are unable to successfully compete in the highly
competitive homebuilding industry, our financial results and
growth could suffer.
The homebuilding industry is highly competitive. We compete for
sales in each of our markets with national, regional and local
developers and homebuilders, existing home resales and, to a
lesser extent, condominiums and available rental housing. If we
are unable to successfully compete, our financial results and
growth could suffer and the price of our stock could be
adversely affected. Some of our competitors have significantly
greater financial resources or lower costs than we do.
Competition among both small and large residential homebuilders
is based on a number of interrelated factors, including
location, reputation, amenities, design, quality and price.
Competition is expected to continue
S- 15
Risk factors
and become more intense, and there may be new entrants in the
markets in which we currently operate and in markets we may
enter in the future.
We are subject to extensive government regulation that could
cause us to incur significant liabilities or restrict our
business activities.
Regulatory requirements could cause us to incur significant
liabilities and costs and could restrict our business
activities. We are subject to local, state, and federal statutes
and rules regulating certain development matters, as well as
building and site design. We are subject to various fees and
charges of government authorities designed to defray the cost of
providing certain governmental services and improvements. We may
be subject to additional costs and delays or may be precluded
entirely from building projects because of no-growth
or slow-growth initiatives, building permit
ordinances, building moratoriums, or similar government
regulations that could be imposed in the future due to health,
safety, welfare, or environmental concerns. We must also obtain
licenses, permits, and approvals from government agencies to
engage in certain activities, the granting or receipt of which
are beyond our control, and could cause delays in our
homebuilding projects.
We are also subject to a variety of local, state, and federal
statutes, ordinances, rules and regulations concerning the
protection of health and the environment. Environmental laws or
permit restrictions may result in project delays, may cause
substantial compliance and other costs and may prohibit or
severely restrict development in certain environmentally
sensitive regions or geographic areas. Environmental regulations
can also have an adverse impact on the availability and price of
certain raw materials, such as lumber.
Beginning in late 2003, we established relationships with title
insurance companies in three states where we do business,
pursuant to which one of our subsidiaries receives a portion of
the fees and premiums on title insurance purchased by certain of
our homebuyers and reinsures a portion of the policy risk. The
California Insurance Commissioner and regulators in other states
are investigating these types of arrangements. We are in the
process of terminating those arrangements that have not been
expressly approved by a state regulator. In total, these
arrangements contributed approximately $600,000 to our fiscal
2004 pre-tax earnings. Depending on the outcome of these
investigations, we could be subject to fines or sanctions which
could harm our operating results or reputation.
Acts of war may seriously harm our business.
Acts of war or any outbreak or escalation of hostilities between
the United States and any foreign power, including the conflict
in Iraq, may cause disruption to the economy, our company, our
employees and our customers, which could impact our revenue,
cost and expenses, and financial condition.
This prospectus supplement includes forward-looking
statements and there are a number of risks and uncertainties
that could cause our actual results to differ materially from
these forward-looking statements.
This prospectus supplement includes forward looking statements
encouraged by the Private Security Litigation Reform Act of
1995. Forward-looking statements include statements concerning
our plans, objectives, goals, strategies, future events, future
revenue or performance, capital expenditures, financing needs,
plans or intentions relating to acquisitions, business trends
and other information that is not historical information. When
used in this prospectus supplement, the words
estimates, expects,
anticipates, projects,
plans, intends, believes,
forecasts and variations of such words or similar
expressions are intended to identify forward-looking statements.
All forward-looking statements are based upon our current
expectations and various assumptions. Our expectations, beliefs
S- 16
Risk factors
and projections are expressed in good faith and we believe there
is a reasonable basis for them. However, there can be no
assurance that managements expectations, beliefs and
projections will result or be achieved.
There are a number of risks and uncertainties that could cause
our actual results to differ materially from the forward-looking
statements contained in this prospectus supplement. Important
factors that could cause our actual results to differ materially
from the forward-looking statements we make in this prospectus
supplement are set forth in this Risk factors section.
S- 17
Use of proceeds
Our net proceeds from the sale of the 900,000 shares of our
common stock offered in this offering are expected to be
approximately $59.3 million (based on the closing price of
our common stock on February 22, 2005), after deducting the
underwriters discounts and commissions but before
deducting the estimated expenses of this offering. If the
underwriters over-allotment option is exercised in full,
we estimate that the net proceeds will be approximately
$68.2 million. We plan to use the proceeds received by us
in this offering together with the proceeds from our offering of
$300 million aggregate principal amount of senior notes due
2015 to repurchase up to all of our
93/4%
senior notes due 2011 pursuant to a concurrent tender offer, to
repay a portion of our senior unsecured credit facility and to
pay related fees and expenses.
Our senior unsecured credit facility matures in May 2007 and the
interest rate on this credit facility is based upon either the
agent banks quoted base rate or the Eurodollar rate, plus
an applicable margin that is determined by the level of a
predefined financial leverage ratio. The interest rate for
borrowings under the bank credit facility at December 31,
2004 was prime (5.25%) or at LIBOR (approximately 2.584%) plus
two percent.
We will not receive any proceeds from the sale of
600,000 shares of our common stock by the selling
securityholders.
S- 18
Capitalization
The following table sets forth our cash and capitalization on an
actual, as adjusted and pro forma as adjusted basis as of
December 31, 2004. As adjusted data takes into account the
issuance and sale of the common stock offered by us pursuant to
this prospectus at a price of $68.63, the closing price of our
common stock on February 22, 2005, and the payment of
related fees and expenses. Pro forma as adjusted data also
reflects (1) the issuance of an aggregate principal amount
of $300 million of our senior notes due 2015 that are being
offered concurrently herewith, (2) the repurchase of 100%
of our outstanding
93/4%
senior notes due 2011 and (3) the payment of related fees
and expenses. See Use of proceeds in this prospectus
supplement. We do not have the right to call the
93/4%
senior notes. We plan to purchase the notes through a tender
offer, which requires the affirmative consent of the note
holders. Accordingly, there can be no assurance that we will be
able to repurchase all or any of the notes. Further, there can
be no assurance that the private placement of the new senior
notes due 2015 will be successful.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2004 | |
|
|
| |
|
|
|
|
Pro forma | |
|
|
|
|
as adjusted | |
|
|
|
|
for shares | |
|
|
|
|
As adjusted | |
|
offered, notes | |
|
|
|
|
for shares | |
|
offered and | |
|
|
Actual | |
|
offered | |
|
tender offer | |
| |
|
|
(unaudited) | |
|
|
|
|
(dollars in thousands) | |
Cash and cash equivalents
|
|
$ |
47,876 |
|
|
$ |
106,872 |
|
|
$ |
82,582 |
|
|
|
|
|
|
|
|
|
|
|
Total debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior unsecured credit facility(1)
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
93/4%
senior notes due 2011
|
|
|
286,913 |
|
|
|
286,913 |
|
|
|
|
|
|
7% senior notes due 2014
|
|
|
130,083 |
|
|
|
130,083 |
|
|
|
130,083 |
|
|
Senior notes due 2015 offered concurrently herewith
|
|
|
|
|
|
|
|
|
|
|
300,000 |
|
|
Other borrowings
|
|
|
54,419 |
|
|
|
54,419 |
|
|
|
54,419 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
$ |
471,415 |
|
|
$ |
471,415 |
|
|
$ |
484,502 |
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 per share
|
|
$ |
315 |
|
|
$ |
324 |
|
|
$ |
324 |
|
|
Additional paid-in capital
|
|
|
209,630 |
|
|
|
268,617 |
|
|
|
268,617 |
|
|
Retained earnings
|
|
|
381,583 |
|
|
|
381,583 |
|
|
|
361,997 |
(2) |
|
Treasury stock at cost, 5,704,452 shares
|
|
|
(68,973 |
) |
|
|
(68,973 |
) |
|
|
(68,973 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
522,555 |
|
|
|
581,551 |
|
|
|
561,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$ |
993,970 |
|
|
$ |
1,052,966 |
|
|
$ |
1,046,467 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
As of February 18, 2005, $121.6 million was
outstanding under our senior unsecured credit facility. |
|
(2) |
Reflects a reduction in retained earnings resulting from the
net effect of the following: |
|
|
|
|
|
|
Tender premiums and commissions
|
|
$ |
(33,258 |
) |
Accretion of existing note premium and write-off of existing
note offering costs
|
|
|
1,780 |
|
Legal, printing and other costs relating to the tender offer
|
|
|
(200 |
) |
Tax effect of above adjustments
|
|
|
12,092 |
|
|
|
|
|
|
Total
|
|
$ |
19,586 |
|
|
|
|
|
S- 19
Selling securityholders
The table below presents information as of February 18,
2005 regarding the selling securityholders and the shares that
the selling securityholders may offer and sell under this
prospectus supplement. Such information has been provided to us
by the selling securityholders for use in this prospectus
supplement. More specifically, the following table sets forth as
to the selling securityholders: the number and percent of shares
of our common stock that the selling securityholders
beneficially owned prior to this offering; the number of shares
of common stock to be offered for sale by the selling
securityholders under this prospectus supplement; and the number
and percent of shares of our common stock to be held by the
selling securityholders after the offering, assuming all of the
shares offered by this prospectus supplement by the selling
securityholders are sold and that the selling securityholders do
not acquire or dispose of any other shares of our common stock
prior to the termination of this offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially | |
|
|
|
|
|
|
Owned Prior | |
|
|
|
Shares Beneficially | |
|
|
to Offering | |
|
|
|
Owned After | |
|
|
| |
|
Number | |
|
Completion | |
|
|
|
|
of | |
|
of Offering(1) | |
|
|
Number | |
|
|
|
Shares | |
|
| |
|
|
of | |
|
|
|
Being | |
|
Number of | |
|
|
Name |
|
Shares | |
|
Percent | |
|
Offered | |
|
Shares | |
|
Percent | |
| |
John R. Landon(2)
|
|
|
2,015,136 |
|
|
|
7.80% |
|
|
|
300,000 |
|
|
|
1,715,136 |
|
|
|
6.41% |
|
Steven J. Hilton(2)
|
|
|
2,027,194 |
|
|
|
7.84% |
|
|
|
300,000 |
|
|
|
1,727,194 |
|
|
|
6.46% |
|
|
|
(1) |
Assumes that the total outstanding number of shares after
completion of the offering is 26,749,798 shares, which
assumes 900,000 shares are sold by us and 600,000 by the selling
securityholders in this offering, and assumes the underwriters
do not exercise their right to purchase 135,000 additional
shares from us. |
|
(2) |
John R. Landon and Steven J. Hilton are Co-Chairmen and
Co-Chief Executive Officers of Meritage Homes Corporation. |
S- 20
Price range of common stock; dividend policy
Our common stock is listed on the New York Stock Exchange under
the symbol MTH. The following table sets forth the
high and low sales prices for transactions involving our common
stock during each calendar quarter, as reported on the New York
Stock Exchange Composite Tape. Share data is adjusted for a
2-for-1 stock split in the form of a stock dividend effective
January 7, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
High | |
|
Low | |
| |
2005:
|
|
|
|
|
|
|
|
|
|
First Quarter (through February 22, 2005)
|
|
$ |
75.15 |
|
|
$ |
53.42 |
|
|
2004:
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
57.17 |
|
|
$ |
35.80 |
|
|
Third Quarter
|
|
$ |
39.81 |
|
|
$ |
29.54 |
|
|
Second Quarter
|
|
$ |
37.35 |
|
|
$ |
29.46 |
|
|
First Quarter
|
|
$ |
39.83 |
|
|
$ |
29.56 |
|
|
2003:
|
|
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$ |
34.80 |
|
|
$ |
23.53 |
|
|
Third Quarter
|
|
$ |
27.30 |
|
|
$ |
21.05 |
|
|
Second Quarter
|
|
$ |
26.90 |
|
|
$ |
16.53 |
|
|
First Quarter
|
|
$ |
18.93 |
|
|
$ |
14.50 |
|
On February 22, 2005 the last reported sale price of our
common stock on the New York Stock Exchange was $68.63 per
share. As of February 18, 2005, the number of beneficial
holders of our common stock was approximately 10,300.
We do not intend to declare dividends in the foreseeable future.
We expect to retain earnings to finance the continuing
development of our business. Future dividends, if any, will
depend upon our financial condition, results of operations,
capital requirements and compliance with debt covenants as well
as other factors considered relevant by our board of directors.
