UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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☐☒ | Preliminary Proxy Statement | |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | |
☒☐ | Definitive Proxy Statement | |
| ☐ | Definitive Additional Materials | |
| ☐ | Soliciting Material under §240.14a-12 | |
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BEAZER HOMES USA, INC. (Name of registrant as specified in its charter) | | |
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| (Name of person(s) filing proxy statement, if other than the registrant) | | |
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| Payment of Filing Fee (Check the appropriate box): | | |
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| ☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. | |
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Explanatory Note: This filing is identical to a previous filing on December 20, 2019, which was inadvertently designated as a DEFA14A instead of a DEF 14A.
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FROM OUR
CHAIRMAN
Dear Fellow Stockholders:
We had a very successful fiscal year, driven by strong operational execution and continued strength in the housing market. We generated significant gains in operating margin and adjusted EBITDA, leading to full year net income that was more than double last year’s. We also significantly grew our total active lot position and reduced our leverage. These outcomes are the result of our long-standing Balanced Growth Strategy — which is our multi-year plan to grow profitability faster than revenue, from a less leveraged and more efficient balance sheet.
As we improve our financial and operational performance, we are also focused on expanding our ESG activities to create durable value for all of our stakeholders. To that end, we were pleased to be named an ENERGY STAR® Partner of the Year — Sustained Excellence for the sixth consecutive year. Every home we build is ENERGY STAR-certified, and we continue to make improvements in our designs, materials and construction practices in support of our industry-first pledge to have 100% of the homes we build certified as Net Zero Energy Ready by the end of 2025.
We also made significant progress on the rollout of Charity Title, our title insurance agency business committed to contributing 100% of its profits to charity. We expect this expansion will allow us to donate more than $1 million in fiscal 2022, allocated between our national philanthropic partner, Fisher House Foundation, and other charitable organizations in the communities we serve.
On the Governance side, we recently completed a three-year Board refreshment process that resulted in four long-serving directors retiring and three new directors joining our Board. The average tenure of our directors is now 5.6 years, compared to 10.4 years in 2018. The diversity of our Board was also enhanced as a result of this process.
As noted on page 5 of our Proxy Statement, we recently posted on our website our first-ever ESG Summary, which provides information on our ESG-related initiatives, as well as metrics that are responsive to sustainability accounting standards promulgated by the Sustainability Accounting Standards Board (SASB) for companies within the homebuilding industry. This summary represents another step forward in our commitment to meaningful ESG accountability and provides a foundation upon which we expect to build increased transparency by directly reporting on relevant sustainability issues, risks and opportunities that impact our business.
During fiscal 2021, we held more than 90 meetings with investors and discussed many important topics, including executive compensation and ESG matters. We listened closely and our Board and committees implemented several meaningful initiatives based on these engagements.
With respect to executive compensation specifically, we believe pay and performance were strongly linked in fiscal 2021, supporting our key financial, operational and strategic objectives, and aligning our compensation program with best practice principles. Based on the feedback we received from investors during the year, we believe our compensation philosophy is in alignment with their views, while also continuing to reinforce our strategic priorities. We, therefore, respectfully request your support this year on our annual say-on-pay proposal.
Last – but certainly not least – you will see under Proposals 4 and 5 that we are once again asking for stockholder approval of certain protective measures that will help us preserve our ability to fully maximize our net operating losses, or NOLs, that we use (and want to continue to use) to offset the taxable income we are now generating and expect to continue to generate in the future. These protections, which have a three-year term, are currently set to expire in November 2022, and have been overwhelmingly supported by our stockholders since they were first adopted by our Board of Directors. Because our NOLs have substantial value to us, we hope you will support the renewal of these protections for an additional three-year term until November 2025.
FROM OUR
CHAIRMAN OF THE BOARD
Dear Fellow Stockholders:
The 2020 annual meeting of stockholders ofThank you for your continued support as we execute our strategy. We believe that we are positioning Beazer Homes USA, Inc. will be held at 8:30 a.m., Eastern Time,for more growth and more profitability, leading to higher returns on Wednesday, February 5, 2020, at The Westin Atlanta Perimeter North, 7 Concourse Pkwy, NE, Atlanta, Georgia 30328, for the following purposes:stockholders’ equity. As always, we appreciate your confidence in us.
l
Election of the eight directors named in the accompanying proxy statement to serve until our annual meeting in 2021;
lRatification of the appointment of Deloitte & Touche LLP as our independent registered public accounting firm for fiscal 2020;
lApproval of the compensation of our named executive officers;
lApproval of the amended and restated 2014 Long-Term Incentive Plan; and
lTransaction of any other business that may properly come before the meeting or any adjournments or postponements thereof.
Holders of record of our common stock as of the close of business on December 11, 2019 are entitled to notice of, and to vote at, the annual meeting. For instructions on voting, please refer to the Notice of Internet Availability of Proxy Materials you received by mail or the section entitled “How to Vote” beginning on page 1 of this proxy statement. If you received a paper copy of this proxy statement, please refer to the enclosed proxy card.
Your vote is important. Whether or not you plan to attend the annual meeting, we encourage you to vote as soon as possible.
By Order of the Board of Directors,
ALLAN P. MERRILL
Chairman, President and Chief Executive Officer
Beazer Homes USA, Inc.
December 20, 2019
__, 2021
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to be held on February 5, 2020:2, 2022: This proxy statement, along with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019,2021, are available free of charge on the Company’s website at http://www.beazer.com |
PROXY
STATEMENT SUMMARY
This executive summary provides an overview of the information contained within this proxy statement. We encourage you to read the entire proxy statement prior to voting.
ANNUAL MEETING OF STOCKHOLDERS ROADMAP
ANNUAL MEETING
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| When: | Wednesday, February 5, 20202, 2022 8:30 a.m. (Eastern time) | Where: | The Westin Atlanta Perimeter North1000 Abernathy Road, NE,
7 Concourse Pkwy, NESuite 260
Atlanta, Georgia 30328 |
Stockholders of record as of the close of business on December 11, 20198, 2021 are entitled to notice of, and to vote at, the annual meeting.
This proxy statement, along with the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2019,2021, are available on the Company’s website at beazer.com.www.beazer.com.
On December 20, 2019,__, 2021, we began mailing this proxy statement to stockholders who requested paper copies.
For instructions on voting, please refer to the Notice of Internet Availability of Proxy Materials you received by mail or the section entitled “How to Vote” beginning on page 2 of this proxy statement.If you received a paper copy of this proxy statement, please refer to the enclosed proxy card.
Your vote is important. Whether or not you plan to attend the annual meeting, we encourage you to vote as soon as possible.
VOTING MATTERS
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| PROPOSAL | BOARD’S VOTING
RECOMMENDATION | PAGE
REFERENCE |
| Election of directors | For Each
Nominee | 1215 |
| Ratification of appointment of independent auditors | For | 1722 |
| Approval of executive compensation | For | 1924 |
| Amendment of Amended and Restated Certificate of Incorporation to preserve tax benefits | For | 55 |
Approval of the Company's amended and restated 2014 Long-Term Incentive Plana new Section 382 Rights Agreement to preserve tax benefits | For | 4457 |
20192021
BUSINESS HIGHLIGHTS
As we began fiscal 2019, the new home sales market was very challenging, driven by rapidly rising mortgage rates that contributed to affordability concerns and a softening in demand. In that environment, we increased incentives to spur home sales and allocated capital to debt reduction and share repurchases. This response — together with improvements in the overall sales environment and a successful refinancing to reduce borrowing costs — improved results in ways that will be even more meaningful in fiscal 2020.
For fiscal 2019, we:
•Improved new home orders, backlog and community count, which provides a solid foundation for growth as we move into fiscal 2020;
•Improved operations by streamlining our product offerings, which has led to higher customer satisfaction scores, reduced construction cycle times and lower build costs; and
•Improved allocation of capital, which enabled both investment in our business and the return of nearly $90 million to investors.
In short, despite a tough sales environment at the start of fiscal 2019, we ended the year in a better position than we began. Here are several highlights of our financial and operational achievements in fiscal 2019:
2021: | | | | | | | | |
| FINANCIAL | |
| $2.1 BILLION | Revenue |
| | Achieved $2.1 billiona slight increase in homebuilding revenue despite a 3.7% year-over-year decrease in home closings |
| $180.2122.2 MILLION | Net Income |
| | Generated net income from continuing operations of $122.2 million compared to $53.3 million in fiscal 2020 |
| $262.7 MILLION | Adjusted EBITDA |
| | Achieved $180.2$262.7 million in Adjusted EBITDA, an increase of $58.3 million, or 28.5%, year-over-year |
| $51.380.7 MILLION | Debt RepurchasesReduction |
| | Repurchased $51.3 million of debt. We expect to reduceReduced our outstanding debt in 2020 by more than we did in 2019, with the goal of reducing debt below $1 billion over time |
| $500.0 MILLION | Refinancing |
| | We issued $350 million of 7.25% unsecured Senior Notes due 2029 and entered into an unsecured term loan with a principal amount of $150$80.7 million. The proceeds from these transactions were used to refinance $500 million of 8.75% unsecured Senior Notes due 2022, which generated a $11 million per year reduction in cash interest cost |
| $34.6 MILLION | Share Repurchases |
| | We repurchased $34.6 million of our outstanding common stock at an average price of $10.54 per share |
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| OPERATIONAL | |
| 2.8 3.7 HOME
SALES/MONTH | Sales Pace |
| | Achieved average monthly home sales pace per community of 2.8,3.7, a year-over-year increase of 13.8% |
| $595.5 MILLION | Land Acquisition and Land Development Spending |
| | Spent $595.5 million on land acquisition and land development, a 35.1% year-over-year increase |
| $1.3 BILLION | Dollar Value of Backlog |
| | Ended the year with dollar value of homes in linebacklog of $1.3 billion, a year-over-year increase of 29.0% |
| $402,400 | Average Selling Price |
| | Average selling price (ASP) for our homes was $402,400, marking our tenth consecutive year of ASP growth and reflecting an increase of more than 4% year-over-year |
| 127 COMMUNITIES | Average Community Count |
| | Average active community count was 127, a 22.3% year-over-year decrease |
| 21,987 LOTS | Number of Controlled Lots |
| | Ended the year with 21,987 lots controlled either through ownership or options to purchase, a year-over-year increase of 23.3% |
For fiscal 2022, we expect to: •grow EBITDA by more than 10%, leading to earnings per share of more than $5.00 •grow our targetslot position by double digits, with lots controlled by options remaining around 50% •deliver a return on total equity of about 20%, or nearly 25% excluding our deferred tax assets, and •reduce our total debt below $1 billion |
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| Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. Statements regarding expectations for fiscal 2022 are forward-looking statements, which involve known and unknown risks, uncertainties and other factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. |
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| $377.7 THOUSAND | Average Selling Price |
| | Our average selling price (ASP) for the year was $377,700, marking our eighth consecutive year of ASP growth and reflecting an increase of 4.9% year-over-year, primarily related to changes in geographic mix |
| 166 COMMUNITIES | Community Count |
| | Ended the year with an active community count of 166 |
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During fiscal 2020, we expect to continue to pursue our balanced growth strategy, which is designed to improve profitability and returns from a more efficient and less leveraged balance sheet. In particular, we are targeting EBITDA growth in excess of 10% and more than $50 million in debt reduction, with a net debt to EBITDA ratio below 5 times. | | |
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Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. |
CORPORATE
GOVERNANCE HIGHLIGHTS
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| ü | Annual election of all directors | | ü | Clawbacks of incentive awards in the event of a restatement |
ü | Majority vote standard for the election of directors | | ü | Double triggers for both cash severance and accelerated vesting of equity upon a change inof control |
| ü | OfficerSignificant director refreshment over last three years, reducing average tenure from 10.4 years to 5.6 years | | ü | Robust and thorough Board, committee and director evaluation practices to enhance effectiveness |
| ü | Majority vote standard for the election of directors, with a director resignation policy | | ü | Long-standing stockholder engagement practices |
| ü | Meaningful officer and director stock ownership and holding requirements | | ü | Robust Board and Committee evaluation practicesNo tax gross-ups in connection with severance or change of control |
| ü | Policies against hedging, pledging and stock option repricing | | ü | Long-standing stockholderBoard engagement practicesand oversight on all ESG matters |
| ü | Clawbacks of incentive awards in the event of a restatement | | |
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STOCKHOLDER
ENGAGEMENT
We are committed to a robust stockholder engagement program. Our Board values our stockholders’ perspectives and feedbackperspectives. Feedback from stockholders on our business, corporate governance and executive compensation areprogram and ESG matters represent important considerations for Board discussions throughout the year. Over the course of the year, our teamwe held more than 7090 meetings with stockholders and investors.
Our Board maintains a process for stockholders and interested parties to communicate with the Board. Stockholders and interested parties may write or call our Board as provided under “Corporate Governance”“ESG — Corporate Governance Overview” on page 11.15.
BOARD
NOMINEES (PG. 15)
Below are the directors nominated for election by stockholders at the annual meeting. The Board recommends a vote “FOR” each of the directors. | | | | | | | | | | | | | | |
| AGE | SERVING SINCE | PRINCIPAL OCCUPATION | INDEPENDENT |
| Elizabeth S. Acton | 70 | 2012 | Former Executive Vice President Finance and Chief Financial Officer
Comerica Incorporated | Yes |
| Lloyd E. Johnson | 67 | 2021 | Former Global Managing Director, Finance and Internal Audit
Accenture Corporation | Yes |
| Allan P. Merrill* | 55 | 2011 | President and Chief Executive Officer
Beazer Homes USA, Inc. | No |
| Peter M. Orser | 65 | 2016 | Former President and Chief Executive Officer
Weyerhaeuser Real Estate Company | Yes |
| Norma A. Provencio** | 64 | 2009 | President and Owner
Provencio Advisory Services Inc. | Yes |
| Danny R. Shepherd | 70 | 2016 | Former Vice Chairman, Senior Vice President, Executive Vice President and
Chief Operating Officer
Vulcan Materials Company | Yes |
| David J. Spitz | 49 | 2019 | Chief Executive Officer
ChannelAdvisor Corp. | Yes |
| C. Christian Winkle | 58 | 2019 | Former Chief Executive Officer
Sunrise Senior Living | Yes |
*Chairman
**Lead Director
BOARD
NOMINEES (PG. 12)
Below are the directors nominated for election by stockholders at the annual meeting. The Board recommends a vote “FOR” each of the directors.
| | | | | | | | | | | | | | |
| AGE | SERVING SINCE | COMMITTEES SERVED | INDEPENDENT |
| Elizabeth S. Acton | 68 | 2012 | Audit, Finance (Chair) | Yes |
| Laurent Alpert | 73 | 2002 | Nom/Corp Gov, Finance | Yes |
| Allan P. Merrill | 53 | 2011 | Not Applicable* | No |
| Peter M. Orser | 63 | 2016 | Compensation (Chair), Finance | Yes |
| Norma A. Provencio | 62 | 2009 | Compensation, Nom/Corp Gov (Chair)** | Yes |
| Danny R. Shepherd | 68 | 2016 | Audit (Chair), Compensation | Yes |
| David J. Spitz | 47 | 2019 | Compensation | Yes |
| C. Christian Winkle | 56 | 2019 | Finance | Yes |
*Chairman
**Lead Director
BOARD AND
COMMITTEE COMPOSITION (PG. 8)11)
The standing committees of the Board are the Audit Committee, Compensation Committee, Nominating/Corporate Governance Committee and Finance Committee. Below are our current directors and their committee memberships and their 2019 attendance rates formemberships. Each of our directors attended at least 75% of the regularly scheduled Board and committee meetings during the period he or she was on the Board.
As partBoard, with seven of the Board's comprehensive, long-term Board succession plan, threeeight attending 100% of our current directors are retiring and will not stand for reelection at the annual meeting. Retiring directors are noted below.such meetings.
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| AUDIT | COMPENSATION | NOMINATING/CORPORATE GOVERNANCE | FINANCE | ATTENDANCE
RATE |
| Elizabeth S. Acton | l | | | l | 100% | |
Laurent Alpert | | Lloyd E. Johnson | l | l | 100% | |
Brian C. Beazer* | | l | | l | 100% | |
Peter G. Leemputte* | l | | l |
| 100% |
|
| Allan P. Merrill | | | | | 100% | |
| Peter M. Orser | | l | | l | 100% | |
Norma A. ProvencioProvencio* | | l | l | | 100% | |
| Danny R. Shepherd | l | | l | | | 100% | |
| David J. Spitz | | l |
l | | 100% | |
| C. Christian Winkle | l | | | l | 100% | |
Stephen P. Zelnak, Jr.* | l | | l | | 94% | |
lChair
*Retiring director. Lead Director
KEY
QUALIFICATIONS
The following are several of the key qualifications, skills and experience of our Board nominees that we believe are uniquely important to our business.
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| ü | Homebuilding/Construction Industry Experience Merrill, Orser, Shepherd | | ü | CEO/COO Experience Merrill, Orser, Shepherd, Spitz, Winkle |
| | | | |
| ü | CFO/Accounting/Finance Experience Acton, Johnson, Merrill, Provencio, SpitzShepherd | | ü | Public Company Board Experience Acton, Johnson, Merrill, Provencio, Shepherd, Spitz, Winkle |
| | | | |
| ü | Marketing/Sales Expertise Corporate Governance/Ethics
Merrill, Orser,Provencio, Shepherd, Spitz | | ü | Corporate GovernanceRisk Management
Acton, Johnson, Merrill, Provencio, Shepherd, Winkle |
| | | | |
| ü | Marketing/Sales ExpertiseAlpert, Merrill, Orser, Spitz | | ü | ESG Expertise Merrill, Orser, Provencio, Shepherd, Spitz |
The lack of a mark for a director does not mean that he or she does not possess that particular qualification, skill or experience. The marks above simply indicate that the characteristic is one for which the director is especially well known among our Board.
We believe our Board reflects the broad expertise and perspective needed to govern our business and constructively engage with senior management.
HOW
WE PAY
Our executive compensation program is composed of the following elements:
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| ü | Base salary | | ü | Long-term equity incentive compensation, (performance shareswith the majority of target award opportunities tied to multi-year performance goals and payable in stock and cash, as well as restricted stock) |
| | | | stock |
| ü | Short-term cash incentive compensation, based on performance | | ü | Benefits available to all employees |
FISCAL 2019
2021
EXECUTIVE COMPENSATION ACTIONS
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ü | No changes were made to Mr. Merrill’s base salary. Mr. Salomon’s base salary was increased from $550,000 to $600,000, and Mr. Belknap's base salary was increased from $450,000 to $500,000, in each case primarily to align salary more closely with industry peers. |
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ü | No changes were made to Mr. Merrill’s long-term incentive award opportunity. Mr. Salomon’s long-term incentive target award opportunity was increased from 175% to 200% of base salary, and Mr. Belknap's long-term incentive target award opportunity was increased from 125% to 150%, in each case primarily to align target incentives more closely with expanded roles and responsibilities. |
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ü | No changes were made to the short-term incentive award opportunities, expressed as percentages of base salary, of any named executive officer (NEO). We based 65% of the fiscal 2019 short-term incentive opportunity for NEOs on achievement of Bonus Plan EBITDA, 10% on Return on Assets (ROA) and 25% on key operational metrics. |
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ü | We determined to use operational objectives identical to those used in determining the fiscal 2018 short-term incentive opportunity, with the addition of an objective related to further improving overhead efficiency. |
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ü | We determined that NEOs would be eligible to receive an award for the operational components of the 2019 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. |
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ü | We retained the discretion to deduct from awards earned for failure to achieve certain construction quality standards based on the assessment of an independent third-party expert. |
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ü | We continued our practice of awarding performance shares equal to two-thirds of an NEO’s overall long-term incentive target award opportunity, and time-based restricted stock equal to one-third of the target award opportunity. |
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ü | We based 2019-2021 performance share metrics on cumulative pre-tax income, return on assets and expansion of our Gatherings® product line. |
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ü | We continued to include an adjustment to performance shares based on 3-year relative total shareholder return (TSR) performance vs. companies in the S&P Homebuilders Select Industry Index. |
HIGHLIGHTS
Base Salaries (PG. 32)
As we reported in our 2020 Proxy Statement, due to a significant decline in net new orders and the Company's focus on protecting liquidity at the onset of the COVID-19 pandemic, our named executive officers (NEOs, as defined on page 25) voluntarily reduced their respective salaries by 20%, effective April 1, 2020. Those reductions remained in place for all of fiscal 2020.