S- 21
Selected historical financial data
The following table presents selected historical consolidated
financial and operating data of Meritage Homes Corporation and
subsidiaries as of and for each of the five years in the period
ended December 31, 2003 and as of September 30, 2004
and for the nine months ended September 30 for each of the
last two years. The consolidated statement of earnings data for
the years ended December 31, 2003, 2002, 2001, 2000 and
1999 have been derived from Meritage Home Corporations
audited consolidated financial statements. The consolidated
statements of earnings data for the nine months ended
September 30, 2004 and 2003 have been derived from Meritage
Home Corporations unaudited consolidated financial
statements. These financial statements have been prepared on a
basis consistent with our audited consolidated financial
statements and reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary for fair presentation of the financial position and
results of operations for the periods presented. You should read
this data in conjunction with Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
related notes contained in the annual, quarterly and other
reports filed by us with the SEC, which we have incorporated by
reference into this prospectus supplement. The data below
includes the operations of Hancock Communities, Hammonds Homes,
Perma-Bilt Homes and Citation Homes since their dates of
acquisition, June 1, 2001, July 1, 2002,
October 1, 2002 and January 1, 2004, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003(1) | |
|
2002(1) | |
|
2001(1) | |
|
2000(1) | |
|
1999(1) | |
|
2004 | |
|
2003(1) | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands, except per share data) | |
Statement of Earnings Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total closing revenue
|
|
$ |
1,471,001 |
|
|
$ |
1,119,817 |
|
|
$ |
744,174 |
|
|
$ |
520,467 |
|
|
$ |
341,786 |
|
|
$ |
1,340,185 |
|
|
$ |
997,995 |
|
|
Total cost of closings
|
|
|
(1,178,484 |
) |
|
|
(904,921 |
) |
|
|
(586,914 |
) |
|
|
(415,649 |
) |
|
|
(277,287 |
) |
|
|
(1,075,341 |
) |
|
|
(798,297 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
292,517 |
|
|
|
214,896 |
|
|
|
157,260 |
|
|
|
104,818 |
|
|
|
64,499 |
|
|
|
264,844 |
|
|
|
199,698 |
|
|
Commissions and other sales costs
|
|
|
(92,904 |
) |
|
|
(65,291 |
) |
|
|
(41,085 |
) |
|
|
(28,680 |
) |
|
|
(19,243 |
) |
|
|
(79,906 |
) |
|
|
(64,534 |
) |
|
General and administrative expenses(2)
|
|
|
(53,929 |
) |
|
|
(41,496 |
) |
|
|
(36,105 |
) |
|
|
(21,215 |
) |
|
|
(15,100 |
) |
|
|
(52,672 |
) |
|
|
(38,691 |
) |
|
Other income, net
|
|
|
5,776 |
|
|
|
5,435 |
|
|
|
2,884 |
|
|
|
1,847 |
|
|
|
2,064 |
|
|
|
8,535 |
|
|
|
3,911 |
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8 |
) |
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before provision for income taxes
|
|
|
151,460 |
|
|
|
113,544 |
|
|
|
82,954 |
|
|
|
56,762 |
|
|
|
32,214 |
|
|
|
140,801 |
|
|
|
100,384 |
|
|
Provision for income taxes(2)
|
|
|
(57,054 |
) |
|
|
(43,607 |
) |
|
|
(32,295 |
) |
|
|
(21,000 |
) |
|
|
(13,269 |
) |
|
|
(53,645 |
) |
|
|
(37,544 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
|
$ |
94,406 |
|
|
$ |
69,937 |
|
|
$ |
50,659 |
|
|
$ |
35,762 |
|
|
$ |
18,945 |
|
|
$ |
87,156 |
|
|
$ |
62,840 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
3.62 |
|
|
$ |
2.82 |
|
|
$ |
2.39 |
|
|
$ |
1.73 |
|
|
$ |
0.88 |
|
|
$ |
3.33 |
|
|
$ |
2.42 |
|
|
|
Diluted
|
|
$ |
3.42 |
|
|
$ |
2.66 |
|
|
$ |
2.15 |
|
|
$ |
1.57 |
|
|
$ |
0.79 |
|
|
$ |
3.14 |
|
|
$ |
2.29 |
|
S- 22
Selected historical financial data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended | |
|
|
Years ended December 31, | |
|
September 30, | |
|
|
| |
|
| |
|
|
2003(1) | |
|
2002(1) | |
|
2001(1) | |
|
2000(1) | |
|
1999(1) | |
|
2004 | |
|
2003(1) | |
| |
|
|
(unaudited) | |
|
|
(dollars in thousands, except per share data) | |
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homes closed
|
|
|
5,642 |
|
|
|
4,574 |
|
|
|
3,270 |
|
|
|
2,227 |
|
|
|
1,643 |
|
|
|
4,860 |
|
|
|
3,858 |
|
|
Homes ordered
|
|
|
6,152 |
|
|
|
4,504 |
|
|
|
3,016 |
|
|
|
2,480 |
|
|
|
1,840 |
|
|
|
6,952 |
|
|
|
5,005 |
|
|
Average sales price of homes closed
|
|
$ |
259.1 |
|
|
$ |
243.2 |
|
|
$ |
227.1 |
|
|
$ |
231.4 |
|
|
$ |
203.3 |
|
|
$ |
271.1 |
|
|
$ |
256.6 |
|
|
Average sales price of homes ordered
|
|
$ |
265.8 |
|
|
$ |
258.0 |
|
|
$ |
232.1 |
|
|
$ |
243.7 |
|
|
$ |
211.0 |
|
|
$ |
278.3 |
|
|
$ |
258.1 |
|
|
Backlog at end of period
|
|
$ |
710,771 |
|
|
$ |
537,764 |
|
|
$ |
374,951 |
|
|
$ |
309,901 |
|
|
$ |
119,455 |
|
|
$ |
1,349,321 |
|
|
$ |
839,609 |
|
|
Backlog at end of period (homes)
|
|
|
2,580 |
|
|
|
2,070 |
|
|
|
1,602 |
|
|
|
1,246 |
|
|
|
885 |
|
|
|
4,747 |
|
|
|
3,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, | |
|
|
|
|
| |
|
At September 30, | |
|
|
2003(1) | |
|
2002(1) | |
|
2001(1) | |
|
2000(1) | |
|
1999(1) | |
|
2004 | |
| |
|
|
(unaudited) | |
|
|
($ in thousands) | |
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$ |
4,799 |
|
|
$ |
6,600 |
|
|
$ |
3,383 |
|
|
$ |
4,397 |
|
|
$ |
13,422 |
|
|
$ |
19,340 |
|
|
Real estate
|
|
|
678,011 |
|
|
|
484,970 |
|
|
|
330,238 |
|
|
|
211,307 |
|
|
|
171,012 |
|
|
|
898,376 |
|
|
Total assets
|
|
|
954,539 |
|
|
|
691,788 |
|
|
|
436,715 |
|
|
|
267,075 |
|
|
|
226,559 |
|
|
|
1,244,170 |
|
|
Notes and loans payable and other borrowings
|
|
|
351,491 |
|
|
|
264,927 |
|
|
|
177,561 |
|
|
|
86,152 |
|
|
|
85,937 |
|
|
|
516,727 |
|
|
Stockholders equity
|
|
|
411,895 |
|
|
|
317,308 |
|
|
|
176,587 |
|
|
|
121,099 |
|
|
|
90,411 |
|
|
|
468,321 |
|
|
|
(1) |
Historically, the construction costs and related debt
associated with model homes which are owned and leased to us by
others that we use to market our communities were not included
in our balance sheet. Reference is made to the discussion under
the heading Prospectus supplement summary
Recent Developments Other recent events
Accounting Treatment of Model Home Leases; Internal
Controls. |
|
(2) |
2001 includes a $383 loss related to the net effect of early
extinguishments of long-term debt. Previously this amount, net
of the tax effect of $149, was reported as an extraordinary
item. We have reclassified this loss as general and
administrative expense and income tax benefit, respectively, to
conform with the requirements of SFAS 145, which was
effective for fiscal years beginning after May 15, 2002. |
|
(3) |
Amounts have been adjusted to reflect a 2-for-1 stock split
in the form of a stock dividend that occurred on January 7,
2005. |
S- 23
Underwriting
We and the selling securityholders are selling the common stock
to the underwriters named in the table below pursuant to an
underwriting agreement dated the date of this prospectus
supplement. We and the selling securityholders have agreed to
sell to each of the underwriters, and each of the underwriters
has severally agreed to purchase the number of shares of common
stock set forth opposite that underwriters name in the
table below:
|
|
|
|
|
|
|
|
Number of | |
Underwriters |
|
Shares | |
| |
UBS Securities LLC
|
|
|
|
|
Citigroup Global Markets Inc.
|
|
|
|
|
Deutsche Bank Securities Inc.
|
|
|
|
|
JMP Securities LLC
|
|
|
|
|
A.G. Edwards & Sons, Inc.
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,500,000 |
|
|
|
|
|
Under the terms and conditions of the underwriting agreement,
the underwriters must buy all of the shares of offered common
stock if they buy any of them. The underwriting agreement
provides that the obligations of the underwriters are subject to
approval of legal matters by their counsel, including the
validity of the common stock, and other conditions, such as the
receipt by the underwriters of officers certificates and
legal opinions. If an underwriter defaults, the underwriting
agreement provides that, in certain circumstances, the purchase
commitments of the nondefaulting underwriters may be increased
or the underwriting agreement may be terminated. The
underwriters will sell the common stock to the public when and
if the underwriters buy the common stock from Meritage and the
selling securityholders.
We and the selling securityholders have agreed to indemnify the
underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, or to contribute to payments
the underwriters may be required to make in respect to those
liabilities.
We have granted to the underwriters an option to purchase up to
135,000 additional shares of common stock at the public
offering price, less the underwriting discounts and commissions,
set forth on the cover page of the prospectus supplement to
cover over-allotments, if any. This option is exercisable for a
period of 30 days. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed,
subject to conditions, to purchase from us shares in
approximately the same proportion as set forth in the table
above.
The underwriters propose to offer the common stock directly to
the public initially at the offering price set forth on the
cover page of this prospectus supplement. The underwriters may
offer the common stock to securities dealers at that price less
a concession not in excess of
$ per
share. Securities dealers may reallow a concession not in excess
of
$ per
share on sales to certain other brokers or dealers. The
underwriters reserve the right to reject any order for the
purchase of shares. If all of the shares are not sold at the
public offering price, the underwriters may change the offering
price and other selling terms.
We, and our executive officers and directors have agreed that,
for a period of 45 days from the date of this prospectus
supplement, we and they will not, without the prior written
consent of UBS Securities LLC and Citigroup Global Markets Inc.
dispose of or hedge any shares of our common stock or any
securities convertible into or exchangeable for our common
stock, except (1) issuances pursuant to our employee
benefit plans or pursuant to the exercise of employee or
director stock options outstanding
S- 24
Underwriting
on the date hereof or in connection with acquisitions and (2)
for the sale (other than by our Co-Chief Executive Officers) of
up to 100,000 shares of our common stock in the aggregate.
UBS Securities LLC and Citigroup Global Markets Inc. in their
sole discretion may release any of the securities subject to
these lock-up provisions at any time without notice.
The following table provides information regarding the per share
and total underwriting discounts and commissions to be paid to
the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase up to 135,000 additional shares.
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Paid by Meritage | |
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Paid by Selling Securityholders | |
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No Exercise of | |
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Full Exercise of | |
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No Exercise of | |
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Full Exercise of | |
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Over-Allotment | |
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Over-Allotment | |
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Over-Allotment | |
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Over-Allotment | |
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Option | |
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Option | |
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Option | |
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Option | |
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Per Share
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$ |
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$ |
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$ |
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$ |
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Total
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$ |
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$ |
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$ |
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$ |
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We estimate that our expenses in connection with the sale of the
common stock, other than underwriting discounts, will be
$300,000. This estimate includes expenses related to the filing
fee for the registration statement, printing, transfer agent
fees, and legal and accounting fees, among other expenses.
The underwriters may engage in over-allotment transactions,
stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M of the
Securities Exchange Act of 1934. Over-allotment transactions
involve syndicate sales in excess of the offering size, which
creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying securities so long as the
stabilizing bids do not exceed a specified maximum. Syndicate
covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in
order to cover syndicate short positions. Penalty bids permit
the underwriters to reclaim a selling concession from a
syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or
syndicate covering transaction to cover syndicate short
positions. These stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the common
stock to be higher than it would otherwise be in the absence of
these transactions. Neither Meritage, nor any selling
securityholder nor any underwriter is making any representation
or prediction as to the effect that the transactions described
above may have on the price of the common stock. These
transactions may be effected on the New York Stock Exchange or
otherwise and, if commenced, may be discontinued at any time.
Certain of the underwriters and their affiliates have or may in
the future engage in transactions with, and perform services
for, Meritage and its affiliates in the ordinary course of
business.
Legal matters
The validity of the shares of common stock issued in this
offering will be passed upon for us by Snell & Wilmer
L.L.P., Phoenix, Arizona and by Venable LLP, Baltimore,
Maryland. Certain legal matters in connection with this offering
will be passed upon for the underwriters by the law firm of
Cahill Gordon & Reindel
llp, New York, New
York.
Experts
The consolidated financial statements of Meritage as of
December 31, 2003 and 2002, and for each of the years in
the three-year period ended December 31, 2003, have been
incorporated by reference herein in reliance upon the report of
KPMG LLP, certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts
in accounting and auditing.
S- 25
Incorporation of certain information by reference
The SEC allows us to incorporate by reference the
information contained in the documents we file with the SEC,
which means that we can disclose important information to you by
referring you to those documents. The information incorporated
by reference is an important part of this prospectus supplement
and the accompanying prospectuses, and information that we file
later with the SEC will automatically update and supersede this
information. We incorporate by reference any future filings we
make with the SEC under Sections 13(a), 13(c) or 15(d) of
the Securities Exchange Act of 1934 after the date of this
prospectus supplement and until we sell all the securities
offered by this prospectus supplement, other than portions of
those documents that are either (i) described in
paragraphs (i), (k) and (l) of Item 402 of
Regulation S-K promulgated by the SEC or
(ii) furnished under Items 2.02 and 7.01 of a Current
Report on Form 8-K. We also incorporate by reference the
following documents, which we have already filed with the SEC:
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(a) our Annual Report on Form 10-K for the year ended
December 31, 2003; |
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(b) our Quarterly Report on Form 10-Q for the quarter
ended March 31, 2004; |
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(c) Our Quarterly Reports on Form 10-Q/A for the
quarters ended June 30, 2004 and September 30, 2004; |
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(d) our Current Reports on Form 8-K, including
amendments filed thereto, dated January 6, 2004,
April 21, 2004, April 23, 2004, June 15, 2004,
September 2, 2004, September 10, 2004,
December 23, 2004, January 6, 2005, January 26,
2005 and February 9, 2005. |
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(e) the description of Meritage Homes Corporations
capital stock contained in Form 8-A of Emerald Mortgage
Investments Corporation (a predecessor of Meritage Homes
Corporation) filed on July 7, 1988, including any amendment
or report filed to update such description. |
Any information in this prospectus supplement, the accompanying
prospectuses or in any document incorporated or deemed to be
incorporated by reference in this prospectus supplement or the
accompanying prospectuses will be deemed to have been modified
or superseded to the extent that a statement contained in this
prospectus supplement, the prospectuses, or in any other
document we subsequently file with the SEC that also is
incorporated or deemed to be incorporated by reference in this
prospectus supplement or in the accompanying prospectuses,
modifies or supersedes the original statement. Any statement so
modified or superseded will not be deemed, except as so modified
or superseded, to be part of this prospectus supplement or the
accompanying prospectuses.
S- 26
PROSPECTUS
$300,000,000
Meritage Homes Corporation
Debt Securities
Common Stock
Preferred Stock
Warrants
Guarantees
Under this prospectus, we may sell a variety of securities. We
will provide specific terms of these securities in supplements
to this prospectus. You should read this prospectus and any
supplement to this prospectus carefully before you invest.
Our common stock is listed on the New York Stock Exchange under
the symbol MTH. We will list any common stock issued
pursuant to a prospectus supplement, subject to notice of
issuance, on the New York Stock Exchange.
See Risk Factors, which begin on page 3, for
a discussion of certain factors that should be considered in
evaluating an investment in our securities.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of this prospectus is May 14, 2002.
We have not authorized anyone to provide you with any
information other than the information incorporated by reference
or provided in this prospectus or any prospectus supplement. We
are not making an offer of these securities in any state or
other jurisdiction where the offer is not permitted. You should
not assume that the information in this prospectus, any
prospectus supplement or any document incorporated or deemed to
be incorporated by reference in this prospectus is accurate as
of any date other than the date of that document.
TABLE OF CONTENTS
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Forward-looking statements
Certain of the matters discussed or incorporated in this
prospectus may constitute forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. In
general, forward-looking statements can be
identified by use of words such as expect,
believe, estimate, project,
forecast, anticipate, plan
and similar expressions. Our forward-looking statements may
address such matters as, but are not limited to, projections of
revenue, income or loss, anticipated benefits of acquisitions,
capital expenditures, plans for future operations, financing
needs, the impact of changes in interest rates, projected job
growth and economic conditions in our housing markets, plans
relating to our new products or services, potential business and
real property acquisitions and new or planned development
projects, as well as assumptions related to these matters. Under
the caption Risk Factors and elsewhere in this
prospectus and in the documents we incorporate by reference, we
have described several important factors currently known to
management that could cause actual results to differ materially
from those in the forward-looking statements.
Forward-looking statements express expectations of future
events. All forward-looking statements are inherently uncertain
as they are based on various expectations and assumptions
concerning future events and they are subject to numerous known
and unknown risks and uncertainties that could cause actual
events or results to differ materially from those projected. Our
past performance or past or present economic conditions in our
housing markets may not be indicative of future performance or
conditions. Due to these inherent uncertainties, current or
potential investors in our securities are urged not to place
undue reliance on forward-looking statements. In addition, we
undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
anticipated or unanticipated events or changes to projections
over time.
See our Annual Report on Form 10-K for the year ended
December 31, 2001 and our other filings with the Securities
and Exchange Commission, or SEC, for a further discussion of
risks and uncertainties applicable to our business.
About this prospectus
This prospectus is part of a registration statement that we
filed with the SEC utilizing a shelf registration
process. Under this shelf process, we may sell any combination
of the securities described in this prospectus in one or more
offerings up to an aggregate initial offering price of
$300,000,000. This prospectus provides you with a general
description of the securities we may offer. Each time we sell
securities, we will provide a prospectus supplement that will
contain specific information about the terms of that offering
and the securities being sold in that offering. The prospectus
supplement may also add, update or change information contained
in this prospectus. You should read both this prospectus and any
prospectus supplement together with additional information
described under the heading Where You Can Find More
Information.
Any statements in this prospectus or in any accompanying
prospectus supplement concerning the provisions of any document
are not complete. In each instance, reference is made to the
copy of that document filed or incorporated or deemed to be
incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part or otherwise filed
with the SEC. Each statement concerning the provisions of any
document is qualified in its entirety by reference to the
document so filed.
1
Meritage Homes Corporation
We are a leading designer and builder of single-family homes in
the rapidly growing Sunbelt states of Texas, Arizona and
California. We focus on providing a broad range of first-time,
move-up and luxury homes to our targeted customer base. We and
our predecessors have operated in Arizona since 1985, in Texas
since 1987 and in Northern California since 1989. To expand our
presence in Arizona, in 2001 we acquired Hancock Communities,
another well-established homebuilder that serves the first-time
and move-up markets in the Phoenix area. We operate in Texas
under the Legacy Homes name, in Arizona as Monterey Homes,
Meritage Homes and Hancock Communities, and in Northern
California as Meritage Homes. At December 31, 2001, we were
actively selling homes in 74 communities, with base prices
ranging from $90,000 to $820,000. Information about our active
communities is provided through our Internet web site at
www.meritagehomes.com. The information on our website is
not considered part of this prospectus.
Our principal executive office in Arizona is located at 8501
East Princess Drive, Suite 290, Scottsdale, Arizona 85255, and
our telephone number there is (877) 400-7888. Our principal
executive office in Texas is located at 2745 North Dallas
Parkway, Suite 600, Plano, Texas 75093, and our telephone number
there is (800) 210-6004.
2
Risk factors
Our future operating results and financial condition depend on
our ability to successfully design, develop, construct and sell
homes that satisfy dynamic customer demand patterns. Inherent in
this process are factors that we must successfully manage to
achieve favorable future operating results and financial
condition. These operating and financial factors, along with
many other factors, could affect the price of our securities.
You should carefully consider the following potential risks and
uncertainties before investing in our securities.
As a participant in the homebuilding industry we are subject
to its fluctuating cycles and other risks that can negatively
affect the demand for and pricing of our homes.
The homebuilding industry is cyclical and is significantly
affected by changes in economic and other conditions, such as
employment levels, availability of financing, interest rates,
and consumer confidence. These factors can negatively affect the
demand for and pricing of our homes. We are also subject to
various risks, many of which are outside our control, including
delays in construction schedules, cost overruns, governmental
regulations (such as no- or slow-growth initiatives), increases
in real estate taxes and other local government fees, and the
availability and cost of land, raw materials, and labor.
We are also subject to the potential for significant variability
and fluctuations in real estate availability and values.
Write-downs of our land inventories could occur if market
conditions deteriorate and these write-downs could be material
in amount. Write-downs may also occur if we purchase land at
higher prices during stronger economic cycles and the value of
that land subsequently declines during slower economic cycles.
We experience fluctuations and variability in our operating
results on a quarterly basis and, as a result, our historical
performance may not be a meaningful indicator of future
results.
We historically have experienced, and expect to continue to
experience, variability in home sales and net earnings on a
quarterly basis. As a result of such variability, our historical
performance may not be a meaningful indicator of future results.
Factors that contribute to this variability include:
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timing of home deliveries and land sales; |
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our ability to acquire additional land or options for additional
land on acceptable terms; |
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conditions of the real estate market in areas where we operate
and of the general economy; |
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the cyclical nature of the homebuilding industry, changes in
prevailing interest rates and the availability of mortgage
financing; |
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costs and availability of materials and labor; and |
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delays in construction schedules due to strikes, adverse
weather, acts of God, reduced subcontractor availability and
governmental restrictions. |
Interest rates and the unavailability of mortgage financing
can adversely affect housing demand.
In general, housing demand is adversely affected by increases in
interest rates and housing costs and the unavailability of
mortgage financing. Most of our buyers finance their home
purchases through third-party lenders providing mortgage
financing. If mortgage interest rates increase and, consequently,
3
Risk factors
the ability of prospective buyers to finance home purchases is
adversely affected, home sales, gross margins and cash flow may
also be adversely affected and the impact may be material. Our
homebuilding activities also depend upon the availability and
costs of mortgage financing for buyers of homes owned by
potential customers, as those customers (move-up buyers) often
need to sell their existing residences before they purchase our
homes. Any reduction of financing availability could adversely
affect home sales.
Changes in federal income tax laws may also affect demand for
new homes. Various proposals have been publicly discussed to
limit mortgage interest deductions and to limit the exclusion of
gain from the sale of a principal residence. Enactment of such
proposals may have an adverse effect on the homebuilding
industry in general. No meaningful prediction can be made
whether any such proposals will be enacted and, if enacted, the
particular form such laws would take.
If we are unable to successfully compete in the highly
competitive homebuilding industry, our financial results and
growth could suffer.
The homebuilding industry is highly competitive. We compete for
sales in each of our markets with national, regional and local
developers and homebuilders, existing home resales and, to a
lesser extent, condominiums and rental housing. If we are unable
to successfully compete, our financial results and growth could
suffer. Some of our competitors have significantly greater
financial resources or lower costs than we do. Competition among
both small and large residential homebuilders is based on a
number of interrelated factors, including location, reputation,
amenities, design, quality and price. Competition is expected to
continue and become more intense, and there may be new entrants
in the markets in which we currently operate and in markets we
may enter in the future.
Our lack of geographic diversification could adversely affect
us if the homebuilding industry in our current markets should
decline.
We have operations in Texas, Arizona and Northern California.
Our lack of geographic diversification could adversely affect us
if the homebuilding business in our current markets should
decline, since there may not be a balancing opportunity in
stronger markets in other geographic regions.
We have a high level of indebtedness which could have
important consequences to our securityholders.
The homebuilding industry is capital intensive and requires
significant up-front expenditures to acquire land and begin
development. Accordingly, we incur substantial indebtedness to
finance our homebuilding activities. We may be required to seek
additional capital in the form of equity or debt financing from
a variety of potential sources, including bank financing and
securities offerings. Also, lenders are increasingly requiring
developers and homebuilders to invest significant amounts of
equity in a project both in connection with origination of new
loans as well as the extension of existing loans.
The high level of our indebtedness could have important
consequences to our securityholders, including the following:
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our ability to obtain additional financing for working capital,
capital expenditures, acquisitions or general corporate purposes
may be impaired; |
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we must use a substantial portion of our cash flow from
operations to pay interest and principal on our indebtedness,
which will reduce the funds available for other purposes, such
as capital expenditures; |
4
Risk factors
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we have a higher level of indebtedness than some of our
competitors, which may put us at a competitive disadvantage and
reduce our flexibility in planning for, or responding to,
changing conditions in our industry, including increased
competition; and |
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we are more vulnerable to economic downturns and adverse
developments in our business. |
We expect to obtain the money to pay our expenses and to pay the
principal and interest on our indebtedness from cash flow from
operations. Our ability to meet our expenses thus depends on our
future performance, which will be affected by financial,
business, economic and other factors. We will not be able to
control many of these factors, such as economic conditions in
the markets where we operate and pressure from competitors. We
cannot be certain that our cash flow will be sufficient to allow
us to pay principal and interest on our debt, and meet our other
obligations. If we do not have enough money, we may be required
to refinance all or part of our existing debt, sell assets or
borrow more money. We cannot guarantee that we will be able to
do so on terms acceptable to us, if at all. In addition, the
terms of existing or future debt agreements may restrict us from
pursuing any of these alternatives.
Our ability to take certain actions or engage in certain
transactions may be limited because of significant operating and
financial restrictions imposed by our senior notes indenture and
credit facilities.
The covenants under our existing senior notes indenture and
credit facilities impose significant operating and financial
restrictions on us. These restrictions limit our ability, among
other things, to:
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incur additional indebtedness; |
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pay dividends or make other distributions; |
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repurchase our stock; |
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make investments; |
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sell assets; |
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enter into agreements restricting our subsidiaries ability
to pay dividends; |
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enter into transactions with affiliates; and |
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consolidate, merge or sell all or substantially all of our
assets. |
In addition, the indenture for our existing senior notes
requires us to maintain a minimum consolidated tangible net
worth and our existing credit facilities require us to maintain
other specified financial ratios. These covenants may adversely
affect our ability to finance our future operations or capital
needs or to pursue available business opportunities. A breach of
these covenants or our inability to maintain the required
financial ratios could result in a default on our indebtedness.
If a default occurs, the relevant lenders could declare the
indebtedness, together with accrued interest and other fees, to
be immediately due and payable and proceed against any
collateral securing that indebtedness.
We are subject to extensive government regulation that could
cause us to incur significant liabilities or restrict our
business activities.
Regulatory requirements could cause us to incur significant
liabilities and costs and could restrict our business
activities. We are subject to local, state, and federal statutes
and rules regulating certain developmental matters, as well as
building and site design. We are subject to various fees and
charges of governmental authorities designed to defray the cost
of providing certain governmental services and
5
Risk factors
improvements. We may be subject to additional costs and delays
or may be precluded entirely from building projects because of
no growth or slow growth initiatives,
building permit ordinances, building moratoriums, or similar
government regulations that could be imposed in the future due
to health, safety, welfare, or environmental concerns. We must
also obtain licenses, permits and approvals from government
agencies to engage in certain activities, the granting or
receipt of which are beyond our control.
We are also subject to a variety of local, state and federal
statutes, ordinances, rules and regulations concerning the
protection of health and the environment. Environmental laws or
permit restrictions may result in project delays, may cause
substantial compliance and other costs and may prohibit or
severely restrict development in certain environmentally
sensitive regions or geographic areas. Environmental regulations
can also have an adverse impact on the availability and price of
certain raw materials such as lumber.
We continue to consider growth or expansion of our operations
which could have a material adverse effect on our cash flows or
profitability.
We may continue to consider growth or expansion of our
operations in our current markets or in other areas of the
country. Our expansion into new or existing markets could have a
material adverse effect on our cash flows or profitability. The
magnitude, timing and nature of any future expansion will depend
on a number of factors, including suitable acquisition
candidates, the negotiation of acceptable terms, our financial
capabilities, and general economic and business conditions. New
acquisitions may result in the incurrence of additional debt.
Acquisitions also involve numerous risks, including difficulties
in the assimilation of the acquired companys operations,
the incurrence of unanticipated liabilities or expenses, the
diversion of managements attention from other business
concerns, risks of entering markets in which we have limited or
no direct experience and the potential loss of key employees of
the acquired company.
We are dependent on the services of certain key employees and
the loss of their services could harm our business.
Our success largely depends on the continuing services of
certain key employees, including Steve Hilton and John Landon,
and our continued favorable development depends on our ability
to attract and retain qualified personnel. We do not have
employment agreements with certain key officers, including John
Landon and Steve Hilton, and the loss of their services could
harm our business.
We depend on the continued availability and satisfactory
performance of our subcontractors which if unavailable, could
have a material adverse effect on our business.
We conduct our construction operations only as a general
contractor. Virtually all architectural and construction work is
performed by unaffiliated third-party subcontractors. As a
consequence, we depend on the continued availability of and
satisfactory performance by these subcontractors for the design
and construction of our homes. We cannot assure you that there
will be sufficient availability of and satisfactory performance
by these unaffiliated third-party subcontractors. In addition,
inadequate subcontractor resources could have a material adverse
effect on our business.
We could suffer a litigation judgment or settlement that
adversely affects our net worth or results of operations for a
given period.
From time to time we are subject to litigation in the regular
course of our business. There are several suits currently
pending against us (including our subsidiaries), some of which
seek substantial damages
6
Risk factors
or other relief. One such lawsuit recently filed against us
asserts copyright infringement regarding the use of house plans
at a Phoenix area subdivision that we acquired in our purchase
of Hancock Homes. We are seeking indemnification or insurance to
cover any loss attributable to these matters, and believe that
we have defenses to these actions. There can be no assurance
that we will not suffer a substantial adverse judgment or
settlement in these or other actions against us.