PERFORMANCE-BASED
COMPENSATION OUTCOMES
Compensation outcomes fromWhile market conditions had improved dramatically by the beginning of fiscal 2021, our NEOs voluntarily extended a portion of base salary reductions, equal to 10% of their respective pre-pandemic annual salaries, into fiscal 2021, subject to the possibility of salaries being restored for the second half of fiscal 2021 if the Company's performance incentivesat that time was on pace to exceed 95% of its annual plan. As a result, Mr. Merrill began fiscal 2021 with a base salary of $877,500 and Mr. Goldberg and Mr. Belknap began fiscal 2021 with base salaries of $382,500 and $486,000, respectively. Because the Company's results for the first half of fiscal 2021 exceeded 95% of the Company's annual plan, the NEOs' salaries were well-aligned withrestored to pre-pandemic levels for the performance our management team achieved duringsecond half of the year, resulting in actual base salaries earned in fiscal 2019:
| | | | | |
ü | Annual cash incentives were earned between threshold and target award opportunity levels based on actual vs. planned outcomes for the operational and financial performance factors, with payouts for the NEOs lower by an average of 41.0% compared with the prior year, despite a reduction in Adjusted EBITDA of 12.0%. |
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ü | The three-year award cycle of the 2017 performance share program ended on September 30, 2019, with results yielding a payout relative to target of 157.5% (after applying a TSR modifier). Metrics included pre-tax income, ROA and ratio of net debt/Adjusted EBITDA, which were collectively subject to a TSR modifier. |
2021 of $926,384 for Mr. Merrill, $403,808 for Mr. Goldberg and $513,074 for Mr. Belknap.
Short-Term Incentive Opportunities (PG. 33)
In addition to the reduction in base salaries discussed above, our NEOs voluntarily reduced their respective target short-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in short-term incentive opportunities, the target short-term incentive award opportunities for our NEOs (expressed as percentages of weighted salary) were 157.5% for Mr. Merrill, 90.0% for Mr. Goldberg and 112.5% for Mr. Belknap.
Our Compensation Committee determined that our NEOs would be eligible to receive an award for the operational components of the 2021 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. Furthermore, the Committee retained the discretion to deduct from awards earned for any reason, including the failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.
Long-Term Incentive Opportunities (PG. 35)
In addition to the reductions discussed above, our NEOs voluntarily reduced their respective target long-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in long-term incentive opportunities, the target long-term incentive award opportunities for the NEOs (expressed as percentages of already reduced salary) were 270.0% for Mr. Merrill, 135.0% for Mr. Goldberg and 157.5% for Mr. Belknap.
For the 2021-2023 performance period, our Compensation Committee continued its practice of tying two-thirds of target long-term incentive award opportunities to multi-year performance goals, with one-half of the performance-based component payable in cash and one-half payable in performance shares, subject to the same performance criteria.
In addition, our Compensation Committee continued to include a relative total shareholder return (TSR) modifier to NEO performance share and performance cash awards, which could result in an adjustment to any earned awards (by up to +/- 20%) based on our three-year relative TSR performance vs. companies in the S&P Homebuilders Select Industry Index.
COMPENSATION OUTCOMES (PGS. 34 and 37)
Compensation outcomes from performance incentives were well-aligned with Company and management team performance during fiscal 2021. Based on actual vs. planned outcomes for the financial and operational performance factors, our NEOs earned 192.5% of reduced target annual incentive award opportunities.
The three-year award cycle relating to our 2019 performance share program ended on September 30, 2021, with results yielding a payout equal to 148.75% of the target award opportunity after applying a negative 15.0% TSR modifier. Metrics included cumulative pre-tax income, return on assets and expansion of our Gatherings® product line, which were then collectively subject to the TSR modifier.
RATIFICATION OF
INDEPENDENT AUDITORS (PG. 17)22)
Although stockholder ratification is not required, the appointment of Deloitte & Touche LLP as the Company’s independent auditors for fiscal 20202022 is being submitted for ratification at the annual meeting because the Board believes doing so is a good corporate governance practice. The Board recommends a vote “FOR” the ratification of Deloitte & Touche LLP as the Company’s independent auditors.
AMENDEDCHARTER AMENDMENT AND RESTATED
2014 LONG-TERM INCENTIVE PLANNEW RIGHTS AGREEMENT (PG. 44)53)
We have significant deferred tax assets comprised primarily of net operating losses, or NOLs, that we use (and want to continue to use) to offset the taxable income we are now generating and expect to continue to generate in the future. These benefits, which have substantial value to us, can be significantly impaired, however, if we experience an “ownership change” under Section 382 of the Internal Revenue Code (which is discussed in detail under “Proposals 4 and 5 — Background” on page 53). To help protect against an “ownership change” and preserve our ability to fully maximize our NOLs, our stockholders have previously approved certain protective measures, including the charter amendment and the Section 382 Rights Agreement described in Proposal 4 and Proposal 5, respectively.
These protective provisions are set to expire in November 2022. Accordingly, we are now seeking shareholderstockholder approval to amend and restate the 2014 Long-Term Incentive Plan (as amended and restated, the Amended 2014 Plan). The Amended 2014 Plan would amend and restate the 2014 Plan to, among other things, increase the number of shares available under the 2014 Plan from 3,850,000 to 5,550,000, limit the maximum value of equity awards that may be granted to any non-employee director during any fiscal year to $350,000, add a requirement that, subject to limited exceptions, all awards are subject to a minimum one-year vesting period, and to extend the termexpiration dates of each of these protective provisions by an additional three years. We have provided a brief “Frequently Asked Questions” section beginning on page 53, followed by the 2014 Plan to 10 years from the date of the annual meeting.related proposals. The Board recommends a vote “FOR” the“FOR” approval of both the Amended 2014 Plan.
protective charter amendment and the new Rights Agreement.
TABLE OF
CONTENTS
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| PROXY STATEMENT SUMMARY | i |
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| 2 |
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| Revoking a Proxy | | 3 |
| Quorum | |
| Votes Needed | |
| Who Counts the Votes | | 4 |
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| Director Independence | |
| Board Leadership Structure and Governance Practices | |
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| 10 |
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| 11 |
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| Audit Committee | |
| Nominating/Corporate Governance Committee | |
| Compensation Committee | |
| Finance Committee | |
| Committee Charters and Other Information | |
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| Director Qualifications | |
| Procedures Regarding Director Candidates Recommended by Stockholders | |
| Reporting of Concerns to Independent Directors | |
| PROPOSAL 1 — ELECTION OF DIRECTORS | |
| NON-EMPLOYEE DIRECTOR COMPENSATION | |
| PROPOSAL 2 — RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
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| COMPENSATION DISCUSSION AND ANALYSIS | |
| CD&A OVERVIEW | |
| Who We Are | |
20192021 Business Highlights | 21 |
Fiscal 20192021 Compensation Highlights | 23 |
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| OUR OVERALL COMPENSATION PHILOSOPHY AND OBJECTIVES | 24 |
| 24 |
| Pay for Performance | 24 |
| Pay Best Practices | |
| Role of the Compensation Committee, Management and Compensation Consultants | |
| Peer Groups and Data | |
| ELEMENTS OF FISCAL 2019 COMPENSATION PROGRAM | |
| Consideration of Say on Pay Votes | 27 |
| Base Salary | |
| Short-Term Incentive Compensation | |
| Long-Term Incentive Compensation | |
| Benefits | |
| Stock Ownership and Holding Requirements | 34 |
| Compensation Clawback Policy | 34 |
| Risk Consideration In Our Compensation Programs | 34 |
Tax Legislation Related To Compensation | 35 |
| | 36 |
| EXECUTIVE COMPENSATION | | 37 |
| Summary Compensation Table | 3742 |
| All Other Compensation | 3843 |
| Grants of Plan-Based Awards Table | 3843 |
| Outstanding Equity Awards at Fiscal Year End Table | 3945 |
Option ExerciseExercises and Stock Vested Table | 4046 |
| Non-Qualified Deferred Compensation Table | 4046 |
| Potential Payments Upon Termination or Change of Control | 4147 |
| Pay Ratio | 4349 |
| SECURITY OWNERSHIP | |
| 44 |
| 54 |
| TRANSACTIONS WITH RELATED PERSONS | 57 |
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57OTHER INFORMATION | |
| 58A |
| 59 |
| |
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PROXY
STATEMENT
GENERAL
This proxy statement contains information about the 20202022 annual meeting of stockholders of Beazer Homes USA, Inc. In this proxy statement, both “Beazer” and the “Company” refer to Beazer Homes USA, Inc. This proxy statement and the enclosed proxy card are being made available to you by the Company’s Board of Directors starting on or about December 20, 2019.__, 2021.
PURPOSE OF THE ANNUAL MEETING
At the Company’s annual meeting, stockholders will vote on the following matters:
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l | Proposal 1: election of directors; |
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l | Proposal 2: ratification of appointment of Deloitte & Touche LLP as the Company’s independent auditors; |
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l | Proposal 3: approval of the compensation of the Company’s named executive officers; |
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l | Proposal 4: approvalamendment of the Company's amendedAmended and restated 2014 Long-Term Incentive Plan; andRestated Certificate of Incorporation; |
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l | Proposal 5: approval of a new Section 382 Rights Agreement; and |
| Transaction of any other business that properly comes before the meeting or any adjournments or postponements thereof. As of the date of this proxy statement, the Company is not aware of any other business to come before the meeting. |
WHO CAN VOTE
Only stockholders of record holding shares of Beazer common stock at the close of business on the record date, December 11, 2019,8, 2021, are entitled to receive notice of the annual meeting and to vote the shares of Beazer common stock they held on that date. The Company’s stock transfer books will not be closed. A complete list of stockholders entitled to vote at the annual meeting will be available for examination by any Beazer stockholder at 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328, for purposes relating to the annual meeting, during normal business hours for a period of ten days before the meeting.
As of December 11, 2019,8, 2021, there were 31,383,04831,459,708 shares of Beazer common stock issued and outstanding. Holders of Beazer common stock are entitled to one vote per share and are not allowed to cumulate votes in the election of directors.
HOW TO VOTE
If your shares of Beazer common stock are held by a broker, bank or other nominee (in “street name”), you will receive instructions from them on how to vote your shares. As further described below, if your shares are held in street name and you do not give your broker, bank or other nominee specific instructions on how to vote your shares, the entity holding your shares may vote them at its discretion on any “routine” matters; however, your shares will not be voted on any “non-routine” matters. An absence of voting instructions on any “non-routine” matters will result in a “broker non-vote.”
The only “routine” matter to be acted upon at the annual meeting is Proposal No. 2: ratification of appointment of Deloitee & Touche LLP as the Company’s independent auditors. All other matters to be acted upon at the annual meeting are “non-routine” matters. Accordingly, if you hold all or any portion of your shares in street name and you do not give your broker, bank or other nominee specific instructions on how to vote your shares, your shares will not be voted on any of the following “non-routine” matters:
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l | Proposal 1: election of directors; |
l | Proposal 3: advisory vote to approve the compensation of the Company’s named executive officers; |
| Proposal 4: amendment of the Company's Amended and Restated Certificate of Incorporation; and |
l | Proposal 4:5: approval of the Company's amended and restated 2014 Long-Term Incentive Plan.a new Section 382 Rights Agreement. |
If you hold shares of Beazer common stock in your own name (as a “stockholder of record”), you may vote your shares:
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| over the Internet by following the instructions provided in the Notice of Internet Availability of Proxy Materials; |
| if you requested to receive printed proxy materials, by using the toll-free telephone number listed on the enclosed proxy card (specific directions for using the telephone voting system are included on the proxy card); or |
| if you requested to receive printed proxy materials, by marking, signing, dating and returning the enclosed proxy card in the postage-paid envelope provided. |
Whichever method you use, your shares of Beazer common stock will be voted as you direct. If you designate the proxies named in these proxy materials to vote on your behalf, but do not specify how to vote your shares, they will be voted:
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l | FOR the election of the director nominees; |
l | FOR the ratification of appointment of Deloitte & Touche LLP as the Company’s independent auditors; |
l | FOR approval of the compensation of the Company’s named executive officers; |
l | FOR approvalamendment of the Company's amendedAmended and restated 2014 Long-Term Incentive Plan; andRestated Certificate of Incorporation; |
l | FORapproval of a new Section 382 Rights Agreement; and |
| In accordance with the judgment of the persons voting the proxydesignated or named as proxies on any other matter properly brought before the meeting or any adjournments or postponements of the annual meeting. |
REVOKING A PROXY
You may revoke your proxy by submitting a new proxy with a later date by Internet, telephone or mail (if applicable), by voting at the meeting, or by filing a written revocation with Beazer’s corporate secretary. Your attendance at the annual meeting alone will not automatically revoke your proxy. If you vote in advance using one of the above methods, you may still attend and vote at the meeting.
QUORUM
QUORUM
A majority of the shares of Beazer common stock outstanding and entitled to vote on the record date will constitute a quorum, permitting the business of the annual meeting to be conducted. If your shares are present in person or by proxy, your shares will be part of the quorum.
VOTES NEEDED
Election of Directors
You may vote FOR or AGAINST any or all director nominees or you may ABSTAIN as to one or more director nominees. In order to be elected, the number of votes FOR a director must exceed the number of votes AGAINST such director. As set forth in our bylaws, only votes FOR or AGAINST the election of a director nominee will be counted. AbstentionsABSTENTIONS and broker non-votes count for quorum purposes, but not for purposes of the election of directors. A vote to ABSTAIN is not treated as a vote FOR or AGAINST and will have no effect on the outcome of the vote.
Ratification of Appointment of Independent Auditors
You may vote FOR or AGAINST the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent auditors or you may ABSTAIN. A majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote must be voted FOR approval of this matter in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter will be counted as shares entitled to vote on the matter. Broker non-votes are not applicable to this matter. A vote to ABSTAIN will have the effect of a vote AGAINST the matter.
Approval of the Compensation of Our Named Executive Officers
You may vote FOR or AGAINST the approval of the compensation of our named executive officers or you may ABSTAIN. A majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote must be voted FOR approval of this matter in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter will be counted as shares entitled to vote on the matter. Broker non-votes will not be counted as shares entitled to vote on this matter. A vote to ABSTAIN will have the effect of a vote AGAINST the matter. As an advisory vote, this proposal is not binding. However, our Board and Compensation Committee will consider the outcome of this vote when making future compensation decisions for our executive officers.
Approval of theAmendment to Company’s Amended and Restated 2014 Long-Term Incentive PlanCertificate of Incorporation
You may vote FOR or AGAINST the proposed amendment to the Company’s Amended and Restated Certificate of Incorporation or you may ABSTAIN. A majority of all outstanding shares of common stock entitled to vote must be voted FOR approval of this matter in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter and broker non-votes will be counted as shares entitled to vote on the Company's amendedmatter. ABSTENTIONS and restated 2014 Long-Term Incentive Planbroker non-votes will have the effect of a vote AGAINST the matter.
Approval of New Section 382 Rights Agreement
You may vote FOR or AGAINST the new Section 382 Rights Agreement or you may ABSTAIN. A majority of the shares of common stock present in person or represented by proxy at the annual meeting and entitled to vote must be voted FOR approval of this matter in order for it to pass. Votes cast FOR or AGAINST and ABSTENTIONS with respect to this matter will be counted as shares entitled to vote on the matter. Broker non-votes will not be counted as shares entitled to vote on this matter. A vote to ABSTAIN will have the effect of a vote AGAINST the matter.
Other Business
The affirmative vote of a majority of the shares cast at the annual meeting is required for approval of any other business that may properly come before the meeting or any adjournmentadjournments or postponements thereof. Only votes FOR or AGAINST approval of any other business will be counted. Abstentions and broker non-votes count for quorum purposes, but not for the voting on the approval of such other business.
WHO COUNTS THE VOTES
Representatives of Broadridge Financial Solutions, Inc. will tabulate the votes and act as inspectors of the election.
EXPENSES OF SOLICITATION
Expenses incurred in connection with the solicitation of proxies will be paid by the Company. In addition, we have engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies. We anticipate that the costs associated with this engagement will be approximately $19,500 plusplus costs and expenses incurred by MacKenzie. We will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for costs incurred in connection with this solicitation.
CORPORATEESG
ENVIRONMENTAL, SOCIAL AND GOVERNANCE
We view our ESG program as a key focus of our strategic planning and risk oversight responsibilities and a process of continuous improvement. Accordingly, we continually look for ways to measure, monitor and reduce our carbon footprint and waste, equally and equitably employ and retain diverse talent across our organization, facilitate access to energy-efficient, lower cost of ownership homes, and contribute to the communities in which we live and operate, all while upholding our code of ethics and corporate governance principles.
The following few pages highlight several aspects of our ESG program. We recently posted on our website our ESG Summary, which contains more detailed information on our ESG-related initiatives, as well as metrics that are responsive to sustainability accounting standards promulgated by the Sustainability Accounting Standards Board (SASB) for companies within the homebuilding industry. Our ESG Summary represents another step forward in our commitment to meaningful ESG accountability and provides a foundation upon which we expect to build increased transparency by directly reporting on relevant sustainability issues, risks and opportunities that impact our business.
DIRECTOR INDEPENDENCEESG
ENVIRONMENTAL HIGHLIGHTS
As a homebuilder, we recognize the critical role we play not only in creating durable and growing value for our customers, but also acting as a responsible steward in creating a sustainable future. We work with industry-leading partners who value innovation and quality and embrace environmentally friendly processes and objectives. We also use advanced construction practices and materials designed to provide our customers with lower carbon producing, energy-efficient homes that have demonstrated high-performance and lower costs of ownership.
Examples of our commitment to the environment include our approach to land acquisition, planning and development, our Net Zero Energy Ready commitment described below and our use of third-party programs such as ENERGY STAR® and Indoor airPLUS.
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| In 2021, we received the 2021 ENERGY STAR Partner of the Year—Sustained Excellence Award from the EPA for the sixth consecutive year. Beazer was one of only three publicly-traded homebuilders to receive this award in 2021 for all its markets. |
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| In addition to our partnership with the EPA’s ENERGY STAR program, we incorporate a variety of energy-efficient and high-quality products into our homes that also reduce waste output, including those relating to insulation, air and water sealing and technologies. Since 2010, we have installed EPA-certified WaterSense fixtures in 100% of our homes to provide homeowners with increased water efficiency. More recently, we began building our homes in accordance with the EPA’s Indoor airPLUS specifications, which provides our homeowners with better comfort, durability and indoor air quality. |
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The Home Energy Rating System (HERS®) is the industry-leading home building scoring system developed by the Residential Energy Services Network (RESNET) for inspecting and calculating a home’s energy performance after construction is complete. The HERS methodology measures the energy efficiency of a home on an easy-to-understand scale: the lower the HERS Index Score, the more energy efficient the home and the more it reduces greenhouse gas (GHG) emissions over its lifetime.
Only a small portion of newly built homes in the U.S. are subjected to the HERS measurement. In 2021, the estimated average HERS Index Score among typical newly built homes was 73, while the average HERS Index Score for Beazer built homes in 2021 was 56. Beazer Homes always reports its average HERS Index Scores as "gross" scores. A gross HERS Index Score is a more rigorous standard because it excludes the benefit of renewable energy technologies. By the end of 2025, every new Beazer home will be independently verified as having a gross HERS Index Score of 45 or less.
OUR NET ZERO ENERGY READY COMMITMENT | | | | | |
| In December 2020, we became the first U.S. national homebuilder to publicly commit to ensuring that by the end of 2025 every home we build will meet the requirements of the U.S. Department of Energy’s (DOE) Zero Energy Ready Home Program. The DOE’s Zero Energy Ready Home program builds upon current HERS standards and the comprehensive requirements of the EPA’s ENERGY STAR program and incorporates other building science innovations and practices to achieve at least 40%-50% greater energy efficiency than a typical new home. DOE Zero Energy Ready homes are verified and certified by a qualified third-party inspector. |
| Building 100% of our homes as Net Zero Energy Ready will significantly reduce the amount of GHG emissions produced over the lifespan of our homes. Our Net Zero Energy Ready homeowners will be able to achieve net zero energy by attaching a properly sized renewable energy system, such as a solar photovoltaic system, that will generate as much energy as the home consumes. Our Net Zero Energy Ready commitment represents an entirely new level of quality, comfort and innovation for our customers. |
ESG
SOCIAL HIGHLIGHTS
Health and Safety
Our highest priority is the health, safety and well-being of our employees, which we believe is critical to our continued growth and success. We are guided by four principles that are non-negotiable: safety, integrity, respect and inclusion, and we strive to live up to these principles in all aspects of our operations, including life-work balance, career and personal development opportunities, our flexible time-off program and industry-leading parental leave policies.