Our future operating results may be adversely impacted by
high inflation.
We, like other homebuilders, may be adversely affected during
periods of high inflation, mainly because of higher land and
construction costs. Also, higher mortgage interest rates may
significantly affect the affordability of mortgage financing to
prospective buyers. Inflation also increases our cost of
financing, materials and labor, and could cause our financial
results or growth to decline. We attempt to pass cost increases
on to our customers through higher sales prices. To date,
inflation has not had a material adverse effect on our results
of operations; however, inflation could impact our future
operating results.
Our business and operating results could be adversely
impacted by a natural disaster.
We have significant homebuilding operations in Texas and
Northern California. Some of our markets in Texas occasionally
experience severe weather conditions, such as tornadoes or
hurricanes. Northern California has experienced a significant
number of earthquakes, flooding, landslides and other natural
disasters in recent years. We do not insure against some of
these risks. These occurrences could damage or destroy our homes
under construction or our building lots, which may result in
losses that exceed our insurance coverage. We could also suffer
significant constructions delays or substantial fluctuations in
the pricing or availability of building materials. Any of these
events could cause a decrease in our revenue, cash flow and
earnings.
7
Ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred stock dividends
The following table sets forth Meritages ratio of earnings
to fixed charges and ratio of earnings to combined fixed charges
and preferred stock dividends for each of the periods indicated:
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Years Ended December 31, | |
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Ratio of Earnings to Fixed Charges
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4.66x |
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5.00x |
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4.28x |
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6.65x |
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3.60x |
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Ratio of Earnings to Combined Fixed Charges and Preferred Stock
Dividends
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4.66x |
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|
|
5.00x |
|
|
|
4.28x |
|
|
|
6.65x |
|
|
|
3.60x |
|
The ratio of earnings to fixed charges and ratio of earnings to
combined fixed charges and preferred stock dividends are
identical because Meritage had no outstanding preferred stock
during such periods. For the purposes of these calculations,
earnings consist of earnings before income taxes and
extraordinary items plus fixed charges less capitalized
interest. Fixed charges consist of interest expense
including amortization of deferred debt costs, one-half of rent
expense, which is deemed to be representative of an interest
factor, and capitalized interest. See Exhibit 12.1 to the
registration statement containing this prospectus for a
calculation of ratio of earnings to fixed charges and ratio of
earnings to combined fixed charges and preferred stock dividends
for the periods presented.
Use of proceeds
Unless we otherwise specify in the applicable prospectus
supplement, the net proceeds we receive from the sale of the
securities offered by this prospectus and the accompanying
prospectus supplement will be used for general corporate
purposes. General corporate purposes may include the development
of new residential properties, the repayment of debt, land
acquisitions and possible acquisitions of other homebuilders.
The net proceeds may be invested temporarily or applied to repay
short-term debt until they are used for their stated purpose.
8
Plan of distribution
We may sell the securities:
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through underwriters or dealers; |
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through agents; or |
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directly to purchasers. |
The securities may be sold in one or more transactions at a
fixed price or prices, which may be changed, or at market prices
prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. We will describe in a
prospectus supplement the particular terms of the offering of
the securities, including the following:
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the names of any underwriters or agents; |
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the purchase price and the proceeds we will receive from the
sale; |
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any discounts and other items constituting underwriters or
agents compensation; |
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any initial public offering price and any discounts or
concessions allowed or re-allowed or paid to dealers; |
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any securities exchanges on which the applicable securities may
be listed; and |
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any other information we think is important. |
If we use underwriters in the sale, the underwriters will
acquire the securities for their own account. The underwriters
may resell the securities in one or more transactions, at a
fixed price or prices, which may be changed, or at market prices
prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices.
The securities may be offered to the public through underwriting
syndicates represented by managing underwriters or by
underwriters without a syndicate. The obligations of the
underwriters to purchase the securities will be subject to
certain conditions. The underwriters will be obligated to
purchase all the securities of the class or series offered if
any of the securities are purchased. The underwriters may change
from time to time any initial public offering price and any
discounts or concessions allowed or re-allowed or paid to
dealers.
We may sell securities through agents or dealers designated by
us. Any agent or dealer involved in the offer or sale of the
securities for which this prospectus is delivered will be named,
and any commissions payable by us to that agent or dealer will
be set forth, in the prospectus supplement. Unless indicated in
the prospectus supplement, the agents will agree to use their
reasonable efforts to solicit purchases for the period of their
appointment and any dealer will purchase securities from us as
principal and may resell those securities at varying prices to
be determined by the dealer. We also may sell securities
directly to investors. In this case, no underwriters or agents
would be involved.
Underwriters, dealers and agents that participate in the
distribution of the securities may be underwriters as defined in
the Securities Act, and any discounts or commissions received by
them from us and any profit on the resale of the securities by
them may be treated as underwriting discounts and commissions
under the Securities Act.
We may have agreements with the underwriters, dealers and agents
to indemnify them against certain civil liabilities, including
liabilities under the Securities Act, or to contribute with
respect to payments which the underwriters, dealers or agents
may be required to make.
9
Plan of distribution
Underwriters, dealers and agents may engage in transactions
with, or perform services for, us or our subsidiaries in the
ordinary course of their businesses.
In order to facilitate the offering of the securities, any
underwriters or agents involved in the offering of those
securities may engage in transactions that stabilize, maintain
or otherwise affect the price of the securities. Specifically,
the underwriters or agents may overallot in connection with the
offering, creating a short position in the offered securities
for their own account. In addition, to cover over allotments or
to stabilize the price of the securities, the underwriters or
agents may bid for, and purchase, the securities in the open
market. Finally, in any offering of the securities through a
syndicate of underwriters, the underwriting syndicate may
reclaim selling concessions allotted to an underwriter or a
dealer for distributing the securities in the offering if the
syndicate repurchases previously distributed securities in
transactions to cover syndicate short positions, in
stabilization transaction or otherwise. Any of these activities
may stabilize or maintain the market price of the securities
above independent market levels. The underwriters or agents are
not required to engage in these activities, and may end any of
these activities at any time.
Some or all of the securities may be new issues of securities
with no established trading market. Any underwriter to which
securities are sold by us for public offering and sale may make
a market in those securities, but will not be obligated to do
so, and may discontinue any market making at any time without
notice. We cannot and will not give any assurances as to the
liquidity of the trading market for any of our securities.
10
Description of debt securities
This prospectus describes certain general terms and provisions
of our debt securities. When we offer to sell a particular
series of debt securities, we will describe the specific terms
of the series in a supplement to this prospectus. We will also
indicate in the applicable prospectus supplement whether the
general terms and provisions described in this prospectus apply
to a particular series of debt securities.
Unless otherwise specified in a supplement to this prospectus,
the debt securities will be the direct, unsecured obligations of
Meritage Homes Corporation and will rank equally with all of its
other unsecured and unsubordinated indebtedness. Meritage Homes
Corporations payment obligations under any series of debt
securities may be guaranteed by one or more co-registrants.
The debt securities will be issued under an indenture between us
and a bank or trust company, as trustee. We have summarized
select portions of the indenture below. The summary is not
complete. The form of the indenture has been filed as an exhibit
to the registration statement and you should read the indenture
for provisions that may be important to you. Capitalized terms
used in the summary have the meaning specified in the indenture.
When we refer to we, our and
us in this section, we mean Meritage Homes
Corporation unless the context otherwise requires or as
otherwise expressly stated.
GENERAL
The terms of each series of debt securities will be established
by or pursuant to a resolution of our board of directors and set
forth or determined in the manner provided in an officers
certificate or by a supplemental indenture. The particular terms
of each series of debt securities will be described in a
prospectus supplement relating to that series, including any
pricing supplement.
We may issue an unlimited amount of debt securities under the
indenture that may be in one or more series with the same or
various maturities, at par, at a premium, or at a discount. We
will set forth in a prospectus supplement, including any pricing
supplement, relating to any series of debt securities being
offered, the aggregate principal amount and the following terms
of the debt securities:
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the title of the debt securities; |
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the price or prices (expressed as a percentage of the principal
amount) at which we will sell the debt securities; |
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any limit on the aggregate principal amount of the debt
securities; |
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the date or dates on which we will pay the principal on the debt
securities; |
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the rate or rates (which may be fixed or variable) per annum or
the method used to determine the rate or rates (including any
commodity, commodity index, stock exchange index or financial
index) at which the debt securities will bear interest, the date
or dates from which interest will accrue, the date or dates on
which interest will commence and be payable and any regular
record date for the interest payable on any interest payment
date; |
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the trustee for the series of debt securities; |
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whether the debt securities rank as senior debt securities,
senior subordinated debt securities or subordinated debt
securities, or any combination thereof; |
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the form and terms of any guarantee of any debt securities; |
11
Description of debt securities
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any depositories, interest rate calculation agents or other
agents with respect to the debt securities; |
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whether, the ratio at which and the terms and conditions upon
which, if any, the debt securities will be convertible into or
exchangeable for our common stock or our other securities or
securities of another person; |
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the place or places where principal of, premium, if any, and
interest, if any, on the debt securities will be payable or the
method of payment, if by wire transfer, mail or by other means; |
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the terms and conditions upon which we may redeem the debt
securities; |
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any obligation we have to redeem or purchase the debt securities
pursuant to any sinking fund or analogous provisions or at the
option of a holder of debt securities; |
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the dates, if any, on which, and the price or prices at which,
we will repurchase debt securities at the option of the holders
of debt securities and other detailed terms and provisions of
these repurchase obligations; |
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the denominations in which the debt securities will be issued,
if other than denominations of $1,000 and any integral multiple
thereof; |
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whether the debt securities will be issued in bearer or fully
registered form (and if in fully registered form, whether the
debt securities will be issuable, in whole or in part, as global
debt securities); |
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the portion of principal amount of the debt securities payable
upon declaration of acceleration of the maturity date, if other
than the principal amount; |
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the currency of denomination of the debt securities; |
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the designation of the currency, currencies or currency units in
which payment of principal of, premium and interest on the debt
securities will be made; |
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if payments of principal of, premium or interest on the debt
securities will be made in one or more currencies or currency
units other than that or those in which the debt securities are
denominated, the manner in which the exchange rate with respect
to these payments will be determined; |
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the manner in which the amounts of payment of principal of, or
premium or interest on the debt securities will be determined,
if these amounts may be determined by reference to an index
based on a currency or currencies other than that in which the
debt securities are denominated or designated to be payable or
by reference to a commodity, commodity index, stock exchange
index or financial index; |
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any provisions relating to any security provided for the debt
securities; |
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any addition to or change in the events of default described in
this prospectus or in the indenture with respect to the debt
securities and any change in the acceleration provisions
described in this prospectus or in the indenture with respect to
the debt securities; |
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any addition to, change in or deletion from, the covenants
described in this prospectus or in the indenture with respect to
the debt securities; and |
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any other terms of the debt securities, which may modify,
supplement or delete any provision of the indenture as it
applies to that series. |
In addition, the indenture does not limit our ability to issue
subordinated debt securities. Any subordination provisions of a
particular series of debt securities will be set forth in the
officers
12
Description of debt securities
certificate or supplemental indenture related to that series of
debt securities and will be described in the relevant prospectus
supplement.
We may issue debt securities that provide for an amount less
than their stated principal amount to be due and payable upon
declaration of acceleration of their maturity pursuant to the
terms of the indenture. We will provide you with information on
the federal income tax considerations and other special
considerations applicable to any of these debt securities in the
applicable prospectus supplement.
If we denominate the purchase price of any of the debt
securities in a foreign currency or currencies or a foreign
currency unit or units, or if the principal of and any premium
and interest on any series of debt securities is payable in a
foreign currency or currencies or a foreign currency unit or
units, we will provide you with information on the restrictions,
elections, general tax considerations, specific terms and other
information with respect to that issue of debt securities and
such foreign currency or currencies or foreign currency unit or
units in the applicable prospectus supplement.
TRANSFER AND EXCHANGE
Each debt security will be represented by either one or more
global securities registered in the name of The Depository Trust
Company, as depositary, or a nominee (we will refer to any debt
security represented by a global debt security as a
book-entry debt security), or a certificate issued
in definitive registered form (we will refer to any debt
security represented by a certificated security as a
certificated debt security) as set forth in the
applicable prospectus supplement. Except as set forth under the
heading Global Debt Securities and Book-Entry System
below, book-entry debt securities will not be issuable in
certificated form.
Certificated Debt Securities. You may transfer or
exchange certificated debt securities at any office we maintain
for this purpose in accordance with the terms of the indenture.
No service charge will be made for any transfer or exchange of
certificated debt securities, but we may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection with a transfer or exchange.
You may effect the transfer of certificated debt securities and
the right to receive the principal of, premium and interest on
certificated debt securities only by surrendering the
certificate representing those certificated debt securities and
either reissuance by us or the trustee of the certificate to the
new holder or the issuance by us or the trustee of a new
certificate to the new holder.
Global Debt Securities and Book-Entry System. Each global
debt security representing book-entry debt securities will be
deposited with, or on behalf of, the depositary, and registered
in the name of the depositary or a nominee of the depositary.
The depositary has indicated it intends to follow the following
procedures with respect to book-entry debt securities.
Ownership of beneficial interests in book-entry debt securities
will be limited to persons that have accounts with the
depositary for the related global debt security, which we refer
to as participants, or persons that may hold interests through
participants. Upon the issuance of a global debt security, the
depositary will credit, on its book-entry registration and
transfer system, the participants accounts with the
respective principal amounts of the book-entry debt securities
represented by the global debt security beneficially owned by
such participants. The accounts to be credited will be
designated by any dealers, underwriters or agents participating
in the distribution of the book-entry debt securities. Ownership
of book-entry debt securities will be shown on, and the transfer
of those ownership interests will be effected only through,
records maintained by the depositary for the related global debt
security (with respect to interests of participants) and on the
records of participants (with respect to
13
Description of debt securities
interests of persons holding through participants). The laws of
some states may require that certain purchasers of securities
take physical delivery of the securities in definitive form.
These laws may impair the ability to own, transfer or pledge
beneficial interests in book-entry debt securities.
So long as the depositary for a global debt security, or its
nominee, is the registered owner of that global debt security,
the depositary or its nominee, as the case may be, will be
considered the sole owner or holder of the book-entry debt
securities represented by the global debt security for all
purposes under the indenture. Except as described below,
beneficial owners of book-entry debt securities will not be
entitled to have securities registered in their names, will not
receive or be entitled to receive physical delivery of a
certificate in definitive form representing securities and will
not be considered the owners or holders of those securities
under the indenture. Accordingly, each person beneficially
owning book-entry debt securities must rely on the procedures of
the depositary for the related global debt security and, if that
person is not a participant, on the procedures of the
participant through which that person owns its interest, to
exercise any rights of a holder under the indenture.
We understand, however, that under existing industry practice,
the depositary will authorize the persons on whose behalf it
holds a global debt security to exercise certain rights of
holders of debt securities, and the indenture provides that we,
the trustee and our respective agents will treat as the holder
of a debt security the persons specified in a written statement
of the depositary with respect to that global debt security for
purposes of obtaining any consents or directions required to be
given by holders of the debt securities pursuant to the
indenture.
We will make payments of principal of, and premium and interest
on, book-entry debt securities to the depositary or its nominee,
as the case may be, as the registered holder of the related
global debt security. We, the trustee and any other agent of
ours or agent of the trustee will not have any responsibility or
liability for any aspect of the records relating to or payments
made on account of beneficial ownership interests in a global
debt security or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
We expect that the depositary, upon receipt of any payment of
principal of, premium or interest on a global debt security,
will immediately credit participants accounts with
payments in amounts proportionate to the respective amounts of
book-entry debt securities held by each participant as shown on
the records of the depositary. We also expect that payments by
participants to owners of beneficial interests in book-entry
debt securities held through those participants will be governed
by standing customer instructions and customary practices, as is
now the case with the securities held for the accounts of
customers in bearer form or registered in street
name, and will be the responsibility of those participants.
We will issue certificated debt securities in exchange for each
global debt security if the depositary is at any time unwilling
or unable to continue as depositary or ceases to be a clearing
agency registered under the Securities Exchange Act of 1934, as
amended, or Exchange Act, and a successor depositary registered
as a clearing agency under the Exchange Act is not appointed by
us within 90 days. In addition, we may at any time and in
our sole discretion determine not to have the book-entry debt
securities of any series represented by one or more global debt
securities and, in that event, will issue certificated debt
securities in exchange for the global debt securities of that
series. Global debt securities will also be exchangeable by the
holders for certificated debt securities if an event of default
with respect to the book-entry debt securities represented by
those global debt securities has occurred and is continuing. Any
certificated debt securities issued in exchange for a global
debt security will be registered in such name or names as the
depositary shall instruct the trustee. We expect that such
instructions will be based upon directions received by the
depositary from participants with respect to ownership of
book-entry debt securities relating to such global debt security.
14
Description of debt securities
We have obtained the foregoing information concerning the
depositary and the depositarys book-entry system from
sources we believe to be reliable, but we take no responsibility
for the accuracy of this information.
CHANGE OF CONTROL
Unless we state otherwise in the applicable prospectus
supplement, the debt securities will not contain any provisions
that may afford holders of the debt securities protection in the
event we undergo a change in control or in the event of a highly
leveraged transaction (whether or not the transaction results in
a change in control) that could adversely affect holders of debt
securities.
COVENANTS
We will set forth in the applicable prospectus supplement any
restrictive covenants applicable to any issue of debt securities.
CONSOLIDATION, MERGER AND SALE OF ASSETS
We may not consolidate with or merge with or into, or convey,
transfer or lease all or substantially all of our properties and
assets to, any person, which we refer to as a successor person,
unless:
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we are the surviving corporation or the successor person (if
other than Meritage Homes Corporation) is a corporation
organized and validly existing under the laws of any U.S.
domestic jurisdiction and expressly assumes our obligations on
the debt securities and under the indenture; |
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immediately after giving effect to the transaction, no event of
default, and no event which, after notice or lapse of time, or
both, would become an event of default, shall have occurred and
be continuing under the indenture; and |
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certain other conditions that may be set forth in the applicable
prospectus supplement are met. |
EVENTS OF DEFAULT
Unless otherwise stated in the applicable prospectus supplement,
event of default means, with respect to any series of debt
securities, any of the following:
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default in the payment of any interest upon any debt security of
that series when it becomes due and payable, and continuance of
that default for a period of 30 days (unless the entire
amount of the payment is deposited by us with the trustee or
with a paying agent prior to the expiration of the 30-day
period); |
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default in the payment of principal of or premium on any debt
security of that series when due and payable at maturity, upon
redemption or otherwise; |
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an event of default as defined in the debt securities of that
series or our failure to comply with any of our other agreements
in the debt securities of that series or the indenture with
respect to that series, which default continues uncured for a
period of 60 days after we receive written notice from the
trustee or we and the trustee receive written notice from the
holders of not less than a majority in principal amount of the
outstanding debt securities of that series as provided in the
indenture; |
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certain events of bankruptcy, insolvency or reorganization; and |
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any other event of default provided with respect to debt
securities of that series which is described in the applicable
prospectus supplement accompanying this prospectus. |
15
Description of debt securities
No event of default with respect to a particular series of debt
securities (except as to certain events of bankruptcy,
insolvency or reorganization) necessarily constitutes an event
of default with respect to any other series of debt securities.
The occurrence of an event of default may constitute an event of
default under our bank credit agreements in existence from time
to time. In addition, the occurrence of certain events of
default or an acceleration under the indenture may constitute an
event of default under certain of our other indebtedness
outstanding from time to time.
If an event of default with respect to debt securities of any
series at the time outstanding occurs and is continuing, then
the trustee or the holders of not less than a majority in
principal amount of the outstanding debt securities of that
series may, by a notice in writing to us (and to the trustee if
given by the holders), declare to be due and payable immediately
the principal (or, if the debt securities of that series are
discount securities, that portion of the principal amount as may
be specified in the terms of that series) of and accrued and
unpaid interest, if any, on all debt securities of that series.
In the case of an event of default resulting from certain events
of bankruptcy, insolvency or reorganization, the principal (or
such specified amount) of and accrued and unpaid interest, if
any, on all outstanding debt securities will become and be
immediately due and payable without any declaration or other act
on the part of the trustee or any holder of outstanding debt
securities. At any time after a declaration of acceleration with
respect to debt securities of any series has been made, but
before a judgment or decree for payment of the money due has
been obtained by the trustee, the holders of a majority in
principal amount of the outstanding debt securities of that
series may rescind and annul the acceleration if all events of
default, other than the non-payment of accelerated principal and
interest, if any, with respect to debt securities of that
series, have been cured or waived as provided in the indenture.
We refer you to the prospectus supplement relating to any series
of debt securities that are discount securities for the
particular provisions relating to acceleration of a portion of
the principal amount of such discount securities upon the
occurrence of an event of default.
The indenture provides that the trustee will be under no
obligation to exercise any of its rights or powers under the
indenture at the request of any holder of outstanding debt
securities, unless the trustee receives indemnity satisfactory
to it against any loss, liability or expense. Subject to certain
rights of the trustee, the holders of a majority in principal
amount of the outstanding debt securities of any series will
have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the
trustee or exercising any trust or power conferred on the
trustee with respect to the debt securities of that series.
Unless stated otherwise in the applicable prospectus supplement,
no holder of any debt security of any series will have any right
to institute any proceeding, judicial or otherwise, with respect
to the indenture or for the appointment of a receiver or
trustee, or for any remedy under the indenture, unless:
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that holder has previously given to the trustee written notice
of a continuing event of default with respect to debt securities
of that series; and |
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the holders of at least 25% in principal amount of the
outstanding debt securities of that series have made written
request, and offered reasonable indemnity, to the trustee to
institute the proceeding as trustee, and the trustee has not
received from the holders of a majority in principal amount of
the outstanding debt securities of that series a direction
inconsistent with that request and has failed to institute the
proceeding within 60 days. |
Notwithstanding the foregoing, the holder of any debt security
will have an absolute and unconditional right to receive payment
of the principal of, premium and any interest on that debt
security on or after the due dates expressed in that debt
security and to institute suit for the enforcement of payment.
16
Description of debt securities
The indenture requires us, within 90 days after the end of
our fiscal year, to furnish to the trustee a statement as to
compliance with the indenture. The indenture provides that the
trustee may withhold notice to the holders of debt securities of
any series of any default or event of default (except in payment
on any debt securities of that series) with respect to debt
securities of that series if it in good faith determines that
withholding notice is in the interest of the holders of those
debt securities.
MODIFICATION AND WAIVER
We may modify and amend the indenture without notice to or the
consent of the holders:
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to establish additional series of securities permitted under the
indenture; |
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to cure any ambiguity, defect or inconsistency; |
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to evidence the assumption of a successor corporation of our
obligations under the indenture; |
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to comply with any requirements of the SEC or the Trust
Indenture Act; |
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to provide for uncertificated securities in addition to or in
place of certificated securities; |
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to add, change or eliminate any other provisions of the
indenture so long as that change does not apply to any then
existing series of debt securities or modify the rights of the
holder of any such security with respect to that provision; or |
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make any change that does not adversely affect in any material
respect the interests of the securityholders of any series. |
We may modify and amend the indenture with the consent of the
holders of at least a majority in principal amount of the
outstanding debt securities of each series affected by the
modifications or amendments. We may not make any modification or
amendment without the consent of the holders of each affected
debt security then outstanding if that amendment will:
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reduce the amount of debt securities whose holders must consent
to an amendment or waiver; |
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reduce the rate of or extend the time for payment of interest
(including default interest) on any debt security; |
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reduce the principal of or premium on or change the fixed
maturity of any debt security or reduce the amount of, or
postpone the date fixed for, the payment of any sinking fund or
analogous obligation with respect to any series of debt
securities; |
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reduce the principal amount of discount securities payable upon
acceleration of maturity; |
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waive a default in the payment of the principal of, premium or
interest on any debt security (except a rescission of
acceleration of the debt securities of any series by the holders
of at least a majority in aggregate principal amount of the then
outstanding debt securities of that series and a waiver of the
payment default that resulted from such acceleration); |
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make the principal of or premium or interest on any debt
security payable in currency other than that stated in the debt
security; |
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make any change to certain provisions of the indenture relating
to, among other things, the right of holders of debt securities
to receive payment of the principal of, premium and interest on
those debt securities and to institute suit for the enforcement
of any such payment and to waivers or amendments; or |
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waive a redemption payment with respect to any debt security. |
17
Description of debt securities
Except for certain specified provisions, the holders of at least
a majority in principal amount of the outstanding debt
securities of any series may on behalf of the holders of all
debt securities of that series waive our compliance with
provisions of the indenture. The holders of a majority in
principal amount of the outstanding debt securities of any
series may on behalf of the holders of all the debt securities
of such series waive any past default under the indenture with
respect to that series and its consequences, except a default in
the payment of the principal of, premium or any interest on any
debt security of that series or in respect of a covenant or
provision which cannot be modified or amended without the
consent of the holder of each outstanding debt security of the
series affected; provided, however, that the holders of a
majority in principal amount of the outstanding debt securities
of any series may rescind an acceleration and its consequences,
including any related payment default that resulted from the
acceleration.
DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN
CERTAIN CIRCUMSTANCES
Legal Defeasance. The indenture provides that, unless
otherwise provided by the terms of the applicable series of debt
securities, we may be discharged from any and all obligations in
respect of the debt securities of any series (except for certain
obligations to register the transfer or exchange of debt
securities of such series, to replace stolen, lost or mutilated
debt securities of such series, and to maintain paying agencies
and certain provisions relating to the treatment of funds held
by paying agents). We will be so discharged upon the deposit
with the trustee, in trust, of money and/or U.S. government
obligations or, in the case of debt securities denominated in a
single currency other than U.S. dollars, foreign government
obligations, that, through the payment of interest and principal
in accordance with their terms, will provide money in an amount
sufficient in the opinion of a nationally recognized firm of
independent public accountants to pay and discharge each
installment of principal, premium and interest on and any
mandatory sinking fund payments in respect of the debt
securities of that series on the stated maturity of those
payments in accordance with the terms of the indenture and those
debt securities.
This discharge may occur only if, among other things, we have
delivered to the trustee an opinion of counsel stating that we
have received from, or there has been published by, the United
States Internal Revenue Service a ruling or, since the date of
execution of the indenture, there has been a change in the
applicable United States federal income tax law, in either case
to the effect that, and based thereon such opinion shall confirm
that, the holders of the debt securities of that series will not
recognize income, gain or loss for United States federal income
tax purposes as a result of the deposit, defeasance and
discharge and will be subject to United States federal income
tax on the same amounts and in the same manner and at the same
times as would have been the case if the deposit, defeasance and
discharge had not occurred.
Defeasance Of Certain Covenants. The indenture provides
that, unless otherwise provided by the terms of the applicable
series of debt securities, upon compliance with certain
conditions:
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we may omit to comply with the covenant described under the
heading Consolidation, Merger and Sale of Assets and
certain other covenants set forth in the indenture, as well as
any additional covenants which may be set forth in the
applicable prospectus supplement; and |
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any omission to comply with those covenants will not constitute
a default or an event of default with respect to the debt
securities of that series, or covenant defeasance. |
The conditions include:
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depositing with the trustee money and/or U.S. government
obligations or, in the case of debt securities denominated in a
single currency other than U.S. dollars, foreign government
obligations, |
18
Description of debt securities
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that, through the payment of interest and principal in
accordance with their terms, will provide money in an amount
sufficient in the opinion of a nationally recognized firm of
independent public accountants to pay and discharge each
installment of principal of, premium and interest on and any
mandatory sinking fund payments in respect of the debt
securities of that series on the stated maturity of those
payments in accordance with the terms of the indenture and those
debt securities; and |
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delivering to the trustee an opinion of counsel to the effect
that the holders of the debt securities of that series will not
recognize income, gain or loss for United States federal income
tax purposes as a result of the deposit and related covenant
defeasance and will be subject to United States federal income
tax on the same amounts and in the same manner and at the same
times as would have been the case if the deposit and related
covenant defeasance had not occurred. |
Covenant Defeasance And Events Of Default. In the event
we exercise our option to effect covenant defeasance with
respect to any series of debt securities and the debt securities
of that series are declared due and payable because of the
occurrence of any event of default, the amount of money and/or
U.S. government obligations or foreign government
obligations on deposit with the trustee will be sufficient to
pay amounts due on the debt securities of that series at the
time of their stated maturity but may not be sufficient to pay
amounts due on the debt securities of that series at the time of
the acceleration resulting from the event of default. However,
we will remain liable for those payments.