We require extensive and ongoing training of our team members, including safety training pursuant to our safe practices manual. All field employees and new home counselors are required to complete the certified Occupational Safety and Health Administration (OSHA) 10-hour construction training course.
Our commitment to actively engaging with our team members is a key component of our culture. Over 95% of our employees completed our 2021 annual employee engagement survey, and 95% of those employees indicated they would recommend working at Beazer Homes.
Inclusion and Diversity
We are committed to building an inclusive culture in which everyone feels welcome, respected, safe and valued. By embracing diversity in all its forms, we will better serve our employees, customers, partners and communities. Our Board of Directors and senior leaders oversee our efforts to prioritize and improve the diversity of our organization. As we continue to progress in this area, we are reaching across all facets of our functional and operational areas, including recruitment, employee engagement, retention, employee development and training and promotions.
Beazer Homes is also committed to pay equity. We utilize a third-party to complete an annual pay parity audit to determine if there are pay disparities across gender or race. If audit results identify any outliers, we examine the circumstances and take corrective action as warranted.
While we are proud of the successes we have had, particularly in fostering gender diversity and pay equity within our organization, we continue to work to increase the diversity of our teams across all levels of our company.
Our goal is to provide to our customers homes with extraordinary value at an affordable price. We focus on building efficient homes with quality, high-performing materials while making the construction and purchase process an enjoyable experience. We are committed to our customers receiving consistent and clear communication throughout their purchase and build process, including what is happening next, why it is done that way and how that process helps to provide a quality-built home for them. We believe transparency is critical to creating a great customer experience.
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| Across our Company, Beazer team members are committed to supporting causes that make a difference. From local service activities to Company-wide initiatives, giving back is a central element of our culture, championed by passionate employees and embraced by partners who share our commitment to have a positive impact on the communities we serve. |
| In 2020, we announced our newest commitment to our customers and communities, the development of a new, wholly-owned title insurance agency, Charity Title. |
| Charity Title donates 100% of its profits to the Beazer Charity Foundation, our company’s philanthropic arm, which provides donations to national and local nonprofits. Charity Title net profits were approximately $900,000 in 2021. Going forward, with the full rollout of Charity Title operations across our footprint (which is scheduled to be completed in 2022), we expect charitable funding to well exceed $1,000,000 annually. |
ESG
CORPORATE GOVERNANCE OVERVIEW
Our Board of Directors has evaluated all business and charitable relationships between the Company and the Company’s directors during fiscal 20192021 as required by the Company’s Corporate Governance Guidelines. As a result of this evaluation, the Board has determined that each non-employee director (all directors(each director other than Mr. Merrill) is an “independent director” as defined by the standards for director independence established by applicable laws, rules and listing standards including the standards for independent directors established by The New York Stock Exchange Inc. (NYSE) and the Securities and Exchange Commission (SEC). The Company’s Corporate Governance Guidelines are available on the Company’s website at beazer.com.
The Corporate Governance Guidelines require that non-employee directors meet in executive session as part of each regularly scheduled meeting of the Board. These executive sessions are called and chaired by our Lead Director. Under our Corporate Governance Guidelines, the Lead Director is an independent director who is elected by the affirmative vote of a majority of the independent directors. In addition to chairing executive sessions of the independent directors, the Lead Director discusses with the other independent directors management'smanagement’s proposed meeting agendas for meetings of the Board and reviews approved meeting agendas with our chief executive officer,Chief Executive Officer, leads the discussion with our chief executive officerChief Executive Officer following the independent directors' executive sessions and leads periodic discussions with other Board membersdirectors and management concerning the Board's information needs.
BOARD LEADERSHIP STRUCTURE AND GOVERNANCE PRACTICES
Board Leadership Structure
Our Board regularly reviews all aspects of its governance profile, including its leadership structure. As part of this review, and in connection with the decision by our former Chairman, Mr. Zelnak, to retire from the Board, our Board has determined that a combined CEO-Chairman coupled with an empowered and independent Lead Director would beis the most appropriate corporate governance structure for the Company and its stockholders at this time. Accordingly, in November 2019, our Board appointed Mr. Merrill as Chairman and Ms. Provencio as Lead Director.
Mr. Merrill was appointed as Chairman based onand continues to serve as Chairman because of his leadership skills, experience in and knowledge of the homebuilding sector — including his leadership and experience as former Chair of the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and as former Chair of the Leading Builders of America, an industry trade association.association, and his service as a member of the Freddie Mac Board of Directors. In addition, the Board recognized Mr. Merrill'sMerrill’s exemplary tenure at the Company — includingwhich now includes more than 1214 years of service, over eightten of which as President and CEO. The Board believes that Mr. Merrill’s continued leadership is essentialbest positions the Company to meeting the Company’sachieve its long-term strategic objectives.
The independent directors of the Board appointed Ms. Provencio as Lead Director because she possesses the experience, qualities and skills necessary for the role, including high personal integrity and a readiness to challenge management when appropriate, drawing on more than 30 years of experience in the public accounting field and 1012 years of service to the Board. Our Board believes Ms. Provencio is highly qualified to discharge responsibilities that are consistent with the duties of an independent Lead Director, including presiding at all meetings of independent directors, consulting on all meeting schedules and agendas, being available for direct consultation with the Company’s stockholders, and assisting with the Board’s thorough CEO evaluations, Board evaluations and succession planning activities. For more information on the role and responsibilities of our Lead Director, see Exhibit A ("(“Lead Director Role and Responsibilities"Responsibilities”) to our Corporate Governance Guidelines, which are available on the Company'sCompany’s website at beazer.com.
Our Board believes that its new leadership structure, together with the Company’s already strong corporate governance practices, creates a productive relationship between the Board and management, including strong independent oversight. Our Board will continue to review its leadership structure regularly.
Majority Vote Standard and Director Resignation Policy
Our Bylaws and Corporate Governance Guidelines provide a majority voting standard for the election of directors in uncontested elections. Director nominees will be elected if the votes cast for such nominee exceed the number of votes cast against such nominee. In the event that (i) a stockholder proposes a nominee to compete with nominees selected by our Board, and the stockholder does not withdraw the nomination prior to our mailing the notice of the stockholders meeting, or (ii) one or more directors are nominated by a stockholder pursuant to a solicitation of written consents, then directors will be elected by a plurality vote.
The Corporate Governance Guidelines provide that our Board will only nominate candidates who tender their irrevocable resignations, which are effective upon (i) the candidate not receiving the required vote at the next annual meeting at which they face reelection and (ii) our Board of Directors accepting the candidate’s resignation. In the event that any director does not receive a majority vote, then pursuant to our Corporate Governance Guidelines, the Nominating/Corporate Governance Committee or NCG Committee,(NCG Committee) will act on an expedited basis to determine whether to accept the director’s resignation and will submit its recommendation to the Board. In deciding whether to accept a director’s resignation, the Board and the NCG Committee may consider any factors that they deem relevant. Our Corporate Governance Guidelines also provide that the director whose resignation is under consideration will abstain from the deliberation process. All candidates standing for reelection at the annual meeting have tendered such resignations.
Risk Oversight
Effective risk oversight is a priority for our Board. The goal of the Company’s risk management process is to understand and manage riskkey strategic and operational risks, identified as having a material impact on the Company, in accordance with the Board’s tolerance for risk. The entire Board oversees and engages with senior executives on key ESG matters, including organizational inclusion and diversity programs, equitable pay practices, environmental programs and initiatives and sustainability matters. All committees report on the risk categories they oversee to the full Board.
Our Board has delegated primary responsibility for overseeing our risk management process to the Audit Committee. The Audit Committee oversees our risk identification and mitigation processes and specifically oversees management of our financial, legal and fraud policies, as well as our regulatory compliance and cybersecurity risks. This includes regular evaluation of risks related to the Company’s financial statements, including internal controls over financial reporting. Members of management, including our Chief Financial Officer, General Counsel, Compliance Officer and Director of Internal Audit, report to the Audit Committee on a quarterly basis regarding on-going risk management activities. In addition, the Audit Committee and the full Board receive regular reports from our Chief TechnologyInformation Officer and other members of senior management regarding their assessment of cybersecurity and related risks to the Company, as well as ongoing cybersecurity initiatives. The Audit Committee also oversees the internal audit function and our independent auditors and meets separately on at least a quarterly basis with our Compliance Officer, Director of Internal Audit and representatives of our independent auditors as part of this oversight responsibility.
Our Compensation Committee periodically reviews our compensation philosophy and program designs to help ensure that our compensation programs, including those applicable to our executives, do not encourage inappropriate risk taking that could have a materially adverse impact on the Company. The Compensation Committee works with its independent compensation consultant, Pearl Meyer, to structure executive compensation plans that are appropriately aligned with key businessfinancial, operational and strategic objectives, company performance and stockholder interests. For more information on risk considerations in our compensation programs, please see “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Risk Considerations in Our Compensation Programs” below.
Our Finance Committee oversees risks relating to liquidity, capital structure and investments, including land acquisition and development. The Finance Committee, as well as the Board as a whole, reviews our long-term strategic plans, annual budget, capital commitments, cash needs and funding plans. Management is responsible for identifying and managing these risks, while directors provide oversight to management in this process.
Our Nominating/Corporate GovernanceNCG Committee oversees risks relating to governance matters. The NCG Committee also oversees our ethics program, including implementation of our Code of Business Conduct and Ethics, and compliance by directors and management with the corporate governance and ethics standards of the Company.
Environmental and Social Responsibility
We are committed to contributing to the sustainability of communities through our support for a variety of charitable foundations; promoting safety, diversity and inclusion in our workforce; and building our homes and communities with a concern for their impact on the environment. Our Board of Directors provides oversight of environmental and social matters, and is committed to supporting our efforts to operate as a good corporate citizen. Some highlights of our accomplishments in these areas appear below.
Environmental Responsibility
We are committed to making home ownership more affordable and building our homes with a concern for their impact on the environment. We work with industry-leading partners who, like us, provide innovation and quality and foster environmentally-friendly processes. Our construction practices are designed to provide our customers with healthy and comfortable indoor environments, while contributing to sustainability of the communities in which we operate.
Beazer Homes has participated in the ENERGY STAR® Program since 1998, certifying over 63,000 new homes during that period. In 2019, we were selected as an ENERGY STAR Sustained Excellence Partner of the Year for the fourth consecutive year, and we continue to focus on energy efficiency by partnering with ENERGY STAR to assure 100% of our homes meet or exceed ENERGY STAR program requirements. With a focus on durability and energy efficiency, we have effectively contributed to the reduction of greenhouse emissions by saving the environment over 12,000 metric tons of CO2 equivalent emissions in 2019 alone and, since 2011, over 100,000 metric tons of CO2 equivalent emissions.
We also foster new sustainability initiatives as we work to protect the quality of our environment. Our efforts include implementing programs such as energy-efficient homes with ACH (Air Changes per Hour) ratings better than industry standards, which lessens the impact on our environment of maintaining a comfortable home. This is accomplished through whole home weatherization and efficiency systems, internal quality inspections and a rigorous 3rd party quality inspection program that tests every home we build, all of which are designed to assure consistency with our high expectations on construction standards.
Another example of our efforts in this area is our National Storm Water Program, which has been developed to ensure we are protecting the environment and complying with applicable federal, state and local regulations. This helps us design and build our neighborhoods to better manage the flow of rain water through the community, while helping to keep materials such as dirt, paint, concrete residue, oils or other waste from leaving our construction sites.
We continue to incorporate efficient and waste-reducing practices into home building, offering long-term benefits to both consumers and the environment. For example, we are engaged in a project with EntekraTM Fully Integrated Off-Site Solutions for framing systems in Sacramento, California. Our homes framed as part of this project are constructed more efficiently, with a cleaner job-site and reduced waste. More broadly, during fiscal 2019, we focused on a continuing objective to simplify our product offerings, which includes streamlining our plan and structural options, as well as design selections, to improve efficiency, reduce costs and minimize waste at construction sites.
Social Responsibility
Safety is a core principle at Beazer, and a healthy and safe working environment for our employees is our highest priority. We are also committed to fostering a diverse and inclusive environment, with equal employment opportunity hiring practices and policies. Our benefits package is highly-competitive, with industry-leading PTO and parental leave policies.
We strive to put our customers first in everything we do, and we differentiate ourselves from our competition by: (1) offering flexible floor plans that provide personalization of living space at no additional cost; (2) building into every Beazer home exceptional quality and comfort that translates into a lower cost of ownership; and (3) saving our customers thousands of dollars on their home loan with our Mortgage Choice program that makes it easy to compare multiple loan offers from competing lenders.
We take seriously our responsibility to strengthen the communities in which we operate. In addition to various division-level initiatives that serve local communities, we have a long-standing partnership with the Fisher House Foundation, a
not-for-profit organization that builds comfort homes where military and veterans’ families can stay free of charge while a loved one is in the hospital. We have significant participation from our employees in charitable activities, such as the 2019 Rock ‘n Roll Marathon, where our employees raised and contributed over $200,000 to support the Fisher House Foundation, the MS 150, a two-day bike ride to support the National Multiple Sclerosis Society, and numerous local-community charitable projects, including Operation FINALLY HOME, which provides mortgage-free homes to military families.
STANDING COMMITTEES AND
MEETINGS OF THE BOARD OF DIRECTORS
The four standing committees of the Board are the: Audit Committee, Nominating/Corporate GovernanceNCG Committee, Compensation Committee and Finance Committee. Below are our current directors and their committee memberships. Each of our directors attended at least 75% of the regularly scheduled Board and committee meetings during the period they were on the board, with seven of eight attending 100% of such meetings. Actions taken by these committees are reported to the Board of Directors at the next following Board meeting. All directors then serving on the Board attended the Company’s 20192021 annual meeting of stockholders held on February 6, 2019.3, 2021. The table below shows the current membershipnumber of the Board and each standing committee, and the number offormal meetings held during fiscal 2019. Directors who are retiring from the Board at the annual meeting are noted below, as are the two directors who joined the Board during the fourth quarter of fiscal 2019:2021.
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| BOARD | AUDIT | COMPENSATION | NOMINATING/CORPORATE GOVERNANCE | FINANCE | ATTENDANCERATE |
| Elizabeth S. Acton | l | l | | | l | 100% | |
| Laurent Alpert | l | | | l | l | 100% | |
| Brian C. Beazer* | l | | l | | l | 100% | |
| Peter G. Leemputte* | l | l | | l | | 100% | |
| Allan P. Merrill | l | | | | | 100% | |
| Peter M. Orser | l | | l | | l | 100% | |
| Norma A. Provencio | l | | l | l | | 100% | |
| Danny R. Shepherd | l | l | l | | | 100% | |
| David J. Spitz** | l | | l | | | 100% | |
| C. Christian Winkle** | l | | | | l | 100% | |
| Stephen P. Zelnak, Jr.* | l | l | | l | | 94% | |
| Number of Meetings in 2019 | 5 | 6 | 4 | 7 | 6 | |
| | | | | | | | | | | | | | | | | |
| BOARD | AUDIT | COMPENSATION | NOMINATING/CORPORATE GOVERNANCE | FINANCE |
| Elizabeth S. Acton | l | l | | | l |
| Lloyd E. Johnson | l | l | l | | |
| Allan P. Merrill | l | | | | |
| Peter M. Orser | l | | l | | l |
| Norma A. Provencio* | l | | l | l | |
| Danny R. Shepherd | l | l | | l | |
| David J. Spitz | l | | l | l | |
| C. Christian Winkle | l | l | | | l |
| Number of Meetings in 2021 | 7 | 6 | 6 | 8 | 5 |
lChair
*Retiring director. Lead Director
**Director appointed during the fourth quarter of fiscal 2019.
AUDIT COMMITTEE
Our Audit Committee assists the Board in its oversight responsibility relating to:
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l | The integrity of the Company’s consolidated financial statements, accounting and financial reporting processes, and systems of internal controls over accounting and financial reporting; |
l | The Company’s compliance with legal and regulatory requirements; |
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l | The independent auditor’s qualifications, independence and performance, including sole authority for appointment, compensation, oversight, evaluation and termination; |
l | The performance of the Company’s internal audit function; |
l | The Company's management of cybersecurity, data privacy and related risks; |
| The report of the Audit Committee required by the rules of the SEC, as included in this proxy statementstatement; |
l | Reviewing related party transactions,transactions; and |
l | The fulfillment of the other responsibilities set out in its chartercharter. |
Our Board has determined that all members of the Audit Committee are “financially literate” under NYSE rules and also qualify as financial experts, as defined in Item 407 of Regulation S-K under the Securities Act of 1933, as amended. Our Board also has reviewed the composition of the Audit Committee pursuant to the rules of the SEC and NYSE governing audit committees and confirmed that all members of the Audit Committee are independent under such rules.
NOMINATING/CORPORATE GOVERNANCE COMMITTEE
As described further below, the duties of our NCG Committee include recommending to the Board the slate of director nominees submitted to stockholders for election at each annual meeting and proposing qualified candidates to fill vacancies on the Board. The NCG Committee is also responsible for developing corporate governance principles for the Company and overseeing the evaluation of the Board of Directors. Our Board has reviewed the composition of the NCG Committee pursuant to the rules of the NYSE governing nominating and governance committees and confirmed that all members of the NCG Committee are “independent” under such rules.
The NCG Committee considers director nominee recommendations from executive officers of the Company, independent members of the Board and stockholders of the Company, as well as recommendations from other interested parties. The NCG Committee may also retain an outside search firm to assist it in finding appropriate nominee candidates. Stockholder recommendations for director nominees received by the Company’s corporate secretary (at the address for submitting stockholder proposals and nominations set forth under the heading “Procedures Regarding Director Candidates Recommended by Stockholders” below) are forwarded to the NCG Committee for consideration.
During 2019,
Our Compensation Committee reviews the Company’s management resources and structure and administers the Company’s cash- and equity-based compensation programs for directors and management, which includes our NEOs. Our Board has reviewed the composition of the Compensation Committee pursuant to the rules of the NYSE governing compensation committees and confirmed that all members of the Compensation Committee are “independent” under such rules.
Our Finance Committee provides assistance to the Board by reviewing from time to time matters concerning corporate finance, including equity and debt financings, acquisitions and divestitures, share and debt repurchases and dividend policy.
COMMITTEE CHARTERS AND OTHER INFORMATION
Interested parties may access electronic copies of the charters of our Audit Committee, NCG Committee, Compensation Committee and Finance Committee at beazer.com. Our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, which meet the requirements of a code of ethics under applicable SEC regulations and NYSE standards, are also available on the Company’s website. Printed copies of any of these documents may be requested by writing to the Company’s corporate secretary at 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328.
DIRECTOR, BOARD AND COMMITTEE EVALUATIONS
Our Board recognizes that a robust and thorough evaluation process is an important element of corporate governance and enhances our Board’s effectiveness. Therefore, each year, the NCG Committee oversees the evaluation process, which includes personal interviews with each director during which the performance of individual directors, the full Board and the committees of the Board are assessed. Areas of improvement are also solicited during these interviews. These assessments are then reviewed and shared with the full Board during executive session.
Pursuant to our Corporate Governance Guidelines, the NCG Committee is directed to work with our Board on an annual basis to determine the appropriate qualifications, skills and experience for each director and for our Board as a whole. In evaluating these characteristics, the NCG Committee and our Board take into account many factors, including the individual director’s general understanding of our business on an operational level, as well as his or her professional background and willingness to devote sufficient time to Board duties.
Our Board considers diversity of race, ethnicity, gender, age and professional accomplishments in evaluating director candidates. Each individual is evaluated in the context of our Board as a whole, with the objective of recommending a group of nominees that can best promote the success of our business and represent stockholder interests through the exercise of sound judgment based on diversity of experience and background.
When identifying potential director candidates - whether to replace a director who is retiring or has resigned, or to expand the Board to gain additional capabilities - the NCG Committee, in consultation with the full Board, engageddetermines the skills, experience and other characteristics that a search firmpotential candidate should possess in light of the composition and needs of the Board and its committees.The NCG Committee also considers whether or not the candidate would be considered independent under the applicable NYSE and SEC governance standards.
PROCEDURES REGARDING DIRECTOR CANDIDATES
RECOMMENDED BY STOCKHOLDERS
The NCG Committee will consider Board candidates recommended by our stockholders. If the NCG Committee determines to providenominate a stockholder-recommended candidate, then that nominee’s name will be included in the proxy statement for our next annual meeting. Stockholder recommendations must be addressed to: Beazer Homes USA, Inc., Attention: Chair, Nominating/Corporate Governance Committee, 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328.