GUARANTEES
Our payment obligations under any series of debt securities may
be guaranteed by one or more of the co-registrants. The terms of
any guarantee will be set forth in the applicable prospectus
supplement.
19
Description of capital stock
The following summary describes the material terms of our
capital stock. However, you should refer to the actual terms of
our articles of incorporation and bylaws and to the applicable
provisions of the Maryland General Corporation Law.
COMMON STOCK
We are authorized to issue up to 50,000,000 shares of common
stock, $0.01 par value per share, of which
11,411,480 shares were outstanding as of April 26,
2002. These amounts reflect a 2-for-1 stock split in the form of
a stock dividend which Meritage effected on April 26, 2002
to stockholders of record at the close of business on
April 12, 2002. The outstanding shares of our common stock
are, when issued and paid for, fully-paid and non-assessable.
Voting Rights. The holders of our common stock are
entitled to one vote for each share held on all matters
submitted to a vote of stockholders and do not have cumulative
voting rights. As a result, the holders of a majority of the
shares of our common stock entitled to vote in any election of
directors may elect all of the directors standing for election.
Our directors are divided into two classes serving staggered
two-year terms.
Our articles of incorporation contain a provision allowing
action to be authorized by the affirmative vote of the holders
of a majority of the total number of shares of common stock
outstanding and entitled to vote thereon notwithstanding any
provision of law that would otherwise require the authorization
of the action by a greater proportion than a majority. This
provision may allow authorization of certain extraordinary
transactions and amendment of our articles of incorporation,
including an amendment changing the terms or rights of our
outstanding common stock. But for this provision, under Maryland
law, these extraordinary transactions and amendment of our
articles of incorporation, with certain limited exceptions,
would require the affirmative vote of the holders of two-thirds
of the outstanding common stock entitled to vote thereon.
Dividends. The holders of our common stock are
entitled to receive ratably such dividends that may be declared
by the board of directors out of legally available funds. We do
not intend to declare cash dividends in the foreseeable future.
We expect to retain earnings to finance the continuing
development of our business. Future dividends, if any, will
depend upon our financial condition, results of operations,
capital requirements, compliance with debt covenants of existing
indebtedness, as well as other factors considered relevant by
our board of directors.
Liquidation Rights. Upon our liquidation,
dissolution or winding-up, the holders of our common stock are
entitled to share ratably in all assets available for
distribution after payment in full to creditors and holders of
preferred stock, if any.
Other Provisions. The holders of our common stock
have no preemptive, subscription, redemption conversion or other
similar rights. The rights, preferences, and privileges of
holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series
of preferred stock which we may issue in the future. However, we
are not currently authorized to issue preferred stock under our
articles of incorporation.
Transfer Agent. The transfer agent and registrar
for our common stock is Mellon Investor Services, LLC.
20
Description of capital stock
PREFERRED STOCK
We are not currently authorized to issue preferred stock. We
will need to obtain stockholder approval to authorize the
issuance of preferred stock. We anticipate that the board of
directors will have the authority to determine the terms of our
preferred stock without further stockholder approval. The
preferred stock, if authorized by our stockholders, will be
issued in one or more series with the designations, rights,
preferences and limitations determined by our board of
directors, including the consideration to be received for the
preferred stock, the number of shares comprising each series,
dividend rates, redemption provisions, liquidation preferences,
mandatory retirement provisions, conversion rights and voting
rights.
If we issue preferred stock with voting rights, it could make it
more difficult for a third party to acquire control of Meritage
and could adversely affect the rights of holders of common
stock. Preferred stockholders typically are entitled to
satisfaction in full of specified dividend and liquidation
rights before any payment of dividends or distribution of assets
on liquidation can be made to holders of common stock. Also, any
voting rights granted to our preferred stock may dilute the
voting rights of our common stock. Under some circumstances,
control of Meritage would shift from the holders of common stock
to the holders of preferred stock with voting rights. Certain
fundamental matters requiring stockholder approval (such as
mergers, sale of assets and certain amendments to our articles
of incorporation) may require approval by the separate vote of
the holders of preferred stock in addition to any required vote
of the common stock.
CERTAIN PROVISIONS OF MARYLAND LAW
We are incorporated in Maryland and are subject to the
provisions of the Maryland General Corporation Law, certain of
which provisions are discussed below.
Business Combinations. Under the Maryland Business
Combinations Act, business combinations between a
Maryland corporation and an interested stockholder or an
affiliate of an interested stockholder are prohibited for five
years after the most recent date on which the interested
stockholder becomes an interested stockholder. These business
combinations include certain mergers, asset transfers, loans and
other transactions or issuances, transfers or reclassifications
of equity securities. An interested stockholder is defined as:
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any person who beneficially owns ten percent or more of the
voting power of the corporations shares; or |
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an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was
the beneficial owner of 10% or more of the voting power of the
then outstanding voting stock of the corporation. |
A person is not an interested stockholder under the statute if
the board of directors approved in advance the transaction by
which the stockholder otherwise would have become an interested
stockholder.
After the five-year prohibition, any business combination
between the Maryland corporation and an interested stockholder
generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by the outstanding shares
of voting stock of the corporation voting together as a single
voting group; and |
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two-thirds of the votes entitled to be cast by the holders of
voting stock of the corporation other than shares held by the
interested stockholder with whom or with whose affiliate the
business |
21
Description of capital stock
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combination is to be effected or held by an affiliate or
associate of the interested stockholder voting together as a
single voting group. |
These super-majority vote requirements do not apply to certain
business combinations if the corporations stockholders
receive a minimum price, as defined under Maryland law, for
their shares in the form of cash or other consideration in the
same form as previously paid by the interested stockholder for
its shares and the corporation and interested stockholder meet
certain other requirements.
The statute provides for various exemptions from its provisions,
including business combinations that are exempted by the board
of directors prior to the time that the interested stockholder
becomes an interested stockholder.
The business combination statute could have the effect of
delaying, deferring or preventing a transaction or a change in
control that might involve a premium price for holders of our
common stock or otherwise be in their best interest.
A Maryland corporation may adopt an amendment to its charter
electing not to be subject to the Maryland Business Combinations
Act. No such amendment to our charter has been adopted.
Control Share Acquisitions. Marylands Control Share
Acquisition Act provides that control shares of a Maryland
corporation acquired in a control share acquisition have no
voting rights, except to the extent approved by a vote of
two-thirds of the votes entitled to be cast on the matter.
Shares owned by the acquiror, by officers or by directors who
are employees of the corporation are excluded from shares
entitled to vote on the matter. Control shares are voting shares
of stock, which, if aggregated with all other shares of stock
owned by the acquiror or in respect of which the acquiror is
able to exercise or direct the exercise of voting power (except
solely by virtue of a revocable proxy), would entitle the
acquiror to exercise voting power equal to:
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one-tenth or more but less than one-third; |
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one-third or more but less than a majority; or |
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a majority or more of all voting power. |
Control shares do not include shares the acquiring person is
then entitled to vote as a result of having previously obtained
stockholder approval. A control share acquisition means the
acquisition of control shares, subject to certain exceptions.
A person who has made or proposes to make a control share
acquisition may compel the board of directors of the corporation
to call a special meeting of stockholders to be held within
50 days of demand to consider the voting rights of the
shares. The right to require the calling of a special meeting is
subject to the satisfaction of certain conditions, including an
undertaking to pay the expenses of the meeting. If no request
for a meeting is made, the corporation may itself present the
question at any stockholders meeting.
If voting rights are not approved at the meeting or if the
acquiring person does not deliver an acquiring person statement
as required by the statute, then the corporation may redeem for
fair value any or all of the control shares, except those for
which voting rights have previously been approved. The right of
the corporation to redeem control shares is subject to certain
conditions and limitations. Fair value is determined, without
regard to the absence of voting rights for the control shares,
as of the date of the last control share acquisition by the
acquiror or, if a meeting of stockholders is held, at which the
voting rights of the shares are considered and not approved, as
of the date of that meeting. If voting rights for control shares
are approved at a stockholders meeting and the acquiror becomes
entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal
22
Description of capital stock
rights. The fair value of the shares as determined for purposes
of appraisal rights may not be less than the highest price per
share paid by the acquiror in the control share acquisition.
The control share acquisition statute does not apply (a) to
shares acquired in a merger, consolidation or share exchange if
the corporation is a party to the transaction, or certain other
transactions or (b) to acquisitions approved or exempted by
the charter or bylaws of the corporation. Neither our articles
of incorporation or bylaws have any provisions exempting any
control share acquisitions.
CERTAIN PROVISIONS OF OUR ARTICLES OF INCORPORATION AND
BYLAWS
Our articles of incorporation and bylaws include provisions that
could have an anti-takeover effect. These provisions are
intended to preserve the continuity and stability of our board
of directors and the policies formulated by our board of
directors. The following is a summary of the provisions or our
articles of incorporation and bylaws that we consider material,
but does not purport to be complete and is subject to, and
qualified in its entirety by reference to, the provisions of our
articles of incorporation and bylaws.
Indemnification. Under Maryland law, a corporations
articles may, with certain exceptions, include any provision
expanding or limiting the liability of its directors and
officers to the corporation or its stockholders for money
damages. However, no provision may restrict or limit the
liability of a corporations directors or officers to the
corporation or its stockholders to the extent that (1) it
is proved that the person actually received an improper benefit
or (2) a judgment or other final adjudication adverse to
the person is entered in a proceeding based on a finding in the
proceeding that the persons action, or failure to act, was
the result of active and deliberate dishonesty (and was material
to the cause of action adjudicated in the proceeding). Our
charter contains a provision limiting the personal liability of
officers and directors to Meritage and its stockholders for
money damages to the fullest extent permitted under Maryland law.
In addition, with certain exceptions, Maryland law permits a
corporation to indemnify its present and former directors and
officers, among others, against liability incurred, unless it is
established that:
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the act or omission of the director or officer was material to
the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty; |
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the director or officer actually received an improper personal
benefit in money, property, or services; or |
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in the case of any criminal proceeding, the director or officer
had reasonable cause to believe that the act or omission was
unlawful. |
Our charter provides that Meritage will indemnify (1) its
directors and officers to the full extent allowed under Maryland
law and (2) its officers who are not directors to such
further extent as shall be authorized by the board of directors
and be consistent with law.
Advance Notice Procedures. Our bylaws establish an
advance notice procedure for stockholders to make nominations of
candidates for election as directors or to bring other business
before an annual meeting. These stockholder notice procedures
provide that only persons that are nominated by the board of
directors, or by a stockholder who was a stockholder at the time
of giving notice and has given timely written notice to our
secretary before the meeting at which directors are to be
elected, will be eligible for election as directors. These
stockholder notice procedures also provide that at an annual
meeting only the business as has been brought before the meeting
by our board of directors, or by a stockholder who has given
timely written notice to our secretary of the stockholders
intention to bring the business before the meeting, may be
conducted. To be timely, a stockholders nomination or
notice must be received by our secretary not less than
20 days nor more than 30 days prior to the meeting.
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Description of capital stock
The stockholder notice procedures described above will be
shortened, as described in our bylaws, in the event we give less
than 30 days notice or prior public disclosure of the
date of the meeting.
In addition, under these stockholder notice procedures, a
stockholders notice to us proposing to nominate a person
for election as a director or relating to the conduct of
business other than the nomination of directors will be required
to contain specified information. If the chairman of a meeting
determines that an individual was not nominated, or other
business was not brought before the meeting, in accordance with
our stockholder notice procedure, the individual will not be
eligible for election as a director, or the business will not be
conducted at the meeting, as the case may be.
24
Description of warrants
We may issue warrants for the purchase of common stock,
preferred stock or debt securities. Warrants may be issued
independently or together with our common stock, preferred stock
or debt securities and may be attached to or separate from any
offered securities. Each series of warrants will be issued under
a separate warrant agreement to be entered into between us and a
bank or trust company, as warrant agent. The warrant agent will
act solely as our agent in connection with the warrants and will
not have any obligation or relationship of agency or trust for
or with any holders or beneficial owners of warrants. A copy of
the warrant agreement will be filed with the SEC in connection
with any offering of warrants.
The prospectus supplement relating to a particular issue of
warrants to purchase common stock, preferred stock or debt
securities will describe the terms of those warrants, including
the following:
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the title of the warrants; |
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the offering price for the warrants, if any; |
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the aggregate number of the warrants; |
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the designation and terms of the common stock, preferred stock
or debt securities that may be purchased upon exercise of the
warrants; |
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if applicable, the designation and terms of the securities that
the warrants are issued with and the number of warrants issued
with each security; |
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if applicable, the date from and after which the warrants and
any securities issued with them will be separately transferable; |
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if applicable, the principal amount of debt securities that may
be purchased upon exercise of a warrant and the price at which
the debt securities may be purchased upon exercise; |
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if applicable, the number of shares of common stock or preferred
stock that may be purchased upon exercise of a warrant and the
price at which the shares may be purchased upon exercise; |
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the dates on which the right to exercise the warrants will
commence and expire; |
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if applicable, the minimum or maximum amount of the warrants
that may be exercised at any one time; |
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whether the warrants represented by the warrant certificates or
debt securities that may be issued upon exercise of the warrants
will be issued in registered or bearer form; |
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information relating to book-entry procedures, if any; |
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the currency or currency units in which the offering price, if
any, and the exercise price are payable; |
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if applicable, a discussion of material United States federal
income tax considerations; |
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anti-dilution provisions of the warrants, if any; |
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redemption or call provisions applicable to the warrants, if any; |
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any additional terms of the warrants, including terms,
procedures and limitations relating to the exchange and exercise
of the warrants; and |
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any other information we think is important about the warrants. |
25
Legal matters
Snell & Wilmer L.L.P., our outside counsel, will issue an
opinion regarding the validity of the offered securities. If
counsel for any underwriters passes on legal matters in
connection with an offering made by this prospectus, we will
name that counsel in the accompanying prospectus supplement.
Experts
The consolidated financial statements of Meritage as of
December 31, 2001 and 2000, and for each of the years in
the three-year period ended December 31, 2001, have been
incorporated by reference herein in reliance upon the report of
KPMG LLP, independent accountants, incorporated by reference
herein, and upon the authority of said firm as experts in
accounting and auditing.
Where you can find more information
We file annual, quarterly and special reports, proxy statements
and other information with the SEC. Our SEC filings are
available to the public over the Internet at the SECs web
site at http://www.sec.gov. You may also read and copy any
document we file at the SECs public reference room at
450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information on the
operations of the public reference rooms. Our common stock is
listed on the New York Stock Exchange. Our reports, proxy
statements and other information can also be inspected at the
offices of the New York Stock Exchange, 20 Broad Street,
New York, New York 10005.
The SEC allows us to incorporate by reference the
information contained in the documents we file with the SEC,
which means that we can disclose important information to you by
referring you to those documents. The information incorporated
by reference is an important part of this prospectus, and
information that we file later with the SEC will automatically
update and supersede this information. We incorporate by
reference any future filings we make with the SEC under
Sections 13(a), 13(c), 14, or 15(d) of the Securities
Exchange Act of 1934 after the date of this prospectus and until
we sell all the securities covered by this prospectus, other
than portions of these documents that are either
(i) described in paragraphs (i), (k) and
(l) of Item 402 of Regulation S-K promulgated by
the SEC or (ii) furnished under Item 9 of a Current
Report on Form 8-K. We also specifically incorporate by
reference the following documents, which we have already filed
with the SEC:
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(a) our Annual Report on
Form 10-K for the year ended December 31, 2001; |
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(b) our definitive Proxy Statement
dated April 2, 2002; |
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(c) our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2002; and |
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(d) the description of Meritage
Homes Corporations capital stock contained in the
Form 8-A of Emerald Mortgage Investments Corporation (a
predecessor at Meritage Homes Corporation) filed on July 7,
1988, including any amendment or report filed to update such
description. |
Any information contained in this prospectus or in any document
incorporated or deemed to be incorporated by reference in this
prospectus will be deemed to have been modified or superseded to
the extent that a statement contained in this prospectus, in any
other document we subsequently file with the SEC that also is
incorporated or deemed to be incorporated by reference in this
prospectus or in the applicable prospectus supplement modifies
or supersedes the original statement. Any statement so
26
modified or superseded will not be deemed, except as so modified
or superseded, to be a part of this prospectus.
We encourage you to read our periodic and current reports. We
think these reports provide additional information about our
company that prudent investors will find important. You may
request a copy of these filings as well as any future filings
incorporated by reference, at no cost, by calling us or by
writing to us at our principal executive offices in Arizona at
the following address: Meritage Homes Corporation, 8501 East
Princess Drive Scottsdale Road, Suite 290, Scottsdale,
Arizona 85255, Attention: Investor Relations. Our telephone
number is (877) 400-7888.
27
PROSPECTUS
2,509,662 Shares
Monterey Homes Corporation
Common Stock
This Prospectus relates to the offer and sale by William W.
Cleverly, Steven J. Hilton and John R. Landon (the Selling
Stockholders) of an aggregate of 2,509,662 shares of
Common Stock, $0.01 par value per share (the Common
Stock), of Monterey Homes Corporation, a Maryland
corporation (the Company). The Company will not
receive any portion of the proceeds from the sale of the Common
Stock offered hereby. The Selling Stockholders may elect to sell
all, a portion, or none of the shares of Common Stock registered
hereby. The Common Stock being registered under the Registration
Statement of which this Prospectus is a part may be offered for
sale from time to time by or for the account of such Selling
Stockholders in the open market, on the New York Stock Exchange
in privately negotiated transactions, in an underwritten
offering, or a combination of such methods, at market prices
prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices. The Common
Stock is intended to be sold through one or more broker-dealers
or directly to purchasers. Such broker-dealers may receive
compensation in the form of commissions, discounts or
concessions from the Selling Stockholders and/or purchasers of
the Common Stock for whom such broker-dealers may act as agent,
or to whom they may sell as principal, or both (which
compensation as to a particular broker-dealer may be in excess
of customary concessions). The Selling Stockholders and any
broker-dealers who act in connection with the sale of the Common
Stock hereunder may be deemed to be underwriters
within the meaning of the Securities Act, and any commissions
received by them and proceeds of any resale of the Common Stock
may be deemed to be underwriting discounts and commissions under
the Securities Act. See Selling Stockholders and
Plan of Distribution. All expenses of registration
incurred in connection with this Offering are being borne by the
Company, but the Selling Stockholders will pay any brokerage and
other expenses of sale incurred by them. See Plan of
Distribution.
The Companys Common Stock is traded on the New York Stock
Exchange under the symbol MTH. On July 24,
1998, the closing sale price for the Common Stock, as reported
by NYSE, was $17.3125 per share.
See Risk Factors on page 4 for a discussion
of certain factors that should be considered by prospective
purchasers of the common stock offered hereby. Each selling
stockholder and any broker executing selling orders on behalf of
the selling stockholders may be deemed to be an
underwriter within the meaning of the Securities
Act. Commissions received by any such broker may be deemed to be
underwriting commissions under the Securities Act.
These securities have not been approved or disapproved by the
Securities and Exchange Commission or any state securities
commission nor has the Securities and Exchange Commission or any
state securities commission passed upon the accuracy or adequacy
of this prospectus. Any representation to the contrary is a
criminal offense.
The date of this prospectus is July 27, 1998
Available information
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the Exchange
Act), and, in accordance therewith, files reports, proxy
statements, and other information with the Securities and
Exchange Commission (the Commission). The reports,
proxy statements, and other information filed by the Company
with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at
450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at its regional offices located
at 7 World Trade Center, 13th Floor, New York, New
York 10048, and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such material may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site on the Internet
(http://www.sec.gov) that contains reports, proxy and
information statements, and other information regarding
registrants, such as the Company, that file electronically with
the Commission. In addition, the Companys Common Stock is
traded on the New York Stock Exchange. Reports, proxy
statements, and other information filed by the Company are also
available for inspection at the offices of the New York Stock
Exchange at 20 Broad Street, 17th Floor, New York, New York
10005.
This Prospectus constitutes a part of a registration statement
on Form S-3 (the Registration Statement) that
the Company has filed with the Commission under the Securities
Act of 1933, as amended (the Securities Act). As
permitted by the rules and regulations of the Commission, this
Prospectus omits certain information contained in the
Registration Statement and the exhibits thereto and reference is
hereby made to the Registration Statement and related exhibits
for further information with respect to the Company and the
Common Stock offered hereby. Statements contained in this
Prospectus as to the provisions of any document filed as an
exhibit to the Registration Statement or otherwise filed with
the Commission are not necessarily complete and, in each
instance, reference is made to the copy of such document as so
filed. Each such statement is qualified in its entirety by such
reference.
No person is authorized to give any information or make any
representation other than those contained or incorporated by
reference in this Prospectus and, if given or made, such
information or representation must not be relied upon as having
been authorized. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities
offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the affairs of the
Company since the date hereof.
Information incorporated by reference
The following documents have been filed by the Company with the
Commission and are hereby incorporated by reference in this
Prospectus: (i) the Annual Report of the Company on
Form 10-K for the fiscal year ended December 31, 1997,
(ii) the Quarterly Report of the Company on Form 10-Q
for the quarterly period ended March 31, 1998,
(iii) the Current Report of the Company on Form 8-K
filed on July 15, 1998, and (iv) the description of
Monterey Homes capital stock contained in the
Form 8-A of Emerald Mortgage Investments Corporation (a
predecessor of Monterey Homes) filed on July 7, 1988. All
other documents and reports filed by the Company with the
Commission pursuant to Sections 13, 14, or 15(d) of
the Exchange Act subsequent to the date of this Prospectus and
prior to the termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be made a
part hereof from their respective dates of filing. Any statement
contained in a document
2
incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that is deemed to be
incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus.
The Company will cause to be furnished, without charge to each
person, including any beneficial owner, to whom this Prospectus
is delivered, upon the written or oral request of such person, a
copy of any and all documents incorporated herein by reference
(not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in the
document which this Prospectus incorporates). Requests should be
directed to Chief Financial Officer, Monterey Homes Corporation,
6613 North Scottsdale Road, Suite 200, Phoenix, Arizona
85250; telephone: (602) 998-8700.
3
Risk factors
In addition to the other information contained in this
Prospectus, prospective investors should carefully consider the
factors discussed below in evaluating the Company and its
business before purchasing any of the shares of Common Stock
offered hereby. This Prospectus contains forward-looking
statements which involve risks and uncertainties. The
Companys actual results could differ materially from those
anticipated in these forward-looking statements as a result of
certain factors, including those set forth in the following risk
factors and elsewhere in this Prospectus. See Disclosure
Regarding Forward-Looking Statements.
Homebuilding Industry Factors. The homebuilding industry
is cyclical and is significantly affected by changes in national
and local economic and other conditions, such as employment
levels, availability of financing, interest rates, consumer
confidence and housing demand. Although the Company believes
that certain of its customers (particularly purchasers of luxury
homes) are somewhat less price sensitive than generally is the
case for other homebuilders, such uncertainties could adversely
affect the Companys performance. In addition, homebuilders
are subject to various risks, many of which are outside the
control of the homebuilders, including delays in construction
schedules, cost overruns, changes in government regulations,
increases in real estate taxes and other local government fees,
and availability and cost of land, materials, and labor.
Although the principal raw materials used in the homebuilding
industry generally are available from a variety of sources, such
materials are subject to periodic price fluctuations. There can
be no assurance that the occurrence of any of the foregoing will
not have a material adverse effect on the Company.
Customer demand for new housing also impacts the homebuilding
industry. Real estate analysts predict that in 1998 new home
sales in the Phoenix metropolitan area may slow and that sales
in the Tucson metropolitan area may remain relatively flat. Any
such slowing in new home sales would have a material adverse
effect on the Companys business and operating results. In
general, home sales in the Texas market are expected to show
moderate growth or remain relatively flat.
The homebuilding industry is subject to the potential for
significant variability and fluctuations in real estate values,
as evidenced by the changes in real estate values in recent
years in Arizona, Texas and Northern California. Although the
Company believes that its projects are currently reflected on
its balance sheet at appropriate values, no assurance can be
given that write-downs of some or all of the Companys
projects will not occur if market conditions deteriorate, or
that such write-downs will not be material in amount.
Fluctuations in Operating Results. Monterey historically
has experienced, and in the future, the Company expects to
continue to experience, variability in home sales and net
earnings on a quarterly basis. Factors expected to contribute to
this variability include, among others, (i) the timing of
home closings and land sales, (ii) the Companys
ability to continue to acquire additional land or options to
acquire additional land on acceptable terms, (iii) the
condition of the real estate market and the general economy in
Arizona, Texas and Northern California, and in other areas into
which the Company may expand its operations, (iv) the
cyclical nature of the homebuilding industry and changes in
prevailing interest rates and the availability of mortgage
financing, (v) costs or shortages of materials and labor,
and (vi) delays in construction schedules due to strikes,
adverse weather conditions, acts of God, the availability of
subcontractors or governmental restrictions. As a result of such
variability, the Companys historical performance may not
be a meaningful indicator of future results.
Interest Rates and Mortgage Financing. The Company
believes that certain of its move-up and luxury home customers
have been somewhat less sensitive to interest rate fluctuation
than many home buyers. However, many purchasers of the
Companys homes finance their acquisition through
third-party lenders providing mortgage financing. In general,
housing demand is adversely affected by increases in
4
Risk factors
interest rates and housing costs, and the unavailability of
mortgage financing. If mortgage interest rates increase and the
ability of prospective buyers to finance home purchases is
consequently adversely affected, the Companys home sales,
gross margins and net income may be adversely impacted and such
adverse impact may be material. In any event, the Companys
homebuilding activities are dependent upon the availability and
costs of mortgage financing for buyers of homes owned by
potential customers so those customers (move-up
buyers) can sell their homes and purchase a home from the
Company. Any limitations or restrictions on the availability of
such financing could adversely affect the Companys home
sales. Furthermore, changes in federal income tax laws may
affect demand for new homes. From time to time, proposals have
been publicly discussed to limit mortgage interest deductions
and to eliminate or limit tax-free rollover treatment provided
under current law where the proceeds of the sale of a principal
residence are reinvested in a new principal residence. Enactment
of such proposals may have an adverse effect on the homebuilding
industry in general, and on demand for the Companys
products in particular. No prediction can be made whether any
such proposals will be enacted and, if enacted, the particular
form such laws would take.
Competition. The single-family residential housing
industry is highly competitive and fragmented. Homebuilders
compete for desirable properties, financing, raw materials, and
skilled labor. The Company competes for residential home sales
with other developers and individual resales of existing homes.
Competitors include large homebuilding companies, some of which
have greater financial resources than the Company, and smaller
homebuilders, who may have lower costs than the Company.
Competition is expected to continue and become more intense, and
there may be new entrants in the markets in which the Company
currently operates and in markets it may enter in the future.
Lack of Geographic Diversification. The Companys
operations are presently localized in the Phoenix and Tucson,
Arizona and Dallas/ Ft. Worth, Austin and Houston, Texas
metropolitan areas and in Northern California. In addition, the
Company currently operates in two primary market segments in
Arizona: the semi-custom, luxury market and move-up buyer
market; and in two primary market segments in Texas: the move-up
buyer market and the entry-level home market. Failure to be more
geographically or economically diversified by product line could
have a material adverse impact on the Company if the
homebuilding market in Arizona, Texas or Northern California
should decline, because there may not be a balancing opportunity
in a healthier market in other geographic regions.
Additional Financing; Limitations. The homebuilding
industry is capital intensive and requires significant up-front
expenditures to acquire land and begin development. Accordingly,
the Company incurs substantial indebtedness to finance its
homebuilding activities. At March 31, 1998, the
Companys notes payable totaled approximately
$30.3 million. The Company may be required to seek
additional capital in the form of equity or debt financing from
a variety of potential sources, including bank financing and
securities offerings. In addition, lenders are increasingly
requiring developers to invest significant amounts of equity in
a project both in connection with origination of new loans as
well as the extension of existing loans. If the Company is not
successful in obtaining sufficient capital to fund its planned
capital or other expenditures, new projects planned or begun may
be delayed or abandoned. Any such delay or abandonment could
result in a reduction in home sales and may adversely affect the
Companys operating results. There can be no assurance that
additional debt or equity financing will be available in the
future or on terms acceptable to the Company.