Our stockholders also have the right under our Bylaws to directly nominate director candidates at an annual meeting by following the procedures outlined in our Bylaws. Our NCG Committee evaluates candidates recommended by stockholders in the same manner it evaluates director candidates identified by the Committee.
REPORTING OF CONCERNS TO INDEPENDENT DIRECTORS
Any concerns about the Company may be communicated directly to our independent directors. We maintain an ethics hotline (at 1-866-457-9346) that individuals may call to report any concerns to Global Compliance, a third-party service provider that administers our ethics hotline. Individuals may report their concerns anonymously, should they wish to do so. Written communications may be mailed to the Company’s corporate secretary at 1000 Abernathy Road, Suite 260, Atlanta, GA 30328, and the corporate secretary will forward such communications to help vetour independent directors.
PROPOSAL 1 —
ELECTION OF DIRECTORS
Each of the nominees listed below has been nominated as a director to serve a term of one year and until his or her respective successor has been qualified and elected. Each of the following nominees is presently serving as a director. While our Board of Directors does not believe that it should limit the number of terms served by directors, the Board periodically evaluates the appropriate size for our Board and will set the number of directors in accordance with our Bylaws and based on recommendations of the NCG Committee. Additionally, while the Board may grant exceptions, as a general policy, directors do not typically stand for reelection at or after the age of 74.
As part of a comprehensive Board succession plan, over the past three years, four long-serving directors retired and three new directors joined the Board. At present, the average tenure of our directors is 5.6 years compared to 10.4 years in 2018, and the average age of our directors is 62. The diversity of the Board was also enhanced as a result of this process, as 25% of our directors are racially diverse and 25% are women, including our Lead Director.
In the event any nominee is not available as a candidate for director, votes will be cast pursuant to authority granted by the proxy for such other candidate or candidates as may be recommended by the NCG Committee and subsequently nominated by our Board of Directors. Our Board has no reason to believe that any of the following nominees will be unable or unwilling to serve as a director, if elected. The biographical information appearing below with respect to each nominee has been furnished to us by the nominee:
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| ELIZABETH S. ACTON Age: 70 Director Since: 2012 Board Committees: Audit, Finance (Chair) Public Company Directorships: Fidelity Fixed Income and Asset Allocation Funds Prior to her retirement in April 2012, Ms. Acton was Executive Vice President Finance (from 2011 to 2012) and Executive Vice President and Chief Financial Officer from (2002 to 2011) of Comerica Incorporated, a financial services company. Prior to joining Comerica, Ms. Acton held a variety of positions at Ford Motor Company from 1983 to 2002, including Vice
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President and Treasurer from 2000 to 2002 and Executive Vice President and Chief Financial Officer of Ford Motor Credit Company from 1998 to 2000. She is an Independent Trustee of the Fidelity Fixed Income and Asset Allocation Funds and Chair of its Audit Committee. Ms. Acton received a Bachelor’s degree from the University of Minnesota and a Master of Business Administration degree in Finance from Indiana University. Ms. Acton has over 35 years of significant financial management expertise as well as significant experience as a finance executive for two public companies. We believe Ms. Acton’s finance and accounting expertise is valuable to the Company in many respects, including with respect to assessment of our capital structure and financial strategy as Chair of our Finance Committee, as well as compliance with our obligations under various regulatory requirements for financial expertise on our Board of Directors and Audit Committee. |
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| LLOYD E. JOHNSON Age: 67 Director Since: 2021 Board Committees: Audit, Compensation Public Company Directorships: Apogee Enterprises, Inc., Haemonetics Corp. Mr. Johnson served as Global Managing Director, Finance and Internal Audit, for Accenture Corporation from 2004 to 2015. At Accenture, he was responsible for leading the global consulting company’s corporate audit organization and providing guidance and counsel in finance and strategic planning. Prior to joining Accenture, Mr. Johnson was an Executive |
Director of M&A and General Auditor at Delphi Automotive and was Corporate Vice President, Finance and Chief Audit Executive at Emerson Electric Corporation. Mr. Johnson began his career at Coopers & Lybrand, which is now part of PwC. Mr. Johnson currently serves on the boards of Apogee Enterprises, Haemonetics Corporation and AARP. Mr. Johnson received a Bachelor of Science in Business Administration degree in accounting and a Master of Accountancy degree with a major in accounting from the University of South Carolina and his Master of Business Administration from Duke University. Mr. Johnson has over 40 years of significant financial management expertise as well as experience as a finance executive for two public companies and experience in the public accounting field. We believe Mr. Johnson’s finance and accounting expertise is valuable to the Company in many respects, including with respect to assessment of our capital structure and financial strategy, as well as accounting expertise. |
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| ALLAN P. MERRILL Age: 55 Director Since: 2011 Public Company Directorships: Federal Home Loan Mortgage Corporation (Freddie Mac) Mr. Merrill joined the Company in May 2007 as Executive Vice President and Chief Financial Officer. He was named President and Chief Executive Officer in June 2011 and elected Chairman in November 2019. Prior to joining the Company, Mr. Merrill worked in both investment banking and online real estate marketing. While working for UBS and its
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predecessor firm Dillon, Read & Co. (from 1987 to 2000), Mr. Merrill ultimately served as co-head of the Global Resources Group, overseeing relationships with construction and building materials companies around the world, including advising Beazer Homes on its 1994 initial public offering and several major acquisitions. Immediately prior to joining Beazer, Mr. Merrill was with Move, Inc. where he served as Executive Vice President of Corporate Development and Strategy after joining the firm as its first President of Homebuilder.com. Mr. Merrill is also involved in several housing industry organizations. He was elected to the Board of Directors of Freddie Mac (Federal Home Loan Mortgage Corporation) in September 2020 and recently completed a four-year term as Chairman of Leading Builders of America, a trade organization of the country’s largest public and private homebuilders. He also serves on the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and on the board of privately held Builder Homesite Inc. He is a graduate of the University of Pennsylvania’s Wharton School with a Bachelor of Science degree in Economics. We believe Mr. Merrill’s experience in and knowledge of the homebuilding sector, gained primarily through finance, capital markets and strategic development roles over more than 25 years, is particularly valuable to the Company as it seeks to achieve its financial and operational goals. |
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| PETER M. ORSER Age: 65 Director Since: 2016 Board Committees: Compensation (Chair), Finance Mr. Orser served as President and Chief Executive Officer of the Weyerhaeuser Real Estate Company, a subsidiary of Weyerhaeuser Company, where he oversaw five different homebuilding operations across the United States, from 2010 to 2014. In July 2014, under his leadership, Weyerhaeuser completed the successful sale of the company. Prior to that, |
Mr. Orser spent almost 25 years in various positions at Quadrant Homes, a leading homebuilder in the state of Washington and a subsidiary of Weyerhaeuser, including serving as President from 2003 to 2010. Mr. Orser is active in a number of civic organizations, including multiple terms on the Runstad Department of Real Estate, University of Washington Advisory Board and United Way of King County board. Mr. Orser holds a Bachelor of Science degree from the University of Puget Sound and a Master of Urban Planning from the University of Washington. Mr. Orser’s experience in the homebuilding industry provides significant operational and safety expertise to the Company. We believe his understanding of our industry, as well as his management experience gained over the course of his career, is valuable to the Company. |
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| NORMA A. PROVENCIO Age: 64 Director Since: 2009 Board Committees: Compensation, Nominating/Corporate Governance (Chair) Ms. Provencio was named Lead Director in November 2019. Ms. Provencio is President and owner of Provencio Advisory Services Inc., a healthcare financial and operational consulting firm. Prior to forming Provencio Advisory Services in October 2003, she was the Partner-in-Charge of KPMG’s Pacific Southwest Healthcare Practice since May 2002. From 1979 to |
2002, she was with Arthur Andersen, serving as that firm’s Partner-in-Charge of the Pharmaceutical, Biomedical and Healthcare Practice for the Pacific Southwest. Ms. Provencio received her Bachelor of Science in Accounting from Loyola Marymount University. She is a certified public accountant and also a member of the Board of Trustees of Loyola Marymount University. Ms. Provencio has over 30 years’ experience in the public accounting field. We believe her in-depth understanding of accounting rules and financial reporting regulations to be valuable to the Company’s commitment and efforts to comply with regulatory requirements. |
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| DANNY R. SHEPHERD Age: 70 Director Since: 2016 Board Committees: Audit (Chair), Nominating/Corporate Governance Prior to his retirement in 2015, Mr. Shepherd was Vice Chairman (from 2014 to 2015) and served as Senior Vice President, Executive Vice President and Chief Operating Officer (from 2001 to 2014) of Vulcan Materials Company, a producer of construction aggregates. From 2016 to 2021, Mr. Shepherd served on the board of directors of GCP Applied Technologies. |
Mr. Shepherd received his Bachelor of Science degree from the Georgia Institute of Technology. Mr. Shepherd has significant experience in the building materials industry, and he has over 40 years of public company experience. He served in various management roles over the course of his career, including 13 years as an executive of a large producer of construction aggregates. We believe his in-depth understanding of our industry, as well as his management and operational experience, provides value to the Company. Mr. Shepherd has significant experience in the building materials industry, and he has over 40 years of public company experience. He served in various management roles over the course of his career, including 13 years as an executive of a large producer of construction aggregates. We believe his in-depth understanding of our industry, as well as his management and operational experience, provides value to the Company. |
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| DAVID J. SPITZ Age: 49 Director Since: 2019 Board Committees: Compensation, Nominating/Corporate Governance Public Company Directorships: ChannelAdvisor Corp. Mr. Spitz is currently the chief executive officer and a member of the board of directors of ChannelAdvisor Corp., a leading e-commerce cloud platform whose mission is to connect and optimize the world's commerce. He also served as president and chief operating officer |
of ChannelAdvisor from 2010 until May 2015, and previously served in a number of capacities from 2006 until 2010. He was an entrepreneur-in-residence at the Aurora Funds, a venture capital firm, from 2005 to 2008. Previously, from 2000 to 2002, Mr. Spitz was founder and chief technology officer of WindWire, a mobile marketing company that was acquired by Avesair, where he then served as president until its acquisition by Inphonic in 2003. In 1996 he co-founded, and until 1998 served as chief technology officer of, Netsation, a network management software company acquired by Nortel Networks, where he then served as senior principal technologist until 2000. Mr. Spitz received a B.A. degree in computer science from the University of California, San Diego. He holds four U.S. patents, is past chairman of the North Carolina School of Science and Mathematics Foundation Board and is past chairman and a member of the executive committee and board of directors of CED, an entrepreneurial support organization for companies in the southeastern United States. Mr. Spitz’s high-level management experience with software and technology companies, computer science background and deep technology industry experience provides value to the Company. |
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| C. CHRISTIAN WINKLE Age: 58 Director Since: 2019 Board Committees: Audit, Finance Mr. Winkle served as the chief executive officer and a member of the board of directors of Sunrise Senior Living, which operates senior living communities in the United States, Canada and the United Kingdom, including Gracewell Healthcare communities, from September 2014 to January 2021. He was chief executive officer of MedQuest, Inc., a |
leading operator of independent, fixed-site, outpatient diagnostic imaging centers in the United States from November 2005 to August 2013. He served as president and chief executive officer of Mariner Health Care, Inc., which operated skilled nursing facilities, assisted living and long-term acute care hospitals from January 1999 to July 2004. Mr. Winkle was the chief operating officer of Integrated Health Services, where he helped pioneer the sub-acute care sector and was responsible for all facility and ancillary service operations. He is a member of Argentum and American Seniors Housing Association (ASHA) boards. Mr. Winkle received his Bachelor of Science degree from Case Western Reserve University. Mr. Winkle's broad management experience and his specific expertise in serving the important aging adults demographic provides value to the Company. |
The Board of Directors recommends a vote FOR the election of each of the nominees named above.
NON-EMPLOYEE
DIRECTOR COMPENSATION
SUMMARY OF 2021 NON-EMPLOYEE DIRECTOR COMPENSATION
Our non-employee directors generally receive annual cash retainers for Board seatsand committee service and an annual restricted stock award that vests one year from the date of grant. They also receive reimbursement for reasonable out-of-pocket expenses incurred in connection with attending Board and committee meetings, but they do not receive fees for meeting attendance.
To reward our directors’ efforts and contributions, the Compensation Committee seeks to position non-employee director compensation at or near the 50th percentile of industry peers, with a meaningful emphasis on equity-based awards to align their interests with stockholders. With the assistance of its independent advisor, the Compensation Committee periodically reviews our non-employee director compensation program to ensure it is sufficiently competitive vs. industry peers to facilitate the attraction and retention of highly experienced and qualified board members. The peer group includes the same companies used in senior executive benchmarking, as listed on page 311.
NON-EMPLOYEE DIRECTOR CASH COMPENSATION
Similar to our NEOs, our non-employee directors voluntarily reduced their annual cash compensation by 20% for the remainder of fiscal 2020 following the onset of the pandemic and subsequent reductions of headcount and other overhead expenses in fiscal 2020. While market conditions had improved dramatically by the beginning of fiscal 2021, our non-employee directors joined our NEOs in voluntarily reducing their cash compensation for the first half of fiscal 2021 by 10%, resulting in a total cash retainer of $71,250 for each non-employee director that served the entire year.
In addition, cash retainers for Board committee service were paid to the non-employee directors as applicable, equal to $23,750 for our Audit Committee chair, $19,000 for each of our other committee chairs, $11,875 for full-year non-Chair service on the Audit Committee and $9,500 for full-year, non-Chair service on all other committees. Ms. Provencio received an additional annual cash retainer of $35,625 for her services as Lead Director.
Non-employee directors are eligible to receive grants of equity-based awards under the Company’s long-term incentive plans at the discretion of our Compensation Committee. Our Compensation Committee’s rationale for equity grants to non-employee directors is similar to that for our NEOs; namely, to align their interests with those of stockholders. The amount of the non-employee director grant is determined in consultation with Pearl Meyer. For fiscal 2021, all non-employee directors that served the full year received an equity grant with the number of shares calculated by dividing $125,000 by the average daily closing price of a share of common stock for the 30 consecutive trading days on the NYSE ending on November 16, 2020, rounded down to the nearest whole number. Mr. Johnson received a pro-rated equity grant calculated by using the fair market value of a share of common stock on the date he was appointed to the Board, rounded down to the nearest whole number. See footnote 2 to the Director Compensation Table below.
Except as described above, our non-employee directors did not receive any other compensation from the Company for services rendered as a director during fiscal 2021. During fiscal 2021, non-employee directors were subject to stock ownership and holding requirements as further described under “Compensation Discussion and Analysis — Elements of Fiscal 2021 Compensation Program — Stock Ownership and Holding Requirements” below.
DIRECTOR COMPENSATION TABLE
The following table sets forth the compensation of each non-employee director in fiscal 2021.
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NAME (1) | FEES EARNED OR PAID IN CASH($) | STOCK AWARDS($)(2) | TOTAL($) |
| Elizabeth S. Acton | 102,125 | 129,120 | 231,245 |
| Laurent Alpert | 29,284 | | 29,284 |
| Lloyd E. Johnson | 26,081 | 32,866 | 58,947 |
| Peter M. Orser | 107,000 | 129,120 | 236,120 |
| Norma A. Provencio | 135,375 | 129,120 | 264,495 |
| Danny R. Shepherd | 104,500 | 129,120 | 233,620 |
| David J. Spitz | 94,418 | 129,120 | 223,538 |
| C. Christian Winkle | 92,625 | 129,120 | 221,745 |
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| Mr. Alpert did not stand for reelection and retired from the Board as of the Annual Meeting of Stockholders held on February 3, 2021. His compensation reflects service as a director from October 1, 2020 to the Annual Meeting. Mr. Johnson was appointed to the Board on June 25, 2021. His compensation reflects service as a director from June 25 through September 30, 2021. |
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| Represents the aggregate grant date fair value of awards determined in accordance with FASB ASC Topic 718. These are not amounts paid to or realized by the non-employee directors. Further information regarding the valuation of stock awards can be found in Notes 2 and 16 to our Consolidated Financial Statements in our 2021 Form 10-K. In fiscal 2021, Ms. Acton, Ms. Provencio and Messrs. Orser, Shepherd, Spitz and Winkle were each granted 9,177 shares of restricted stock. Mr. Johnson was granted 1,695 shares of restricted stock. Each award vests on the one-year anniversary of its grant date. |
PROPOSAL 2 —
RATIFICATION OF APPOINTMENT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board of Directors has selected the firm of Deloitte & Touche LLP, the member firms of Deloitte & Touche Tohmatsu, and their respective affiliates (collectively, Deloitte & Touche), to serve as our independent registered public accounting firm for the fiscal year ending September 30, 2022. Deloitte & Touche has served as our accounting firm since 1996. The services provided to the Company by Deloitte & Touche for the last two fiscal years are described under the caption “Principal Accountant Fees and Services” below. Stockholder approval of the appointment is not required; however, our Board of Directors believes that obtaining stockholder ratification of the appointment is a sound governance practice.
Representatives of Deloitte & Touche will be present at the annual meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from stockholders. | | | | | |
| PRINCIPAL ACCOUNTANT FEES AND SERVICES |
For the fiscal years ended September 30, 2021 and 2020, the following professional services were performed by Deloitte & Touche:
Audit Fees: The aggregate audit fees billed for the fiscal years ended September 30, 2021 and 2020 were $1,050,000 and $1,060,500, respectively. Audit fees consisted of fees associated with the audit of our annual financial statements and internal control over financial reporting, reviews of the financial statements included in our quarterly reports on Form 10-Q, and other services that are normally provided by the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.
Audit-Related Fees: The aggregate fees billed for audit-related services for the fiscal years ended September 30, 2021 and 2020 were $35,790 and $33,790, respectively. These fees related to assurance and related services performed by Deloitte & Touche that are reasonably related to the performance of the audit or review of our financial statements. These services included employee benefit and compensation plan audits.
Tax Fees: No fees for tax services were billed by or paid to Deloitte & Touche in either fiscal year 2021 or fiscal
year 2020.
All Other Fees: No other fees were billed by or paid to Deloitte & Touche in either fiscal year 2021 or fiscal year 2020.
Our Audit Committee annually approves each year’s engagement for audit services in advance. Our Audit Committee has also established complementary procedures to require pre-approval of all permitted non-audit services provided by our independent auditors.
The Board of Directors recommends a vote FOR ratification of the appointment of Deloitte & Touche as the Company’s independent registered public accounting firm for the fiscal year ending September 30, 2022.
REPORT OF THE
AUDIT COMMITTEE
The Audit Committee meets the definition of an audit committee as set forth in Section 3(a)(58)(A) of the Exchange Act and operates under a written charter adopted by our Board of Directors. Each member of the Audit Committee is independent and financially literate in the judgment of the Board of Directors and as required by the Sarbanes-Oxley Act and applicable SEC and NYSE rules. The Board of Directors has also determined that Ms. Acton and Messrs. Shepherd, Johnson and Winkle qualify as “audit committee financial experts,” as defined under SEC regulations.
Management is responsible for our internal controls and the financial reporting process. Deloitte & Touche, the Company’s independent registered public accounting firm, is responsible for performing an independent audit of the Company’s consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) (the “PCAOB”) and for issuing a report thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes and critical audit matters, as described in the Audit Committee Charter.
The Audit Committee reviewed and discussed with management the Company’s audited financial statements and critical audit matters as of and for the fiscal year ended September 30, 2021. The Audit Committee has discussed with Deloitte & Touche the matters required to be discussed by the applicable requirements of the PCAOB and the SEC.
The Audit Committee has also received the written communications from Deloitte & Touche required by the PCAOB regarding Deloitte & Touche’s communications with the Audit Committee concerning independence and has discussed with Deloitte & Touche their independence. The Audit Committee has considered whether the provision of any non-audit services described above by Deloitte & Touche is compatible with maintaining their independence and has concluded that the provision of these services does not compromise such independence.
Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2021 for filing with the SEC.
DANNY R. SHEPHERD (CHAIR)
ELIZABETH S. ACTON
LLOYD E. JOHNSON
C. CHRISTIAN WINKLE
The Members of the Audit Committee
PROPOSAL 3 –
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, as amended, the Company is asking its stockholders to cast an advisory vote to approve the compensation of the Company’s named executive officers (NEOs), as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K. This proposal, commonly known as “Say On Pay”, gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation programs. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement.
As described in detail in the section of this proxy statement titled “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate and retain our executive officers (including our NEOs), who are critical to our success. At the same time our Compensation Committee is committed to ensuring that our executive compensation program reinforces key financial, operational and strategic objectives in support of long-term stockholder value creation and appropriately aligns pay for performance without encouraging inappropriate risk taking. Accordingly, our NEOs are rewarded for the achievement of specific annual, long-term and strategic goals in support of long-term value creation. Please read the section of this proxy statement titled “Compensation Discussion and Analysis,” and the Executive Compensation tables that follow it, for additional details about our executive compensation programs.
We have a long history of strong stockholder support for our executive compensation programs, with Say on Pay support levels averaging over 91% over the last five years. The Board and the Compensation Committee have considered the result of these stockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At last year's annual meeting of stockholders, approximately 88% of our shares present in person or represented by proxy voted for approval of our fiscal 2020 executive compensation program.
At our 2017 annual meeting of stockholders, the Company’s stockholders once again determined that our Say On Pay vote should be held on an annual basis. In accordance with this determination, we are asking our stockholders to vote FOR the following resolution:
RESOLVED, that the compensation paid to the NEOs, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Executive Compensation tables, and the narrative discussion, is hereby approved.
Our Board of Directors and our Compensation Committee value the opinions of our stockholders, and to the extent there is a significant vote against the compensation paid to our NEOs, as disclosed in this proxy statement, we will consider our stockholders’ concerns and will evaluate what, if any, further actions are necessary to address those concerns.
The Board of Directors recommends a vote FOR approval of the compensation of our named executive officers.
COMPENSATION
DISCUSSION AND ANALYSIS
INTRODUCTION
This Compensation Discussion and Analysis (CD&A) describes the compensation programs for our named executive officers (NEOs)*. Our executive officers who served as named executive officers in fiscal 2021 are:
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| NAME | TITLE |
| Allan P. Merrill | Chairman, President and Chief Executive Officer |
| David I. Goldberg | Senior Vice President and Chief Financial Officer |
| Keith L. Belknap | Executive Vice President and General Counsel |
| Robert L. Salomon** | Former Executive Vice President and Chief Financial Officer |
*References to our Named Executive Officers, or NEOs, do not include Mr. Salomon unless specified otherwise.
**Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021.
In addition to his responsibilities as Chief Financial Officer, Mr. Goldberg oversees our capital sourcing, investor relations, treasury and information technology functions. Mr. Belknap continues to lead our customer teams, which include mortgage & settlement, marketing, customer experience and customer care functions, in addition to his responsibilities as General Counsel.
We are a geographically diversified homebuilder with operations in 13 states within three geographic regions in the United States. Our homes are designed to appeal to homeowners at different price points across various demographic segments, principally first time buyers, first move-up buyers, empty nesters and retirees. Our objective is to provide our customers with homes that incorporate extraordinary value and quality at affordable prices, while seeking to maximize our return on invested capital over the course of a housing cycle.
Our three pillars — Mortgage Choice, Surprising Performance and Choice Plans — serve as our primary points of differentiation. Mortgage Choice, which makes it easy for our customers to comparison shop among competing lenders, potentially saving them thousands of dollars on their home loan; Surprising Performance, which reflects the fact that every Beazer home is designed and built to meet Energy Star requirements and provide exceptional quality and comfort that results in a lower cost of ownership; and Choice Plans,which allows customers to personalize their primary living areas for how they want to live in their home, at no additional cost.
As we improve our financial and operational performance, we are also focused on meaningful ESG accountability — supporting a variety of charitable and community-based activities, promoting safety, inclusion and diversity in our workforce and building our homes and communities with a concern for their impact on the environment. For more information on environmental, social and corporate governance matters, see “ESG” beginning on page 5.
2021 BUSINESS HIGHLIGHTS
Here are several highlights of our financial and operational achievements in fiscal 2021:
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| FINANCIAL | |
| $2.1 BILLION | Revenue |
| Achieved a slight increase in revenue despite a 3.7% year-over-year decrease in home closings |
| $122.2 MILLION | Net Income |
| | Generated net income from continuing operations of $122.2 million compared to $53.3 million in fiscal 2020 |
| $262.7 MILLION | Adjusted EBITDA |
| | Achieved $262.7 million in Adjusted EBITDA, an increase of $58.3 million, or 28.5%, year-over-year |
| $80.7 MILLION | Debt Reduction |
| | Reduced our outstanding debt by $80.7 million |
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| OPERATIONAL | |
3.7 HOME
SALES/MONTH | Sales Pace Achieved average monthly home sales pace per community of 3.7, a year-over-year increase of 13.8% |
| $595.5 MILLION | Land Acquisition and Land Development Spending |
| | Spent $595.5 million on land acquisition and land development, a 35.1% year-over-year increase |
| $1.3 BILLION | Dollar Value of Backlog |
| | Ended the year with dollar value of homes in backlog of $1.3 billion, a year-over-year increase of 29.0% |
| $402,400 | Average Selling Price |
| | Average selling price (ASP) for our homes was $402,400, marking our tenth consecutive year of ASP growth and reflecting an increase of more than 4% year-over-year |
| 127 COMMUNITIES | Average Community Count |
| | Average active community count was 127, a 22.3% year-over-year decrease |
| 21,987 LOTS | Number of Controlled Lots |
| | Ended the year with 21,987 lots controlled either through ownership or options to purchase, a year-over-year increase of 23.3% |
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For fiscal 2022, we expect to: •grow EBITDA by more than 10%, leading to earnings per share of more than $5.00, •grow our lot position by double digits, with lots controlled by options remaining around 50% •deliver a return on total equity of about 20%, or nearly 25% excluding our deferred tax assets, and •reduce our total debt below $1 billion |
For purposes of this CD&A: | | | | | |
| “Adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding charges, including debt extinguishment charges, inventory impairment and abandonment charges and other non-recurring items for the period to EBITDA. |
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| “EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding non-cash charges, including depreciation and amortization for the period, to EBIT. |
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| “EBIT” means net income (loss) before (a) previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization; and (b) income taxes. |
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| “Bonus Plan EBITDA” means Adjusted EBITDA before accrual of corporate bonuses. |
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| Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. Statements regarding expectations for fiscal 2022 are forward-looking statements, which involve known and unknown risks, uncertainties and other factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. |
FISCAL 2021 COMPENSATION HIGHLIGHTS Base Salaries (PG. 32)
As we reported in our 2020 Proxy Statement, due to a significant decline in net new orders and the Company's focus on protecting liquidity at the onset of the COVID-19 pandemic, our NEOs voluntarily reduced their respective salaries by 20%, effective April 1, 2020. Those reductions remained in place for all of fiscal 2020.
While market conditions had improved dramatically by the beginning of fiscal 2021, our NEOs voluntarily extended a portion of base salary reductions, equal to 10% of their respective pre-pandemic annual salaries, into fiscal 2021, subject to the possibility of salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan. As a result, Mr. Merrill began fiscal 2021 with a base salary of $877,500 and Mr. Goldberg and Mr. Belknap began fiscal 2021 with base salaries of $382,500 and $486,000, respectively. Because the Company's results for the first half of fiscal 2021 exceeded 95% of the Company's annual plan, the NEOs salaries were restored to pre-pandemic levels for the second half of the year, resulting in actual base salaries earned in fiscal 2021 of $926,384 for Mr. Merrill, $403,808 for Mr. Goldberg and $513,074 for Mr. Belknap.
Short-Term Incentive Opportunities (PG. 33)
In addition to the reduction in base salaries discussed above, our NEOs voluntarily reduced their respective target short-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in short-term incentive opportunities, the target short-term incentive award opportunities for our NEOs (expressed as percentages of weighted salary) were 157.5% for Mr. Merrill, 90.0% for Mr. Goldberg and 112.5% for Mr. Belknap.
Our Compensation Committee determined that our NEOs would be eligible to receive an award for the operational components of the 2021 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. Furthermore, the Committee retained the discretion to deduct from awards earned for any reason, including the failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.
Long-Term Incentive Opportunities (PG. 35)
In addition to the reductions discussed above, our NEOs voluntarily reduced their respective target long-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in long-term incentive opportunities, the target long-term incentive award opportunities for our NEOs (expressed as percentages of already reduced salary) were 270.0% for Mr. Merrill, 135.0% for Mr. Goldberg and 157.5% for Mr. Belknap.
For the 2021-2023 performance period, our Compensation Committee continued its practice of tying two-thirds of target long-term incentive award opportunities to multi-year performance goals, with one-half of the performance -based component payable in cash and one-half payable in performance shares, subject to the same performance criteria.
In addition, our Compensation Committee continued to include a relative total shareholder return (TSR) modifier to NEO performance share and performance cash awards, which could result in an adjustment to any earned awards (by up to +/- 20%) based on our three-year relative TSR performance vs. companies in the S&P Homebuilders Select Industry Index.
OUR OVERALL COMPENSATION
PHILOSOPHY AND OBJECTIVES
Our executive compensation philosophy is to design compensation programs that:
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| Attract, retain and reward top talent; |
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| Align pay with performance without encouraging inappropriate risk taking; and |
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| Provide a substantial portion of our compensation in long-term equity-based compensation to reinforce key financial, operational and strategic objectives in support of long-term value creation. |
CORE PRINCIPLES AND KEY OBJECTIVES
We utilize a combination of base salary, short-term cash incentives and long-term incentives. Most of long-term incentives are tied to multi-year performance goals, along with a portion provided in time-based restricted stock.
Our Compensation Committee reviews our core compensation philosophy annually in conjunction with the review of our compensation programs. While our core compensation philosophy and objectives have remained consistent in recent years, the Committee has made adjustments to various aspects of our compensation programs to meet changing needs and circumstances of the Company. For the three-year award cycle beginning in fiscal 2021, which is associated with performance shares that may be earned in fiscal 2023, the Committee replaced a growth metric related to our Gatherings product line with a metric related to the home energy rating achievements of the Company's completed homes in order to link these awards with a key component of the Company's ESG strategy.
The Committee believes that salary and incentive compensation opportunities should be set based on a variety of factors, including key financial, operational and strategic objectives, Company performance, the compensation practices of our peer group, each executive’s specific responsibilities and skill sets, and the relationship among the compensation levels of members of our management team. The Committee has taken into consideration our need to attract and retain qualified executives in an industry that continues to experience an intense level of competition for senior executives.
By structuring compensation programs with features that are balanced between short- and long-term incentives as well as cash and equity awards, the Committee believes it can align management’s interests with those of our stockholders in both the short- and long-term; reduce risks that may be associated with compensation that is overly focused on short-term objectives; and attract, retain and motivate senior management personnel.
Further, while the Compensation Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2021, it did not establish compensation levels based solely on benchmarking industry practices. Based on data for the 2021 Peer Group, Pearl Meyer advised the Compensation Committee that target total compensation for our NEOs after their voluntary compensation reductions (noted elsewhere in this proxy statement) was positioned below a competitive range (plus or minus 15%) of the 2021 Peer Group 50th percentile, individually and in the aggregate.
Our Compensation Committee is committed to ensuring that our executive compensation program reinforces key financial, operational and strategic objectives in support of long-term stockholder value creation and appropriately aligns pay with performance. This is demonstrated by the heavy emphasis placed on variable, performance-based incentives for our NEOs (representing approximately 64% of target total compensation for our CEO and averaging approximately 57% of target total compensation for other NEOs in fiscal 2021) and differences in realized pay relative to target opportunity. As part of that philosophy, failure to reach such goals can result in no compensation under a particular plan or metric.
Our compensation practices include: | | | | | |
| Emphasis on Performance-Based Pay: 64% of the ongoing pay mix for our CEO, and an average of 57% of the target pay mix for our other NEOs, was variable and performance-based for fiscal 2021. In the aggregate, 61% of the target compensation for our CEO and other NEOs for fiscal 2021 was variable and performance based. |
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| Long-Term Vesting: Our equity-based pay vehicles have multi-year vesting periods to reward long-term performance and value creation, enhance retention and deter inappropriate risk taking. |
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| Multiple Performance Measures: We use multiple metrics to evaluate Company performance, covering both short-term and long-term performance objectives, with award funding caps to deter inappropriate risk taking. |
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| Stock Ownership Requirements: We have meaningful stock ownership requirements for our directors and officers. For example, our CEO must hold common stock equal to at least five times his base salary. |
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| No Repricing: Our stock options cannot be repriced, reset or exchanged for cash if under water without stockholder approval. |
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| Anti-Pledging and Hedging Policies: We prohibit our directors and executive officers from (i) holding Beazer securities in a margin account or pledging any Beazer securities as collateral for a loan and (ii) entering into any hedge or other transaction in Beazer securities that limits the risk of ownership of Beazer common stock or stock options. |
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| Double Trigger Change in Control Provisions: We have a policy of requiring a double trigger to receive cash severance and to receive accelerated vesting of equity awards upon a change of control. |
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| Clawback: Each equity award is conditioned on repayment or forfeiture as required by existing law. In addition, each executive officer’s incentive compensation is subject to repayment or such other means of recovery (or a combination thereof) as is necessary to comply with law or related rules and regulations of the SEC or NYSE. |
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| No Tax Gross-Ups: We maintain severance agreements with our NEOs that standardize executive separation terms, minimize the risk of excessive payouts and do not provide for any tax gross-ups. |
ROLE OF THE COMPENSATION COMMITTEE, MANAGEMENT AND COMPENSATION CONSULTANTS
The principal responsibilities of our Compensation Committee include: | | | | | |
| meeting with its independent compensation consultant, with and without the presence of management, to review and structure objectives and compensation programs for our NEOs that are aligned with both the Company’s business and financial strategy and stockholder interests; |
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| evaluating the performance of our NEOs in light of those objectives; and |
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| based on this evaluation, determining and approving the compensation level for our CEO and for other executive officers. |
The Committee has retained Pearl Meyer to provide advice regarding compensation plan design, compensation levels and benchmarking data and advice. Prior to retaining Pearl Meyer for fiscal 2021, the Committee determined that Pearl Meyer qualifies as an independent compensation consultant. Pearl Meyer reports directly to the Committee and does not provide any other services to the Company.
In relation to compensation program design for fiscal 2021, the Committee took into account discussions with, and presentations by, key members of our management team to ensure that our compensation plans were aligned with our key financial, operational and strategic objectives. Also, on an annual basis, Mr. Merrill reviews the performance of the other NEOs, and makes recommendations to the Committee based on his review. In addition, our Lead Director discussed Mr. Merrill’s performance with the Committee. Mr. Merrill is present for the Committee’s deliberations related to the compensation of the other NEOs, but not for the Committee’s discussions related to his own compensation.
For fiscal 2021, our peer group was composed of Century Communities, Inc., Green Brick Partners, Inc., Hovnanian Enterprises, Inc., KB Home, LGI Homes, Inc., M/I Homes, Inc., M.D.C. Holdings, Inc., Meritage Homes Corporation, Taylor Morrison Home Corp., and TRI Pointe Group, Inc. (the" 2021 Peer Group"). These companies were chosen because, in addition to being among our chief competition among publicly traded homebuilders, they are most closely aligned to us in terms of size.
Each year, Pearl Meyer conducts a review of peer group pay levels and practices, which the Committee takes into consideration when establishing NEO compensation levels, along with a variety of other factors, such as Company and individual performance, each incumbent’s qualifications and responsibilities, the Company’s recruiting experience and talent management needs and the Committee’s business judgment.
While the Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2021, it did not establish compensation levels based solely on benchmarking industry practices. Based on data for the 2021 Peer Group, Pearl Meyer advised the Committee that target total compensation for our NEOs after their voluntary compensation reductions was positioned below a competitive range (plus or minus 15%) of the 2021 Peer Group 50th percentile, individually and in the aggregate.
ELEMENTS OF FISCAL
2021 COMPENSATION PROGRAM
CONSIDERATION OF SAY ON PAY VOTES
We have a long history of strong stockholder support for our executive compensation programs, with Say on Pay support levels averaging over 91% for the last five years. The Board and the Compensation Committee have considered the result of these stockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At last year's annual meeting of stockholders, approximately 88% of our shares present in person or represented by proxy voted for approval of our fiscal 2020 executive compensation program.
In designing the compensation program for fiscal 2021, the Committee considered the results of the 2020 Say on Pay vote, our ongoing dialogue with stockholders, internal considerations such as key business and talent management objectives, consistency from year-to-year and an evaluation of peer practices. After consideration, the Committee concluded that, for fiscal 2021, it was appropriate to maintain most elements of the existing compensation program design for our NEOs, with only minor changes to the short-term incentive plan metrics and weightings and the introduction of a new performance metric for the long-term incentive plan tied to the Company's energy-efficiency score achievements to link these awards to a key component of the Company's ESG strategy. The fiscal 2021 compensation program continues to tie the majority of our NEOs’ compensation to performance metrics that support the Company’s Balanced Growth Strategy.
Our ability to recruit and retain executive talent depends on setting competitive base salaries. We begin with an analysis of base pay relative to the market. We target base pay at or near the peer group 50th percentile (or median) and then evaluate the need to make any adjustments based on variables such as pay parity relative to other officers and internal accountability. We review base salaries annually, unless circumstances require otherwise. For non-CEO NEO salaries, we solicit CEO input.
Entering fiscal 2021, no changes were made by the Committee to the pre-pandemic base salaries of Messrs. Merrill and Belknap. The Committee approved a 30.8% increase in base salary for Mr. Goldberg from $325,000 to $425,000 in connection with his promotion to Chief Financial Officer. However, as noted above, our NEOs voluntarily reduced their respective base salaries for fiscal 2021 by 10% with the possibility of the salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan.
Because the Committee determined that the Company's performance and the overall market conditions warranted a restoration of NEO salaries, our NEOs began receiving their respective full base salaries as of April 1, 2021, and the actual salaries paid to the NEOs for fiscal 2021 were $926,384 to Mr. Merrill; $403,808 to Mr. Goldberg; and $513,074 to Mr. Belknap.
SHORT-TERM INCENTIVE COMPENSATION
Our annual cash incentive plan is designed to motivate and reward executives for achieving key financial, operational and strategic objectives that continue to drive the Company’s success and generate returns for our stockholders. We set annual cash incentive bonus targets hierarchically based on a multiple of base salary.
Entering fiscal 2021, Mr. Merrill’s short-term incentive target award opportunity (expressed as a percentage of base salary) would have been 175%, Mr. Goldberg's would have been 100% and Mr. Belknap’s target award opportunity would have been 125%. However, our NEOs voluntarily reduced their respective short-term incentive target awards by 10% for fiscal 2021 due to the continued uncertainty surrounding the pandemic and market conditions at the beginning of fiscal 2021. Accordingly, Mr. Merrill's short-term incentive target award opportunity (expressed as a percentage of weighted salary) was 157.5%, Mr. Goldberg's was 90% and Mr. Belknap's was 112.5%.
Similar to prior years, for fiscal 2021, the large majority (75%) of short-term incentive award opportunities for our NEOs were tied to actual vs. planned Bonus Plan EBITDA, with the remaining 25% tied to various financial, operational and strategic objectives. Specifically, 5% of the NEO short-term incentive award was tied to securing new land holdings; 5% was tied to operating margin improvement; and the remaining 15% was tied equally to: employee engagement and performance review objectives; improvement of customer satisfaction; and reduction of underperforming communities. Consistent with prior years, NEOs were eligible to receive an award for other components of the 2021 Bonus Plan only if threshold 2021 Bonus Plan EBITDA was achieved.The Committee retained the discretion to adjust results for unanticipated and exceptional items and to deduct from awards earned for failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.No such discretion was exercised by the Committee.
2021 OBJECTIVES | | | | | |
| Bonus Plan EBITDA — 75% of bonus opportunity — In light of the demonstrated success of the Adjusted EBITDA metric as a driver of financial results in prior years and because improvement in Adjusted EBITDA is key to accomplishing our strategic plan, the Committee determined that 75% of the overall annual bonus opportunity would be based on the achievement of levels of Bonus Plan EBITDA. The Committee established a 2021 Bonus Plan EBITDA objective with a $200 million threshold, $215 million target and a $230 million maximum. |
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| Increase Land Position — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to meet internal (and proprietary) goals for its minimum lot position (i.e., the total lots controlled either through ownership or options to purchase for the fiscal year), as well as increases in the percentage of lots controlled through options to purchase. |
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| Reduce Underperforming Communities — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to reduce the percentage of actively selling communities that failed to meet internally budgeted (and proprietary) sales pace objectives for the fiscal year. |
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| Improve Internal Operating Margin - 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to improve the percentage with respect to an internal (and proprietary) measure of operating margin that takes into account varying operational efficiencies and overheads among divisions and corporate. |
| Improve Customer Experience — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to realize specific levels of year-over-year improvement in customer satisfaction as measured through third-party customer surveys. |
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| Employee Engagement and Performance Review — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, a minimum level of employee engagement and performance reviews was required. |
The specific performance targets for operational metrics are not disclosed here because we believe that the disclosure would result in competitive harm to us by providing competitors, vendors and suppliers with insight into our business strategies and operations beyond what is disclosed publicly.