In addition, the amount and types of indebtedness that the
Company can incur is limited by the terms and conditions of its
current indebtedness. The Company must comply with numerous
operating and financial maintenance covenants and there can be
no assurance that the Company will be able to maintain
compliance with such financial and other covenants. Failure to
comply with such covenants would result in a default and
resulting cross defaults under the Companys other
indebtedness, and could result in acceleration of all such
indebtedness. Any such acceleration would have a material
adverse affect on the Company.
5
Risk factors
Government Regulations; Environmental Conditions. The
Company is subject to local, state, and federal statutes and
rules regulating certain developmental matters, as well as
building and site design. In addition, the Company is subject to
various fees and charges of governmental authorities designed to
defray the cost of providing certain governmental services and
improvements. The Company may be subject to additional costs and
delays or may be precluded entirely from building projects
because of no growth or slow growth
initiatives, building permit ordinances, building moratoriums,
or similar government regulations that could be imposed in the
future due to health, safety, welfare, or environmental
concerns. The Company must also obtain licenses, permits, and
approvals from government agencies to engage in certain of its
activities, the granting or receipt of which are beyond the
Companys control.
The Company and its competitors are also subject to a variety of
local, state, and federal statutes, ordinances, rules and
regulations concerning the protection of health and the
environment. Environmental laws or permit restrictions may
result in project delays, may cause substantial compliance and
other costs, and may prohibit or severely restrict development
in certain environmentally sensitive regions or areas.
Environmental regulations can also have an adverse impact on the
availability and price of certain raw materials such as lumber.
Recent Expansion and Future Expansion. In 1997, the
Company made a significant expansion into the Texas market and
recently completed an acquisition pursuant to which it will
begin operations in the Northern California market. The Company
may continue to consider growth in other areas of the country.
The magnitude, timing and nature of any future acquisitions will
depend on a number of factors, including suitable acquisition
candidates, the negotiation of acceptable terms, the
Companys financial capabilities, and general economic and
business conditions. Acquisitions by the Company may result in
the incurrence of additional debt and/or amortization of
expenses related to goodwill and intangible assets that could
adversely affect the Companys profitability. Acquisitions
could also result in potentially dilutive issuances of the
Companys equity securities. In addition, acquisitions
involve numerous risks, including difficulties in the
assimilation of operations of the acquired company, the
diversion of managements attention from other business
concerns, risks of entering markets in which the Company has had
no or only limited direct experience and the potential loss of
key employees of the acquired company. There can be no assurance
that the Company will be able to expand into new markets on a
profitable basis or that it can successfully manage its
expansion into Texas or any additional markets.
Dependence on Key Personnel. The Companys success
is largely dependent on the continuing services of certain key
persons, including William W. Cleverly, Steven J. Hilton and
John R. Landon, and the ability of the Company to attract new
personnel required to continue the development of the Company.
The Company has entered into employment agreements with each of
Messrs. Cleverly, Hilton and Landon. A loss by the Company
of the services of Messrs. Cleverly, Hilton or Landon, or
certain other key personnel, could have a material adverse
affect on the Company.
Dependence on Subcontractors. The Company conducts its
business only as a general contractor in connection with the
design, development and construction of its communities.
Virtually all architectural and construction work is performed
by subcontractors of the Company. As a consequence, the Company
is dependent upon the continued availability and satisfactory
performance by unaffiliated third-party subcontractors in
designing and building its homes. There is no assurance that
there will be sufficient availability and satisfactory
performance by unaffiliated third-party subcontractors in
designing and building its homes, and such a lack could have a
material adverse affect on the Company.
NOL Carryforward. The ability of the Company to use its
net operating loss carryforward (the NOL
Carryforward) to offset future taxable income would be
substantially limited under
6
Risk factors
Section 382 of the Code if an ownership change,
within the meaning of Section 382 of the Code, has occurred
or occurs with respect to the Company before expiration of the
NOL Carryforward. The Company believes that (i) there was
not an ownership change of the Company prior to the
effective date of the Merger (defined below), (ii) the
Merger did not cause an ownership change, and
(iii) the Legacy Combination (defined below) did not cause
an ownership change.
Pursuant to Section 384 of the Code, the Company may not be
permitted to use the NOL Carryforward to offset taxable income
resulting from sales of assets owned by the Monterey Entities
(defined below) at the time of the Merger (or to offset taxable
income resulting from sales of certain assets acquired in the
Legacy Combination) to the extent that the fair market value of
such assets at the time of the Merger (or at the time of the
Legacy Combination) exceeded their tax basis as of the relevant
date.
There is no assurance that the Company will have sufficient
earnings in the future to fully utilize the NOL Carryforward.
Disclosure Regarding Forward-Looking Statements. Certain
statements contained in this Prospectus, including all documents
incorporated herein by reference, may be forward-looking
statements within the meaning of The Private Securities
Litigation Reform Act of 1995. These forward-looking statements
may include projections of revenue and net income and issues
that may affect revenue or net income; projections of capital
expenditures; plans for future operations; financing needs or
plans; plans relating to the Companys products and
services; and assumptions relating to the foregoing. In
particular, there can be no assurance that the Company will be
able to maintain listing of its Common Stock and on the New York
Stock Exchange. Forward-looking statements are inherently
subject to risks and uncertainties, some of which cannot be
predicted or quantified. Future events and actual results could
differ materially from those set forth in, contemplated by, or
underlying the forward-looking statements. Statements in this
Prospectus, including those set forth above, describe factors,
among others, that could contribute to or cause such differences.
7
Use of proceeds
The Selling Stockholders will receive all of the proceeds and
the Company will not receive any of the proceeds from the sale
of the Common Stock offered hereby.
Selling stockholders
The Company was originally formed under the name Homeplex
Mortgage Investments Corporation to operate as a REIT, investing
in mortgage-related assets and selected real estate loans. On
December 31, 1996, Homeplex Mortgage Investments
Corporation merged with Monterey Homes Arizona II, Inc. and
Monterey Homes Construction II, Inc. (collectively, the
Monterey Entities) (the Merger). As a
result of the Merger, the Companys status as a REIT was
terminated and its prior operations essentially discontinued,
the Companys name was changed to Monterey Homes
Corporation, and its NYSE ticker symbol was changed to MTH. As
part of the Merger consideration, William W. Cleverly and Steven
J. Hilton (the Monterey Stockholders) received
1,288,726 shares of Company Common Stock (the
Exchange Shares), of which 212,398 shares have
been registered pursuant to the Securities Act and reserved for
issuance pursuant to the exercise of the Companys
outstanding warrants. Currently, Mr. Cleverly and
Mr. Hilton each beneficially own 538,164 reserved but not
yet registered Exchange Shares.
In addition to the Exchange Shares, the Company reserved for the
Monterey Stockholders 266,666 shares of common stock,
issuable subject to the achievement of certain stock price
thresholds (the Contingent Stock), of which
43,946 shares have been reserved but not yet registered,
pending the exercise of the Companys outstanding warrants.
As of September 5, 1997, all price thresholds had been
achieved, and on January 1, 1998, 44,942 shares of the
Contingent Stock were issued to the Monterey Stockholders. On
January 1, 1999 or as soon thereafter as practicable
88,888 shares of Contingent Stock will be issued to the
Monterey Stockholders and on January 1, 2000 or as soon
thereafter as practicable, 88,890 shares of Contingent
Stock will be issued to the Monterey Stockholders, but in each
case only if the Monterey Stockholders remain employed with the
Company at such times.
In connection with the Merger, the Company entered into separate
employment agreements and stock option agreements (the
Stock Option Agreements) with the Monterey
Stockholders. The Stock Option Agreements provide for the grant
to each Monterey Stockholder of options to purchase an aggregate
of 166,667 shares of Common Stock per Monterey Stockholder
at an exercise price of $5.25 per share (the
Employment Options). The Employment Options vest
annually over a three year period which began December 31,
1997.
On December 31, 1996, the Company entered into registration
rights agreements with each of the Monterey Stockholders with
respect to the Exchange Shares, the Contingent Stock and the
Employment Options (the Registration Rights
Agreements), pursuant to which, subject to certain
conditions and limitations, the Monterey Stockholders may, at
any time after December 31, 1997, require the Company to
register such shares under the Securities Act for resale by the
Monterey Stockholders. This Prospectus is a part of the
Registration Statement filed by the Company in order to satisfy
this requirement.
On July 1, 1997, the Company combined with Legacy Homes,
Ltd., Legacy Enterprises, Inc. and Texas Home Mortgage
Corporation (collectively Legacy), a Texas-based
homebuilder with related mortgage brokerage operations (the
Legacy Combination). In connection with the Legacy
Combination, the Company issued 666,667 shares of Common
Stock (the Landon Shares) to John and Eleanor Landon
and/or entities controlled by John and Eleanor Landon (the
Landons). In
8
Selling stockholders
addition, the Company entered into an employment agreement and
related stock option agreement with John Landon (the
Landon Option Agreement). The Landon Option
Agreement grants John Landon the option to
purchase 166,667 shares of Common Stock at an exercise
price of $5.25 per share (the Option Shares).
The Landon Options are exercisable annually over a three year
period beginning July 1, 1998. In connection with the
Legacy Combination, the Company entered into a registration
rights agreement with the Landons pursuant to which the Landons,
subject to certain conditions and limitations, may at any time
after December 31, 1997, require the Company to register
the Landon Shares and the Option Shares under the Securities Act
for resale by the Landons. This Prospectus is a part of the
Registration Statement filed by the Company in order to satisfy
this requirement.
The following table provides certain information with respect to
the Common Stock owned or under option by the Selling
Stockholders or which the Selling Stockholders have the right to
own as of July 24, 1998.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No. of shares of | |
|
Percentage of | |
|
|
|
No. of shares of | |
|
Percentage of | |
|
|
common stock | |
|
common stock | |
|
No. of shares | |
|
common stock | |
|
common stock | |
|
|
owned prior to | |
|
owned prior to | |
|
of common | |
|
owned after | |
|
owned after | |
Selling stockholder |
|
the offering | |
|
the offering(1) | |
|
stock offered | |
|
the offering(2) | |
|
the offering(2) | |
| |
William W. Cleverly
|
|
|
930,073 |
|
|
|
17.3 |
% |
|
|
838,164 |
|
|
|
91,909 |
|
|
|
1.7 |
% |
Steven J. Hilton
|
|
|
926,740 |
|
|
|
17.3 |
% |
|
|
838,164 |
|
|
|
88,576 |
|
|
|
1.7 |
% |
John Landon and Eleanor Landon
|
|
|
833,334 |
|
|
|
15.5 |
% |
|
|
833,334 |
|
|
|
0 |
|
|
|
0.0 |
% |
|
|
(1) |
Includes all shares of Common Stock beneficially owned by the
Selling Stockholders as a percentage of the
5,370,238 shares of Common Stock outstanding at
July 24, 1998. The figures above also include the
Employment Options and the Option Shares. |
|
(2) |
Assumes that Selling Stockholders dispose of all the shares
of Common Stock covered by this Prospectus and do not acquire
any additional shares of Common Stock. |
9
Plan of distribution
This Prospectus relates to the sale of 2,509,662 shares of
Common Stock by the Selling Stockholders. The Selling
Stockholders may from time to time effect sales of Common Stock
in underwritten transactions, ordinary brokers
transactions on the New York Stock Exchange, or to
broker-dealers in principal transactions at the price prevailing
at the time of such sales, at prices relating to such prevailing
market prices, or at negotiated prices. In connection with
distributions of the Common Stock or otherwise, the Selling
Stockholders may enter into hedging transactions with
broker-dealers. In connection with such transactions, banks or
broker-dealers may engage in short sales of the Common Stock in
the course of hedging the positions they assume with the Selling
Stockholders. The Selling Stockholders may also sell Common
Stock short and redeliver the Common Stock to close out such
positions. The Selling Stockholders may also enter into option
or other transactions with banks or broker-dealers which require
the delivery to the bank or broker-dealer of the Common Stock
registered hereunder, which the bank or broker-dealer may resell
or otherwise transfer pursuant to this Prospectus. The Selling
Stockholders may also lend or pledge the Common Stock to a bank
or broker-dealer and the bank or broker-dealer may sell the
Common Stock so loaned, or upon a default, the bank or
broker-dealer may effect sales of the pledged Common Stock
pursuant to this Prospectus. It is anticipated that any
broker-dealers participating in such sales of securities will
receive the usual and customary selling commissions. The Selling
Stockholders and any dealers or agents participating in the
distribution of the shares may be deemed to be
underwriters as defined in the Securities Act and
any profit on the sale of the share by them and any discounts,
commissions or concessions received by any such dealers or
agents might be deemed to be underwriting discounts and
commissions under the Securities Act. The Selling Stockholders
will be subject to the applicable provisions of the Exchange Act
and rules and regulations thereunder, including, without
limitation, Regulation M, which provision may limit the
timing of purchases and sales of any of the shares of Common
Stock by the Selling Stockholders.
It is not possible at the present time to determine the price to
the public in any sale of the shares by Selling Stockholders.
Accordingly, the public offering price and the amount of any
applicable underwriting discounts and commissions will be
determined at the time of such sale by Selling Stockholders. The
aggregate proceeds to the Selling Stockholders from the sale of
the shares will be the purchase price of the shares sold less
all applicable commissions and underwriters discounts, if
any. The Company will pay all of the expenses incident to the
registration of the Common Stock offered hereby, other than
commissions and selling expenses with respect to the Common
Stock being sold by the Selling Stockholders.
To the extent required, in connection with any underwriting, the
Company will set forth in a prospectus supplement the names of
the underwriters, the compensation to be paid, and any other
material terms of the underwriting arrangement required to be
disclosed.
10
Legal matters
The validity of the Common Stock offered hereby will be passed
upon for the Company by Venable, Baetjer & Howard LLP,
Baltimore, Maryland.
Experts
The consolidated financial statements of Monterey Homes
Corporation and Subsidiaries as of December 31, 1997 and
1996, and for the years then ended have been incorporated by
reference herein and in the Prospectus in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Monterey Homes
Corporation and Subsidiaries for the year ended
December 31, 1995, have been incorporated by reference
herein and in the Prospectus in reliance upon the report of
Ernst & Young, LLP, independent certified public
accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
11