2021 ACHIEVEMENT OF OBJECTIVES
In 2021, the following results were achieved against these objectives: | | | | | | | | | | | |
| OBJECTIVE | WEIGHTING (%) | RESULT | ACHIEVEMENT |
| Bonus Plan EBITDA | 75 | $270.9 million, a 26.4% year-over-year increase | Maximum achievement level |
| Increase Land Position | 5 | Grew total lot count by 21.0% | Maximum achievement level |
| Reduce Underperforming Communities | 5 | Reduced Underperforming Communities by 82.0% | Maximum achievement level |
| Improve Internal Operating Margin | 5 | Increased Internal Operating Margin by 27.3% | Maximum achievement level |
| Improve Customer Experience | 5 | Improved by 52 bps | Threshold achievement level |
| Employee Engagement and Performance Review | 5 | Above benchmark for four quarters and full year | Maximum achievement level |
| Total | 100 | — | Between target and maximum on an overall basis |
To the extent actual 2021 Bonus Plan performance was between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation was applied to determine the actual payout under each component of the 2021 Bonus Plan.
2021 BONUSES AWARDED
Actual awards for our NEOs were equal to 192.5% of reduced target award opportunities, as shown in the table below. Payment of bonuses as a percentage of target bonus opportunities before the voluntary pay reductions noted previously was 164.6%. | | | | | | | | | | | | | | |
| NAME | 2021 TARGET BONUS (% of actual base salary) | 2021 TARGET BONUS ($) | 2021 ANNUAL CASH INCENTIVE BONUS ($) | BONUS AS A PERCENTAGE OF TARGET (%) |
| Allan P. Merrill | 157.5 | 1,459,054 | 2,808,679 | 192.5 |
| David I. Goldberg | 90 | 363,427 | 699,598 | 192.5 |
| Keith L. Belknap | 112.5 | 577,208 | 1,111,126 | 192.5 |
LONG-TERM INCENTIVE COMPENSATION
For fiscal 2021, based on recommendations from Pearl Meyer and other factors, the Committee determined to modify its past practice of awarding performance shares equal to two-thirds of overall long-term incentive target award opportunity, and time-based restricted stock equal to one-third of overall target award opportunity. Instead, for the fiscal 2021-2023 Award Cycle, the Committee changed the award mix to include a third component consisting of a long-term, performance-based cash award and weighted all three components equally (i.e., performance shares, time-based restricted stock and performance-based cash award each equal one-third of the long-term incentive target award opportunity). This award mix change was made to help manage equity plan share usage while continuing to tie the majority (two-thirds) of award opportunities to multi-year performance goals.
Entering fiscal 2021, no changes were made by the Committee to the target pre-pandemic long-term incentive award opportunities, expressed as a percentage of base salary, of Messrs. Merrill or Belknap. The Committee determined to increase Mr. Goldberg's long-term incentive award opportunity from 100% to 150% of his base salary in connection with his promotion to Chief Financial Officer. However, as noted above, Messrs. Merrill, Goldberg and Belknap voluntarily reduced their respective target long-term incentive award opportunities by 10.0% for the entirety of fiscal 2021.
RESTRICTED STOCK
Time-based restricted stock awards generally vest ratably over a three-year period, beginning with the first anniversary of the grant date. In fiscal 2021, the NEOs were granted the following number of shares of restricted stock, which were calculated by dividing the applicable target award value by the average daily closing price of a share of common stock for the 30 consecutive trading days on the NYSE ending on November 16, 2020: Mr. Merrill: 57,984; Mr. Goldberg: 12,637; and Mr. Belknap: 18,733.
PERFORMANCE SHARES
Background
In order to facilitate pay for performance, our core compensation philosophy continues to be focused on providing incentive compensation to our management team when they achieve key financial, operational and strategic objectives that the Compensation Committee and our Board succession plan. See "— Director Qualifications" belowof Directors believe are critical to enhancing long-term stockholder value. As part of that philosophy, the Committee believes that a significant portion of equity awards should be performance-based, with failure to reach such goals resulting in no compensation under a particular plan or metric. Accordingly, two-thirds of our senior executive management team’s overall long-term incentive awards are comprised of performance shares (and, with respect to awards for the 2021-2023 award cycle, performance cash awards) which reflect a target number of shares (and cash) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets established at the time of grant. Performance share grant levels were determined by dividing target award values by the closing price of a share of our common stock on the date of grant.
When determining awards, the Committee utilizes performance metrics consisting of a variety of key financial, operational and strategic objectives. In addition, in order to ensure the awards align with enhancing stockholder value, any awards earned at the end of the three-year performance period are subject to adjustment (by up to +/- 20%) based on our relative total shareholder return (TSR) performance vs. companies in the S&P Homebuilders Select Industry Index.
Performance Measures for the Fiscal 2019-2021 Award Cycle
Each performance share award reflects a target number of shares (based on the fair market value of our common stock on the award date) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets that are either (a) applicable to cumulative results over the entire three-year cycle or (b) applicable only to the final fiscal year of the three-year award cycle. At the end of each award cycle, the Committee confirms performance against the applicable performance targets, and performance shares corresponding to the level of achievement during the award cycle are calculated.
In determining fiscal year 2019-2021 performance share award metrics, the Committee considered the fluid nature of the housing market and need to design metrics that would not be obsolete in the event of a change in strategy during the three-year award cycle ending with fiscal 2021. The three metrics used for the fiscal 2019-2021 award cycle were:
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| Cumulative pre-tax income (defined as the Company’s income from continuing operations, before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Committee may approve) over the entire three-year award cycle; |
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| Return on assets, based on the ratio of Adjusted EBITDA to total assets for fiscal 2021 (defined as the Company’s total assets as shown on the consolidated balance sheet included in the Company’s Form 10-K for fiscal 2021); and |
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| Gatherings — A strategic metric tied to the expansion of our Gatherings product line. The Committee believed this metric aligned with its rigorous and business strategy-focused approach and underscored its pay for performance philosophy. |
Determination of Shares Earned
Shares earned are based on achieving the Threshold, Target or Superior levels of performance on one or more information.of the metrics described above. One-third of target shares are earned for each metric achieving Threshold performance, two-thirds of target shares are earned for each metric achieving Target performance and 100% of target shares are earned for each metric achieving Superior performance. The shares earned on the three metrics are totaled, subject to both a 175% cap on primary funding metrics and a TSR Modifier to determine the final award. | | | | | |
| To illustrate, achievement of a Threshold level of performance on each of the three metrics would result in 33.3% of target shares earned for each metric or a total of 100% of the target number of shares, subject to adjustment based on the TSR Modifier. |
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| Superior-level performance on any one metric (100%) would earn a target number of shares subject to the TSR Modifier. |
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| The maximum number of shares that can be earned based on the results of the three metrics described above would be 175% of Target, even if Superior performance is achieved on all three metrics (300% of target shares). In the event of such maximum achievements, the maximum adjustment under the TSR modifier of 20% would result in shares awarded totaling no more than 210% of target. |
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| For performance between Threshold and Target or between Target and Superior, straight line interpolation between such levels is applied. |
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| The Committee retains the discretion to reduce the number of shares finally awarded notwithstanding the number earned pursuant to the above, and to award any amounts in excess of target in cash instead of shares. |
Results for the Fiscal 2019-2021 Award Cycle | | | | | |
| Cumulative pre-tax income — The performance necessary to earn a Threshold, Target and Superior payout required a cumulative pre-tax income of $220 million, $240 million and $260 million, respectively. Actual cumulative pre-tax income for the fiscal 2019-2021 award cycle was $282.3 million. |
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| Return on Assets — The performance necessary to earn a Threshold, Target and Superior payout required a ROA for fiscal 2021 of 10%, 11% and 12%, respectively. Actual return on assets for fiscal 2021 was 12.64%. |
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| Gatherings — Actual results for the 2019-2021 cycle were below threshold performance levels, resulting in no funding for this component. The specific performance targets for the Gatherings metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. |
In sum, threshold performance was not reached for one of the metrics, however Superior performance was exceeded for two of the metrics, resulting in earned awards of 175.00% of Target. Earned awards were subject to adjustment based on our relative TSR, as discussed below.
While our target performance awards are based on specific metrics established at the time of grant, we believe that incentive compensation should also be directly tied to stockholder value. As a result, after determining the number of shares earned based on the achievement of the performance measures for the fiscal 2019-2021 award cycle, the following three-year relative TSR scale is applied as a modifier:
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TSR PERCENTILE RANK VS. S&P
HOMEBUILDERS SELECT INDUSTRY INDEX | ADJUSTMENT TO # OF
PERFORMANCE SHARES |
At or above 75th Percentile | +20% |
| 70-74th Percentile | +15% |
| 65-69th Percentile | +10% |
| 60-64th Percentile | +5% |
| 40-59th Percentile | No adjustment |
| 35-39th Percentile | -5% |
| 30-34th Percentile | -10% |
| 25-29th Percentile | -15% |
| Below 25th Percentile | -20% |
After application of the TSR modifier, the recipients’ percentage of awards earned attributable to the fiscal 2019-2021 award cycle was reduced by 15% from 175.00% to 148.75% of Target.
Accordingly, through heavy emphasis on variable, performance-based incentives with rigorous performance goals based on key financial, operational and strategic objectives and actual payouts subject to adjustment based on stockholder returns, the Committee believes our long-term incentive program appropriately aligns pay for performance while promoting stockholder value creation.
Performance Shares Issued
Shares issued to NEOs for the fiscal 2019-2021 award cycle are set forth in the following table: | | | | | | | | | | | |
| NAME | PERFORMANCE SHARES AWARD TARGET (#) | PERFORMANCE SHARES EARNED (#) | PERFORMANCE SHARES EARNED AS A PERCENTAGE OF AWARD TARGET (%) |
| Allan P. Merrill | 193,482 | 287,804 | 148.75 |
| David I. Goldberg | 11,668 | 17,356 | 148.75 |
| Keith L. Belknap | 50,916 | 75,738 | 148.75 |
| Robert L. Salomon* | 81,466 | 121,181 | 148.75 |
* Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021.
Performance Measures for 2021-2023 Award Cycle
For Performance Shares and Performance Cash Awards related to the 2021-2023 performance period, the Committee determined that the Company's ongoing commitment to increase the energy efficiency of its homes and to build only NetZero Energy Ready homes by the end of 2025 warranted accountability through the long-term incentive pay program. Thus, the Committee determined to utilize a new performance metric directly linked to the Home Energy Rating System (HERS®) results for homes built by the Company. HERS® is an industry-leading home building scoring system developed by the Residential Energy Services Network (RESNET), an independent non-profit organization, for inspecting and calculating a home's energy performance after construction is complete.
The specific performance targets for the environmental metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. The Committee believes management’s ability to achieve the specific performance targets and the level of difficulty associated with meeting these performance targets is consistent with the other metrics.
In addition, performance metrics for 2021–2023 award cycle, include the following objectives: | | | | | |
| Cumulative pre-tax income — The performance necessary to earn a Threshold payout requires a cumulative pre-tax income of $260 million, Target payout requires a cumulative pre-tax income of $280 million, and the performance necessary to earn a Superior payout requires a cumulative pre-tax income of at least $300 million. |
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| Return on assets — The performance necessary to earn a Threshold payout requires a return on assets for fiscal 2023 of 10.5%, Target payout requires a return on assets of 11.5%, and the performance necessary to earn a Superior payout requires a return on assets for fiscal 2023 of at least 12.5%. |
Target goals for cumulative pre-tax income and return on assets, which were set in November 2020, were set higher than the targets for the 2020–2022 award cycle, as well as actual results for the 2018–2020 award cycle.
Consistent with past practice, for 2021–2023, the actual number of performance shares and cash earned will be based on achieving the Threshold, Target or Superior levels of performance on one or more of the metrics described above. One-third of target shares and cash will be earned for each metric achieving Threshold performance, two-thirds of target shares and cash will be earned for each metric achieving Target performance and 100% of target shares and cash will be earned for each metric achieving Superior performance. The shares and cash earned on the three metrics will be totaled and will be subject to a 175% cap and a relative TSR Modifier in order to determine the final award. As a result, after determining the number of shares and cash earned, the three-year relative TSR scale shown above will be applied as a modifier.
Our NEOs receive the standard benefits available to all employees, including: group health (medical, dental, pharmacy, and vision), group life, accidental death and dismemberment, business travel accident, disability plans, defined contribution retirement plans (a Money Purchase Retirement Plan and a 401(k) Savings Plan), and vacation.
Deferred Compensation Plan
The Company maintains the Beazer Homes Deferred Compensation Plan, or the Deferred Plan, to provide eligible employees the opportunity to defer a portion of their current compensation. With respect to fiscal 2021, the Company made a contribution to the Deferred Plan for the benefit of each NEO as follows: Mr. Merrill, $100,000; Mr. Goldberg, $50,000, and Mr. Belknap, $50,000. These contributions are made in regular installments and are subject to several restrictions and limitations including the Committee’s right to terminate or suspend any such contribution in the future.
Other Benefits
We do not have a defined benefit pension plan or supplemental executive retirement plan. Our executive management team, including our NEOs, participate in our various benefit programs on the same terms as other employees. The Company does not provide to its NEOs supplemental executive retirement plans, company cars (or automobile reimbursements), club memberships or other significant perquisites.
STOCK OWNERSHIP AND HOLDING REQUIREMENTS
The Company maintains a stock ownership and holding policy that requires NEOs and members of the Board of Directors to acquire and retain a meaningful level of stock ownership in the Company. The current stock ownership requirements are based on a multiple of base salary or annual retainer, as applicable, and are as set forth below:
| | | | | |
| MULTIPLE OF BASE SALARY/ ANNUAL RETAINER |
| CEO | 5.0 x base salary |
| Other NEOs | 3.0 x base salary |
| Non-employee Directors | 5.0 x annual cash retainer |
For purposes of the stock ownership policy, the following types of shareholdings are counted towards an individual’s stock ownership: (i) stock that is considered beneficially owned and (ii) two-thirds of service-based restricted stock. Unearned performance shares and unexercised stock options (including vested "in-the-money" options) do not count towards ownership requirements. Individuals subject to this policy are required to be in compliance with ownership requirements no later than the fifth anniversary of the date the individual becomes a NEO or director. The policy also requires NEOs and directors to hold 50% of net after-tax shares issued upon vesting of restricted stock or stock option exercises until their required respective stock ownership levels are achieved. As of December 8, 2021, each of our NEOs and directors was in compliance with the requirements of our stock ownership and holding policy.
COMPENSATION CLAWBACK POLICY
The Committee has adopted an incentive compensation clawback policy that would enable the Company to clawback all or a portion of incentive compensation in the event an individual’s misconduct causes the Company to issue a restatement of its financial statements, to the extent that such individual’s incentive compensation was based on the misstated financials.
In addition, awards under our 2014 Long-Term Incentive Plan are subject not only to our existing clawback policy but any other clawback policy adopted by the Compensation Committee, and the Committee has the authority to recoup or cancel awards if a participant engages in “detrimental activity” with respect to the Company.
As described in further detail under “Executive Compensation — Potential Payments Upon Termination or Change of Control,” pursuant to the severance agreements with each of our NEOs, any incentive compensation that is paid or granted to the NEOs will be subject to recoupment under the terms thereof.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS
The Committee does not believe our compensation programs encourage inappropriate risk taking. The Committee, with assistance from Pearl Meyer, arrived at this conclusion for the following reasons: | | | | | |
| Our employees receive both fixed and variable compensation. The fixed portion provides a steady income regardless of the Company’s stock price or financial performance. This allows executives to focus on the Company’s business without an excessive focus on the Company’s stock price. |
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| Incentive award opportunities are tied to multiple metrics over various time periods that align with key financial, operational and strategic objectives. |
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| Incentive award opportunities are capped, with incentive payouts subject to clawback provisions. |
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| Our equity awards for executives generally vest over three-year periods, which discourages short-term risk taking. |
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| Our equity ownership and holding requirements encourage a long-term perspective by our executives. |
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| Our equity compensation plan provides that our executives’ unvested long-term equity compensation is forfeited upon voluntary termination. |
REPORT OF THE
COMPENSATION COMMITTEE
Our Compensation Committee reviews the Company’s management resources and structure and administers the Company’s cash- and equity-based compensation programs for directors and management, which includes our named executive officers. Our Board has reviewed the compositionThe Members of the CompensationAudit Committee pursuant to the rules of the NYSE governing compensation committees, and confirmed that all members of the Compensation Committee are “independent” under such rules. All members of the Committee are also “outside directors,” as defined by applicable federal tax law or regulations of the Internal Revenue Service.
FINANCE COMMITTEE
Our Finance Committee provides assistance to the Board by reviewing from time to time matters concerning corporate finance, including equity and debt financings, acquisitions and divestitures, share and debt repurchases and dividend policy.
COMMITTEE CHARTERS AND OTHER INFORMATION
Interested parties may access electronic copies of the charters of our Audit Committee, NCG Committee, Compensation Committee and Finance Committee at beazer.com. Our Corporate Governance Guidelines and our Code of Business Conduct and Ethics, which meet the requirements of a code of ethics under applicable SEC regulations and NYSE standards, are also available on the Company’s website. Printed copies of any of these documents may be requested by writing to the Company’s corporate secretary at 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328.
BOARD AND COMMITTEE EVALUATIONS
Our Board recognizes that a thorough evaluation process is an important element of corporate governance and enhances our Board’s effectiveness. Therefore, each year, the NCG Committee oversees the evaluation process, which includes an assessment of the performance of the individual directors, the full Board and the committees of the Board, and feedback is solicited for areas of improvement. These evaluations and feedback are then reviewed and shared with the full board during executive session.
DIRECTOR QUALIFICATIONS
Pursuant to our Corporate Governance Guidelines, the NCG Committee is directed to work with our Board on an annual basis to determine the appropriate qualifications, skills and experience for each director and for our Board as a whole. In evaluating these characteristics, the Committee and our Board take into account many factors, including the individual director’s general understanding of our business on an operational level, as well as his or her professional background and willingness to devote sufficient time to Board duties.
While our Board does not have a specific diversity policy, it considers diversity of race, ethnicity, gender, age and professional accomplishments in evaluating director candidates. Each individual is evaluated in the context of our Board as a whole, with the objective of recommending a group of nominees that can best promote the success of our business and represent stockholder interests through the exercise of sound judgment based on diversity of experience and background.
When identifying potential director candidates - whether to replace a director who is retiring or has resigned, or to expand the Board to gain additional capabilities - the NCG Committee, in consultation with the full Board, determines the skills, experience and other characteristics that a potential candidate should possess in light of the composition and needs of the Board and its committees.The NCG Committee also considers whether or not the candidate would be considered independent under the applicable NYSE and SEC governance standards.
As noted above, during fiscal 2019, the NCG Committee engaged a search firm to provide and to help vet candidates for Board seats in connection with a comprehensive, long-term Board succession plan.In such instances, the NCG Committee also considers the assessment of the search firm it has retained and the background information such firm provides on any person it recommends for consideration.The full Board customarily interviews leading candidates. See "Proposal 1 — Election of Directors — General" for more information.
PROCEDURES REGARDING DIRECTOR CANDIDATES
RECOMMENDED BY STOCKHOLDERS
The NCG Committee will consider Board candidates recommended by our stockholders. If the NCG Committee determines to nominate a stockholder-recommended candidate, then that nominee’s name will be included in the proxy statement for our next annual meeting. Stockholder recommendations must be addressed to: Beazer Homes USA, Inc., Attention: Chair, Nominating/Corporate Governance Committee, 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328.
Our stockholders also have the right under our Bylaws to directly nominate director candidates at an annual meeting by following the procedures outlined in our Bylaws. Our NCG Committee evaluates candidates recommended by stockholders in the same manner it evaluates director candidates identified by the Committee.
REPORTING OF CONCERNS TO INDEPENDENT DIRECTORS
Any concerns about the Company may be communicated directly to our independent directors. We maintain an ethics hotline (at 1-866-457-9346) that individuals may call to report any concerns to Global Compliance, a third party service provider that administers our ethics hotline. Individuals may report their concerns anonymously, should they wish to do so. Written communications may be mailed to the Company’s corporate secretary at 1000 Abernathy Road, Suite 260, Atlanta, GA 30328, and the corporate secretary will forward such communications to our independent directors.
PROPOSAL 1 —3 –
ELECTION OF DIRECTORS
GENERAL
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, as amended, the Company is asking its stockholders to cast an advisory vote to approve the compensation of the Company’s named executive officers (NEOs), as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K. This proposal, commonly known as “Say On Pay”, gives our stockholders the opportunity to express their views on the design and effectiveness of our executive compensation programs. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement.
As partdescribed in detail in the section of this proxy statement titled “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate and retain our executive officers (including our NEOs), who are critical to our success. At the same time our Compensation Committee is committed to ensuring that our executive compensation program reinforces key financial, operational and strategic objectives in support of long-term stockholder value creation and appropriately aligns pay for performance without encouraging inappropriate risk taking. Accordingly, our NEOs are rewarded for the achievement of specific annual, long-term and strategic goals in support of long-term value creation. Please read the section of this proxy statement titled “Compensation Discussion and Analysis,” and the Executive Compensation tables that follow it, for additional details about our executive compensation programs.
We have a comprehensive, long-termlong history of strong stockholder support for our executive compensation programs, with Say on Pay support levels averaging over 91% over the last five years. The Board succession plan, threeand the Compensation Committee have considered the result of these stockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At last year's annual meeting of stockholders, approximately 88% of our current directors will not standshares present in person or represented by proxy voted for reelection atapproval of our fiscal 2020 executive compensation program.
At our 2017 annual meeting of stockholders, the Company’s stockholders once again determined that our Say On Pay vote should be held on an annual meeting. After many years of distinguished service, Messrs. Beazer, Zelnak and Leemputtee will retire frombasis. In accordance with this determination, we are asking our stockholders to vote FOR the Board. Brian Beazer,following resolution:
RESOLVED, that the Company's founder and Chairman Emeritus, has servedcompensation paid to the NEOs, as a directordisclosed in this proxy statement pursuant to the compensation disclosure rules of the Company for over 25 years, since our IPO in 1994. Mr. Beazer served as our Non-Executive Chairman ofSecurities and Exchange Commission, including the Board from 1994 until February 2015. Stephen Zelnak has served as a director ofCompensation Discussion and Analysis, the Company since February 2003Executive Compensation tables, and as our Non-Executive Chairman of the Board from February 2015 to November 2019. Peter Leemputte, a former Chairman of the Board's Audit and Compensation Committees, has served as a director of the Company since August 2005. We would like to take this opportunity to thank each of them for their many years of service to Beazer Homes, its Board and stockholders.narrative discussion, is hereby approved.
The NCG Committee conducted an extensive director search in fiscal 2019, which resulted in the appointment of two new directors to our Board in August 2019. In connection with the retirements noted above and these new appointments, the Board has followed the recommendation of the NCG Committee and reduced the size of the Board from eleven to eight members, effective as of the annual meeting.
Each of the nominees listed below has been nominated as a director to serve a term of one year and until his or her respective successor has been qualified and elected. Each of the following nominees is presently serving as a director. Our Board of Directors periodically evaluatesand our Compensation Committee value the appropriate size foropinions of our Boardstockholders, and to the extent there is a significant vote against the compensation paid to our NEOs, as disclosed in this proxy statement, we will consider our stockholders’ concerns and will set the number of directors in accordance with our Bylaws and based on recommendations of the NCG Committee.
In the eventevaluate what, if any, nominee is not available as a candidate for director, votes will be cast pursuantfurther actions are necessary to authority granted by the proxy for such other candidate or candidates as may be recommended by the NCG Committee and subsequently nominated by our Board of Directors. Our Board has no reason to believe that any of the following nominees will be unable or unwilling to serve as a director, if elected.
The biographical information appearing below with respect to each nominee has been furnished to us by the nominee:
ELIZABETH S. ACTON
Ms. Acton, 68, has served as a director of the Company since May 2012. Prior to her retirement in April 2012, Ms. Acton was Executive Vice President Finance (from 2011 to 2012) and Executive Vice President and Chief Financial Officer from (2002 to 2011) of Comerica Incorporated, a financial services company. Prior to joining Comerica, Ms. Acton held a variety of positions at Ford Motor Company from 1983 to 2002, including Vice President and Treasurer from 2000 to 2002 and Executive Vice President and Chief Financial Officer of Ford Motor Credit Company from 1998 to 2000. She is an Independent Trustee of the Fidelity Fixed Income and Asset Allocation Funds. Ms. Acton received a Bachelor’s degree from the University of Minnesota and a Master of Business Administration degree in Finance from Indiana University.
Ms. Acton has over 35 years of significant financial management expertise as well as significant experience as a finance executive for two public companies. We believe Ms. Acton’s finance and accounting expertise is valuable to the Company in many respects, including with respect to assessment of our capital structure and financial strategy as Chair of our Finance Committee, as well as compliance with our obligations under various regulatory requirements for financial expertise on our Board of Directors and Audit Committee.
LAURENT ALPERT
Mr. Alpert, 73, has served as a director of the Company since February 2002. Mr. Alpert is a Senior Counsel of the international law firm of Cleary, Gottlieb, Steen & Hamilton. He joined Cleary Gottlieb in 1972, and was a partner from 1980 until his retirement in November 2016. He received his undergraduate degree from Harvard College and a law degree from Harvard Law School. Mr. Alpert is also an overseer of the International Rescue Committee, a non-profit organization providing relief and resettlement services to refugees.
Mr. Alpert brings to our Board of Directors over 40 years of experience practicing law with one of the world’s pre-eminent law firms and over 16 years’ experience on our Board of Directors. He has substantial experience representing companies in a broad range of industries. In light of the regulatory environment in which the Company operates and the continued emphasis on corporate governance, ethics and compliance for public companies, Mr. Alpert’s experience, training and judgment are of significant benefit to the Company.
ALLAN P. MERRILL
Mr. Merrill, 53, joined the Company in May 2007 as Executive Vice President and Chief Financial Officer, and was named President and Chief Executive Officer in June 2011 and Chairman in November 2019. Prior to joining the Company, Mr. Merrill worked in both investment banking and in online real estate marketing. From 1987 to 2000, Mr. Merrill worked for the investment banking firm UBS (and its predecessor Dillon, Read & Co.), where he was a managing director and ultimately served as co-head of the Global Resources Group, overseeing relationships with construction and building materials companies around the world, as well as with clients in other industries. During his investment banking career, he advised the Company on its 1994 IPO as well as on several major acquisitions. Immediately prior to joining the Company, Mr. Merrill worked for Move, Inc., where he served as Executive Vice President of Corporate Development and Strategy. From April 2000 to October 2001, Mr. Merrill was president of Homebuilder.com, a division of Move, Inc. Mr. Merrill is chair of the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and of the Leading Builders of America. He is also a director of Builder Homesite, Inc. He is a graduate of the University of Pennsylvania’s Wharton School with a Bachelor of Science degree in Economics.
We believe Mr. Merrill’s experience in and knowledge of the homebuilding sector, gained primarily through finance, capital markets and strategic development roles over more than 25 years, is particularly valuable to the Company as it seeks to achieve its financial and operational goals.
PETER M. ORSER
Mr. Orser, 63, has been a director of the Company since February 2016. From 2010 to 2014, Mr. Orser served as President and Chief Executive Officer of the Weyerhaeuser Real Estate Company, a subsidiary of Weyerhaeuser Company, where he oversaw five different homebuilding operations across the United States. In July 2014, under his leadership, Weyerhaeuser completed the successful sale of the company. Prior to that, Mr. Orser spent almost 25 years in various positions at Quadrant Homes, a leading homebuilder in the state of Washington and a subsidiary of Weyerhaeuser, including serving as President from 2003 to 2010. Mr. Orser is active in a number of other civic organizations, including serving as Chairman of the Runstad Department of Real Estate Advisory Board, University of Washington, and was appointed by the Governor to serve on the Washington State Affordable Housing Advisory Board. Mr. Orser holds a Bachelor of Science degree from the University of Puget Sound and a Master of Urban Planning from the University of Washington.
Mr. Orser’s experience in the homebuilding industry provides significant operational and safety expertise to the Company. We believe his understanding of our industry, as well as his management experience gained over the course of his career, is valuable to the Company.
NORMA A. PROVENCIO
Ms. Provencio, 62, has been a director of the Company since November 2009 and was named Lead Director in November 2019. Ms. Provencio is President and owner of Provencio Advisory Services Inc., a healthcare financial and operational consulting firm. Prior to forming Provencio Advisory Services in October 2003, she was the Partner-in-Charge of KPMG’s Pacific Southwest Healthcare Practice since May 2002. From 1979 to 2002, she was with Arthur Andersen, serving as that firm’s Partner-in-Charge of the Pharmaceutical, Biomedical and Healthcare Practice for the Pacific Southwest. Ms. Provencio received her Bachelor of Science in Accounting from Loyola Marymount University. She is a certified public accountant and also a member of the Board of Trustees of Loyola Marymount University.
Ms. Provencio has over 20 years’ experience in the public accounting field. We believe her in-depth understanding of accounting rules and financial reporting regulations to be valuable to the Company’s commitment and efforts to comply with regulatory requirements.
DANNY R. SHEPHERD
Mr. Shepherd, 68, has been a director of the Company since November 2016. Prior to his retirement in 2015, Mr. Shepherd was Vice Chairman (from 2014 to 2015) and served as Senior Vice President, Executive Vice President and Chief Operating Officer (from 2001 to 2014) of Vulcan Materials Company, a producer of construction aggregates. Mr. Shepherd is a current director of GCP Applied Technologies. Mr. Shepherd received his Bachelor of Science degree from Georgia Institute of Technology.
Mr. Shepherd has significant experience in the building materials industry, and he has over forty years of public company experience. He served in various management roles over the course of his career, including thirteen years as an executive of a large producer of construction aggregates. We believe his in-depth understanding of our industry, as well as his management and operational experience, provides value to the Company.
DAVID J. SPITZ
Mr. Spitz, 47, has served as a director of the Company since August 2019. He is currently the chief executive officer and a member of the board of directors of ChannelAdvisor Corp., a leading e-commerce cloud platform whose mission is to connect and optimize the world's commerce, since May 2015. He also served as president and chief operating officer of ChannelAdvisor from 2010 until May 2015, and previously served in a number of capacities from 2006 until 2010. He was an entrepreneur-in-residence at the Aurora Funds, a venture capital firm, from 2005 to 2008. Previously, from 2000 to 2002, Mr. Spitz was founder and chief technology officer of WindWire, a mobile marketing company that was acquired by Avesair, where he then served as president until its acquisition by Inphonic in 2003. In 1996 he co-founded, and until 1998 served as chief technology officer of, Netsation, a network management software company acquired by Nortel Networks, where he then served as senior principal technologist until 2000. Mr. Spitz received a B.A. degree in computer science from the University of California, San Diego. He holds four U.S. patents, is past chairman of the North Carolina School of Science and Mathematics Foundation Board and is past chairman and a member of the executive committee and board of directors of CED, an entrepreneurial support organization for companies in the southeastern United States.
Mr. Spitz’s high-level management experience with software and technology companies, computer science background and deep technology industry experience provides value to the Company.
C. CHRISTIAN WINKLE
Mr. Winkle, 56, has served as a director of the Company since August 2019. He is currently the chief executive officer and a member of the board of directors for Sunrise Senior Living, which operates senior living communities in the United States, Canada and the United Kingdom, including 21 Gracewell Healthcare communities. He has been at Sunrise Senior Living since September 2013. He was chief executive officer of MedQuest, Inc., a leading operator of independent, fixed-site, outpatient diagnostic imaging centers in the United States from November 2005 to August 2013. He served as president and chief executive officer for Mariner Health Care, Inc., which operated skilled nursing facilities, assisted living and long-term acute care hospitals from January 1999 to July 2004. Mr. Winkle was the chief operating officer at Integrated Health Services, where he helped pioneer the sub-acute care sector and was responsible for all of the facility and ancillary service operations. He is a member of Argentum and American Seniors Housing Association (ASHA) boards. Mr. Winkle received his Bachelor of Science degree from Case Western Reserve University.
Mr. Winkle's broad management experience and his specific expertise in serving the important aging adults demographic provides value to the Company.
RECOMMENDATION
The Board of Directors recommends a vote FOR the election of eachapproval of the nomineescompensation of our named above.executive officers.
COMPENSATION
DISCUSSION AND ANALYSIS
INTRODUCTION
This Compensation Discussion and Analysis (CD&A) describes the compensation programs for our named executive officers (NEOs)*. Our executive officers who served as named executive officers in fiscal 2021 are:
| | | | | |
| NAME | TITLE |
| Allan P. Merrill | Chairman, President and Chief Executive Officer |
| David I. Goldberg | Senior Vice President and Chief Financial Officer |
| Keith L. Belknap | Executive Vice President and General Counsel |
| Robert L. Salomon** | Former Executive Vice President and Chief Financial Officer |
*References to our Named Executive Officers, or NEOs, do not include Mr. Salomon unless specified otherwise.
**Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021.
In addition to his responsibilities as Chief Financial Officer, Mr. Goldberg oversees our capital sourcing, investor relations, treasury and information technology functions. Mr. Belknap continues to lead our customer teams, which include mortgage & settlement, marketing, customer experience and customer care functions, in addition to his responsibilities as General Counsel.
We are a geographically diversified homebuilder with operations in 13 states within three geographic regions in the United States. Our homes are designed to appeal to homeowners at different price points across various demographic segments, principally first time buyers, first move-up buyers, empty nesters and retirees. Our objective is to provide our customers with homes that incorporate extraordinary value and quality at affordable prices, while seeking to maximize our return on invested capital over the course of a housing cycle.
Our three pillars — Mortgage Choice, Surprising Performance and Choice Plans — serve as our primary points of differentiation. Mortgage Choice, which makes it easy for our customers to comparison shop among competing lenders, potentially saving them thousands of dollars on their home loan; Surprising Performance, which reflects the fact that every Beazer home is designed and built to meet Energy Star requirements and provide exceptional quality and comfort that results in a lower cost of ownership; and Choice Plans,which allows customers to personalize their primary living areas for how they want to live in their home, at no additional cost.
As we improve our financial and operational performance, we are also focused on meaningful ESG accountability — supporting a variety of charitable and community-based activities, promoting safety, inclusion and diversity in our workforce and building our homes and communities with a concern for their impact on the environment. For more information on environmental, social and corporate governance matters, see “ESG” beginning on page 5.
2021 BUSINESS HIGHLIGHTS
Here are several highlights of our financial and operational achievements in fiscal 2021:
| | | | | | | | |
| FINANCIAL | |
| $2.1 BILLION | Revenue |
| Achieved a slight increase in revenue despite a 3.7% year-over-year decrease in home closings |
| $122.2 MILLION | Net Income |
| | Generated net income from continuing operations of $122.2 million compared to $53.3 million in fiscal 2020 |
| $262.7 MILLION | Adjusted EBITDA |
| | Achieved $262.7 million in Adjusted EBITDA, an increase of $58.3 million, or 28.5%, year-over-year |
| $80.7 MILLION | Debt Reduction |
| | Reduced our outstanding debt by $80.7 million |
| | |
| OPERATIONAL | |
3.7 HOME
SALES/MONTH | Sales Pace Achieved average monthly home sales pace per community of 3.7, a year-over-year increase of 13.8% |
| $595.5 MILLION | Land Acquisition and Land Development Spending |
| | Spent $595.5 million on land acquisition and land development, a 35.1% year-over-year increase |
| $1.3 BILLION | Dollar Value of Backlog |
| | Ended the year with dollar value of homes in backlog of $1.3 billion, a year-over-year increase of 29.0% |
| $402,400 | Average Selling Price |
| | Average selling price (ASP) for our homes was $402,400, marking our tenth consecutive year of ASP growth and reflecting an increase of more than 4% year-over-year |
| 127 COMMUNITIES | Average Community Count |
| | Average active community count was 127, a 22.3% year-over-year decrease |
| 21,987 LOTS | Number of Controlled Lots |
| | Ended the year with 21,987 lots controlled either through ownership or options to purchase, a year-over-year increase of 23.3% |
NON-EMPLOYEE | | | | | | | | |
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For fiscal 2022, we expect to: •grow EBITDA by more than 10%, leading to earnings per share of more than $5.00, •grow our lot position by double digits, with lots controlled by options remaining around 50% •deliver a return on total equity of about 20%, or nearly 25% excluding our deferred tax assets, and •reduce our total debt below $1 billion |
DIRECTORFor purposes of this CD&A: | | | | | |
| “Adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding charges, including debt extinguishment charges, inventory impairment and abandonment charges and other non-recurring items for the period to EBITDA. |
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| “EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding non-cash charges, including depreciation and amortization for the period, to EBIT. |
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| “EBIT” means net income (loss) before (a) previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization; and (b) income taxes. |
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| “Bonus Plan EBITDA” means Adjusted EBITDA before accrual of corporate bonuses. |
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| Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. Statements regarding expectations for fiscal 2022 are forward-looking statements, which involve known and unknown risks, uncertainties and other factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. |
FISCAL 2021 COMPENSATION HIGHLIGHTS Base Salaries (PG. 32)
As we reported in our 2020 Proxy Statement, due to a significant decline in net new orders and the Company's focus on protecting liquidity at the onset of the COVID-19 pandemic, our NEOs voluntarily reduced their respective salaries by 20%, effective April 1, 2020. Those reductions remained in place for all of fiscal 2020.
While market conditions had improved dramatically by the beginning of fiscal 2021, our NEOs voluntarily extended a portion of base salary reductions, equal to 10% of their respective pre-pandemic annual salaries, into fiscal 2021, subject to the possibility of salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan. As a result, Mr. Merrill began fiscal 2021 with a base salary of $877,500 and Mr. Goldberg and Mr. Belknap began fiscal 2021 with base salaries of $382,500 and $486,000, respectively. Because the Company's results for the first half of fiscal 2021 exceeded 95% of the Company's annual plan, the NEOs salaries were restored to pre-pandemic levels for the second half of the year, resulting in actual base salaries earned in fiscal 2021 of $926,384 for Mr. Merrill, $403,808 for Mr. Goldberg and $513,074 for Mr. Belknap.
Short-Term Incentive Opportunities (PG. 33)
In addition to the reduction in base salaries discussed above, our NEOs voluntarily reduced their respective target short-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in short-term incentive opportunities, the target short-term incentive award opportunities for our NEOs (expressed as percentages of weighted salary) were 157.5% for Mr. Merrill, 90.0% for Mr. Goldberg and 112.5% for Mr. Belknap.
Our Compensation Committee determined that our NEOs would be eligible to receive an award for the operational components of the 2021 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. Furthermore, the Committee retained the discretion to deduct from awards earned for any reason, including the failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.
Long-Term Incentive Opportunities (PG. 35)
In addition to the reductions discussed above, our NEOs voluntarily reduced their respective target long-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in long-term incentive opportunities, the target long-term incentive award opportunities for our NEOs (expressed as percentages of already reduced salary) were 270.0% for Mr. Merrill, 135.0% for Mr. Goldberg and 157.5% for Mr. Belknap.
For the 2021-2023 performance period, our Compensation Committee continued its practice of tying two-thirds of target long-term incentive award opportunities to multi-year performance goals, with one-half of the performance -based component payable in cash and one-half payable in performance shares, subject to the same performance criteria.
In addition, our Compensation Committee continued to include a relative total shareholder return (TSR) modifier to NEO performance share and performance cash awards, which could result in an adjustment to any earned awards (by up to +/- 20%) based on our three-year relative TSR performance vs. companies in the S&P Homebuilders Select Industry Index.
OUR OVERALL COMPENSATION
SUMMARY OF 2019 NON-EMPLOYEE DIRECTOR COMPENSATION
PHILOSOPHY AND OBJECTIVES
Our non-employee directors generally receive annualexecutive compensation philosophy is to design compensation programs that:
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| Attract, retain and reward top talent; |
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| Align pay with performance without encouraging inappropriate risk taking; and |
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| Provide a substantial portion of our compensation in long-term equity-based compensation to reinforce key financial, operational and strategic objectives in support of long-term value creation. |
CORE PRINCIPLES AND KEY OBJECTIVES
We utilize a combination of base salary, short-term cash retainersincentives and long-term incentives. Most of long-term incentives are tied to multi-year performance goals, along with a portion provided in time-based restricted stock.
Our Compensation Committee reviews our core compensation philosophy annually in conjunction with the review of our compensation programs. While our core compensation philosophy and objectives have remained consistent in recent years, the Committee has made adjustments to various aspects of our compensation programs to meet changing needs and circumstances of the Company. For the three-year award cycle beginning in fiscal 2021, which is associated with performance shares that may be earned in fiscal 2023, the Committee replaced a growth metric related to our Gatherings product line with a metric related to the home energy rating achievements of the Company's completed homes in order to link these awards with a key component of the Company's ESG strategy.
The Committee believes that salary and incentive compensation opportunities should be set based on a variety of factors, including key financial, operational and strategic objectives, Company performance, the compensation practices of our peer group, each executive’s specific responsibilities and skill sets, and the relationship among the compensation levels of members of our management team. The Committee has taken into consideration our need to attract and retain qualified executives in an industry that continues to experience an intense level of competition for Boardsenior executives.
By structuring compensation programs with features that are balanced between short- and committee servicelong-term incentives as well as cash and an annual restricted stock awardequity awards, the Committee believes it can align management’s interests with those of our stockholders in both the short- and long-term; reduce risks that vests one year from the date of grant. They also receive reimbursement for reasonable out-of-pocket expenses incurred in connectionmay be associated with attending Boardcompensation that is overly focused on short-term objectives; and committee meetings; but, they do not receive fees for meeting attendance.attract, retain and motivate senior management personnel.
To reward our directors’ efforts and contributions,Further, while the Compensation Committee seeks to position non-employee directorbelieves benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation at or nearpractices are reasonable for fiscal 2021, it did not establish compensation levels based solely on benchmarking industry practices. Based on data for the 50th percentile of industry peers, with a meaningful emphasis on equity-based awards to align their interests with stockholders. With the assistance of its independent advisor,2021 Peer Group, Pearl Meyer advised the Compensation Committee periodically reviewsthat target total compensation for our non-employee directorNEOs after their voluntary compensation reductions (noted elsewhere in this proxy statement) was positioned below a competitive range (plus or minus 15%) of the 2021 Peer Group 50th percentile, individually and in the aggregate.
Our Compensation Committee is committed to ensuring that our executive compensation program reinforces key financial, operational and strategic objectives in support of long-term stockholder value creation and appropriately aligns pay with performance. This is demonstrated by the heavy emphasis placed on variable, performance-based incentives for our NEOs (representing approximately 64% of target total compensation for our CEO and averaging approximately 57% of target total compensation for other NEOs in fiscal 2021) and differences in realized pay relative to target opportunity. As part of that philosophy, failure to reach such goals can result in no compensation under a particular plan or metric.
Our compensation practices include: | | | | | |
| Emphasis on Performance-Based Pay: 64% of the ongoing pay mix for our CEO, and an average of 57% of the target pay mix for our other NEOs, was variable and performance-based for fiscal 2021. In the aggregate, 61% of the target compensation for our CEO and other NEOs for fiscal 2021 was variable and performance based. |
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| Long-Term Vesting: Our equity-based pay vehicles have multi-year vesting periods to reward long-term performance and value creation, enhance retention and deter inappropriate risk taking. |
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| Multiple Performance Measures: We use multiple metrics to evaluate Company performance, covering both short-term and long-term performance objectives, with award funding caps to deter inappropriate risk taking. |
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| Stock Ownership Requirements: We have meaningful stock ownership requirements for our directors and officers. For example, our CEO must hold common stock equal to at least five times his base salary. |
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| No Repricing: Our stock options cannot be repriced, reset or exchanged for cash if under water without stockholder approval. |
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| Anti-Pledging and Hedging Policies: We prohibit our directors and executive officers from (i) holding Beazer securities in a margin account or pledging any Beazer securities as collateral for a loan and (ii) entering into any hedge or other transaction in Beazer securities that limits the risk of ownership of Beazer common stock or stock options. |
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| Double Trigger Change in Control Provisions: We have a policy of requiring a double trigger to receive cash severance and to receive accelerated vesting of equity awards upon a change of control. |
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| Clawback: Each equity award is conditioned on repayment or forfeiture as required by existing law. In addition, each executive officer’s incentive compensation is subject to repayment or such other means of recovery (or a combination thereof) as is necessary to comply with law or related rules and regulations of the SEC or NYSE. |
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| No Tax Gross-Ups: We maintain severance agreements with our NEOs that standardize executive separation terms, minimize the risk of excessive payouts and do not provide for any tax gross-ups. |
ROLE OF THE COMPENSATION COMMITTEE, MANAGEMENT AND COMPENSATION CONSULTANTS
The principal responsibilities of our Compensation Committee include: | | | | | |
| meeting with its independent compensation consultant, with and without the presence of management, to review and structure objectives and compensation programs for our NEOs that are aligned with both the Company’s business and financial strategy and stockholder interests; |
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| evaluating the performance of our NEOs in light of those objectives; and |
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| based on this evaluation, determining and approving the compensation level for our CEO and for other executive officers. |
The Committee has retained Pearl Meyer to provide advice regarding compensation plan design, compensation levels and benchmarking data and advice. Prior to retaining Pearl Meyer for fiscal 2021, the Committee determined that Pearl Meyer qualifies as an independent compensation consultant. Pearl Meyer reports directly to the Committee and does not provide any other services to the Company.
In relation to compensation program design for fiscal 2021, the Committee took into account discussions with, and presentations by, key members of our management team to ensure itthat our compensation plans were aligned with our key financial, operational and strategic objectives. Also, on an annual basis, Mr. Merrill reviews the performance of the other NEOs, and makes recommendations to the Committee based on his review. In addition, our Lead Director discussed Mr. Merrill’s performance with the Committee. Mr. Merrill is sufficiently competitive vs. industry peerspresent for the Committee’s deliberations related to facilitate the attraction and retentioncompensation of highly experienced and qualified board members. The peer group includes the same companies used in senior executive benchmarking, as listed on page 26.
NON-EMPLOYEE DIRECTOR CASH COMPENSATIONother NEOs, but not for the Committee’s discussions related to his own compensation.
For fiscal 2019, all non-employee directors,2021, our peer group was composed of Century Communities, Inc., Green Brick Partners, Inc., Hovnanian Enterprises, Inc., KB Home, LGI Homes, Inc., M/I Homes, Inc., M.D.C. Holdings, Inc., Meritage Homes Corporation, Taylor Morrison Home Corp., and TRI Pointe Group, Inc. (the" 2021 Peer Group"). These companies were chosen because, in addition to being among our chief competition among publicly traded homebuilders, they are most closely aligned to us in terms of size.
Each year, Pearl Meyer conducts a review of peer group pay levels and practices, which the Committee takes into consideration when establishing NEO compensation levels, along with a variety of other than Messrs. Spitzfactors, such as Company and Winkle, receivedindividual performance, each incumbent’s qualifications and responsibilities, the Company’s recruiting experience and talent management needs and the Committee’s business judgment.
While the Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2021, it did not establish compensation levels based solely on benchmarking industry practices. Based on data for the 2021 Peer Group, Pearl Meyer advised the Committee that target total compensation for our NEOs after their voluntary compensation reductions was positioned below a $75,000 annual cash retainer. Messrs. Spitz and Winkle joined the Board in August 2019, and each received a pro rata portioncompetitive range (plus or minus 15%) of the annual cash retainer. 2021 Peer Group 50th percentile, individually and in the aggregate.
ELEMENTS OF FISCAL
2021 COMPENSATION PROGRAM
CONSIDERATION OF SAY ON PAY VOTES
We also provide annual committee chair retainershave a long history of $25,000strong stockholder support for our Auditexecutive compensation programs, with Say on Pay support levels averaging over 91% for the last five years. The Board and the Compensation Committee chairhave considered the result of these stockholder votes in setting compensation policies and $20,000making compensation decisions for each of the fiscal years that has followed. At last year's annual meeting of stockholders, approximately 88% of our other committee chairs. Non-chair committee members receive $12,500 annuallyshares present in person or represented by proxy voted for service on the Audit Committee and $10,000 annually for service on all other committees (Messrs. Spitz and Winkle received a pro rata portionapproval of applicable committee fees).our fiscal 2020 executive compensation program.
In additiondesigning the compensation program for fiscal 2021, the Committee considered the results of the 2020 Say on Pay vote, our ongoing dialogue with stockholders, internal considerations such as key business and talent management objectives, consistency from year-to-year and an evaluation of peer practices. After consideration, the Committee concluded that, for fiscal 2021, it was appropriate to maintain most elements of the existing compensation program design for our NEOs, with only minor changes to the $75,000short-term incentive plan metrics and weightings and the introduction of a new performance metric for the long-term incentive plan tied to the Company's energy-efficiency score achievements to link these awards to a key component of the Company's ESG strategy. The fiscal 2021 compensation program continues to tie the majority of our NEOs’ compensation to performance metrics that support the Company’s Balanced Growth Strategy.
Our ability to recruit and retain executive talent depends on setting competitive base salaries. We begin with an analysis of base pay relative to the market. We target base pay at or near the peer group 50th percentile (or median) and then evaluate the need to make any adjustments based on variables such as pay parity relative to other officers and internal accountability. We review base salaries annually, unless circumstances require otherwise. For non-CEO NEO salaries, we solicit CEO input.
Entering fiscal 2021, no changes were made by the Committee to the pre-pandemic base salaries of Messrs. Merrill and Belknap. The Committee approved a 30.8% increase in base salary for Mr. Goldberg from $325,000 to $425,000 in connection with his promotion to Chief Financial Officer. However, as noted above, our NEOs voluntarily reduced their respective base salaries for fiscal 2021 by 10% with the possibility of the salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual cash retainerplan.
Because the Committee determined that the Company's performance and the overall market conditions warranted a restoration of NEO salaries, our NEOs began receiving their respective full base salaries as of April 1, 2021, and the actual salaries paid to non-employee directors, the former non-executive Chairman received an additional $75,000 annual cash retainer. However, the non-executive Chairman did not receive additional retainersNEOs for committee service. In fiscal 2019,2021 were $926,384 to Mr. Zelnak received $75,000 for his service as non-executive Chairman.Merrill; $403,808 to Mr. Merrill will not receive additional compensation for his service as Chairman.Goldberg; and $513,074 to Mr. Belknap.
Beginning with fiscal 2020, the Board has adopted a Lead Director structure. See "Corporate Governance — Board Leadership Structure and Governance Practices" for more information. Our Lead Director will receive an additional annual cash retainer of $37,500 for serving as Lead Director.
SHORT-TERM INCENTIVE COMPENSATION
ForOur annual cash incentive plan is designed to motivate and reward executives for achieving key financial, operational and strategic objectives that continue to drive the Company’s success and generate returns for our stockholders. We set annual cash incentive bonus targets hierarchically based on a multiple of base salary.
Entering fiscal 2019, all non-employee directors (other than Messrs. Spitz2021, Mr. Merrill’s short-term incentive target award opportunity (expressed as a percentage of base salary) would have been 175%, Mr. Goldberg's would have been 100% and Winkle) received an equity grantMr. Belknap’s target award opportunity would have been 125%. However, our NEOs voluntarily reduced their respective short-term incentive target awards by 10% for fiscal 2021 due to the continued uncertainty surrounding the pandemic and market conditions at the beginning of fiscal 2021. Accordingly, Mr. Merrill's short-term incentive target award opportunity (expressed as a percentage of weighted salary) was 157.5%, Mr. Goldberg's was 90% and Mr. Belknap's was 112.5%.
Similar to prior years, for fiscal 2021, the large majority (75%) of short-term incentive award opportunities for our NEOs were tied to actual vs. planned Bonus Plan EBITDA, with the numberremaining 25% tied to various financial, operational and strategic objectives. Specifically, 5% of shares calculated by dividing $100,000 by the fair market valueNEO short-term incentive award was tied to securing new land holdings; 5% was tied to operating margin improvement; and the remaining 15% was tied equally to: employee engagement and performance review objectives; improvement of a sharecustomer satisfaction; and reduction of common stock on the date of grant, rounded down to the nearest whole number. Each of Messrs. Spitz and Winkle received a pro rata grant valued at approximately $15,000. Directors areunderperforming communities. Consistent with prior years, NEOs were eligible to receive grantsan award for other components of equity-based awards under the Company’s long-term incentive plans at2021 Bonus Plan only if threshold 2021 Bonus Plan EBITDA was achieved.The Committee retained the discretion to adjust results for unanticipated and exceptional items and to deduct from awards earned for failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.No such discretion was exercised by the Committee.
2021 OBJECTIVES | | | | | |
| Bonus Plan EBITDA — 75% of bonus opportunity — In light of the demonstrated success of the Adjusted EBITDA metric as a driver of financial results in prior years and because improvement in Adjusted EBITDA is key to accomplishing our strategic plan, the Committee determined that 75% of the overall annual bonus opportunity would be based on the achievement of levels of Bonus Plan EBITDA. The Committee established a 2021 Bonus Plan EBITDA objective with a $200 million threshold, $215 million target and a $230 million maximum. |
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| Increase Land Position — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to meet internal (and proprietary) goals for its minimum lot position (i.e., the total lots controlled either through ownership or options to purchase for the fiscal year), as well as increases in the percentage of lots controlled through options to purchase. |
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| Reduce Underperforming Communities — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to reduce the percentage of actively selling communities that failed to meet internally budgeted (and proprietary) sales pace objectives for the fiscal year. |
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| Improve Internal Operating Margin - 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to improve the percentage with respect to an internal (and proprietary) measure of operating margin that takes into account varying operational efficiencies and overheads among divisions and corporate. |
| Improve Customer Experience — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to realize specific levels of year-over-year improvement in customer satisfaction as measured through third-party customer surveys. |
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| Employee Engagement and Performance Review — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, a minimum level of employee engagement and performance reviews was required. |
The specific performance targets for operational metrics are not disclosed here because we believe that the disclosure would result in competitive harm to us by providing competitors, vendors and suppliers with insight into our Compensation Committee. Our Compensation Committee’s rationale for equity grants to directorsbusiness strategies and operations beyond what is similar to that for our named executive officers; namely, to align their interests with those ofdisclosed publicly.
stockholders. The amount2021 ACHIEVEMENT OF OBJECTIVES
In 2021, the following results were achieved against these objectives: | | | | | | | | | | | |
| OBJECTIVE | WEIGHTING (%) | RESULT | ACHIEVEMENT |
| Bonus Plan EBITDA | 75 | $270.9 million, a 26.4% year-over-year increase | Maximum achievement level |
| Increase Land Position | 5 | Grew total lot count by 21.0% | Maximum achievement level |
| Reduce Underperforming Communities | 5 | Reduced Underperforming Communities by 82.0% | Maximum achievement level |
| Improve Internal Operating Margin | 5 | Increased Internal Operating Margin by 27.3% | Maximum achievement level |
| Improve Customer Experience | 5 | Improved by 52 bps | Threshold achievement level |
| Employee Engagement and Performance Review | 5 | Above benchmark for four quarters and full year | Maximum achievement level |
| Total | 100 | — | Between target and maximum on an overall basis |
To the extent actual 2021 Bonus Plan performance was between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation was applied to determine the actual payout under each component of the director grant is determined2021 Bonus Plan.
2021 BONUSES AWARDED
Actual awards for our NEOs were equal to 192.5% of reduced target award opportunities, as shown in consultation with our Compensation Committee’s independent compensation consultant, Pearl Meyer. See footnote 2 to the Director Compensation Tabletable below.
In addition to the $100,000 annual equity award to non-employee directors, the former non-executive Chairman received an additional $100,000 annual equity award.
Except as described above, our non-employee directors did not receive any other compensation from the Company for services rendered Payment of bonuses as a
director during fiscal 2019. Our directors are subject to stock ownership and holding requirements, as described under “Compensation Discussion and Analysis — Elementspercentage of
Fiscal 2019 Compensation Program — Stock Ownership and Holding Requirements” below.target bonus opportunities before the voluntary pay reductions noted previously was 164.6%. | | | | | | | | | | | | | | |
| NAME | 2021 TARGET BONUS (% of actual base salary) | 2021 TARGET BONUS ($) | 2021 ANNUAL CASH INCENTIVE BONUS ($) | BONUS AS A PERCENTAGE OF TARGET (%) |
| Allan P. Merrill | 157.5 | 1,459,054 | 2,808,679 | 192.5 |
| David I. Goldberg | 90 | 363,427 | 699,598 | 192.5 |
| Keith L. Belknap | 112.5 | 577,208 | 1,111,126 | 192.5 |
DIRECTOR COMPENSATION TABLE
The following table sets forth the compensation of each non-employee director in fiscal 2019.
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NAME (1) | FEES EARNED OR PAID IN CASH($) | STOCK AWARDS($)(2) | TOTAL($) |
| Elizabeth S. Acton | 107,500 | | 99,997 | | 207,497 | |
| Laurent Alpert | 98,500 | | 99,997 | | 198,497 | |
| Brian C. Beazer | 95,000 | | 99,997 | | 194,997 | |
| Peter G. Leemputte | 97,500 | | 99,997 | | 197,497 | |
| Peter M. Orser | 105,000 | | 99,997 | | 204,997 | |
| Norma A. Provencio | 101,500 | | 99,997 | | 201,497 | |
| Danny R. Shepherd | 110,000 | | 99,997 | | 209,997 | |
| David J. Spitz | 12,963 | | 15,061 | | 28,024 | |
| C. Christian Winkle | 12,963 | | 15,061 | | 28,024 | |
| Stephen P. Zelnak, Jr. | 150,000 | | 199,994 | | 349,994 | |
LONG-TERM INCENTIVE COMPENSATION
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| Allan Merrill, our Chairman, President and Chief Executive Officer, is a member of our Board of Directors, but does not receive separate compensation for his Board service. |
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| Represents the aggregate grant date fair value of awards determined in accordance with FASB ASC Topic 718. These are not amounts paid to or realized by the non-employee directors. Further information regarding the valuation of stock awards can be found in Notes 2 and 16 to our Consolidated Financial Statements in our 2019 Form 10-K. In fiscal 2019, Ms. Acton, Ms. Provencio and Messrs. Alpert, Beazer, Leemputte, Orser and Shepherd were each granted 10,183 shares of restricted stock. Mr. Zelnak was granted 20,366 shares of restricted stock, consisting of: (a) his non-employee director grant of 10,183 shares; and (b) an additional grant of 10,183 shares in connection with his service as Chairman of the Board. Messrs. Spitz and Winkle were each granted 1,284 shares of restricted stock. Each award vests on the one-year anniversary of its grant date. |
For fiscal 2021, based on recommendations from Pearl Meyer and other factors, the Committee determined to modify its past practice of awarding performance shares equal to two-thirds of overall long-term incentive target award opportunity, and time-based restricted stock equal to one-third of overall target award opportunity. Instead, for the fiscal 2021-2023 Award Cycle, the Committee changed the award mix to include a third component consisting of a long-term, performance-based cash award and weighted all three components equally (i.e., performance shares, time-based restricted stock and performance-based cash award each equal one-third of the long-term incentive target award opportunity). This award mix change was made to help manage equity plan share usage while continuing to tie the majority (two-thirds) of award opportunities to multi-year performance goals.
Entering fiscal 2021, no changes were made by the Committee to the target pre-pandemic long-term incentive award opportunities, expressed as a percentage of base salary, of Messrs. Merrill or Belknap. The Committee determined to increase Mr. Goldberg's long-term incentive award opportunity from 100% to 150% of his base salary in connection with his promotion to Chief Financial Officer. However, as noted above, Messrs. Merrill, Goldberg and Belknap voluntarily reduced their respective target long-term incentive award opportunities by 10.0% for the entirety of fiscal 2021.
RESTRICTED STOCK
Time-based restricted stock awards generally vest ratably over a three-year period, beginning with the first anniversary of the grant date. In fiscal 2021, the NEOs were granted the following number of shares of restricted stock, which were calculated by dividing the applicable target award value by the average daily closing price of a share of common stock for the 30 consecutive trading days on the NYSE ending on November 16, 2020: Mr. Merrill: 57,984; Mr. Goldberg: 12,637; and Mr. Belknap: 18,733.
PERFORMANCE SHARES
Background
In order to facilitate pay for performance, our core compensation philosophy continues to be focused on providing incentive compensation to our management team when they achieve key financial, operational and strategic objectives that the Compensation Committee and our Board of Directors believe are critical to enhancing long-term stockholder value. As part of that philosophy, the Committee believes that a significant portion of equity awards should be performance-based, with failure to reach such goals resulting in no compensation under a particular plan or metric. Accordingly, two-thirds of our senior executive management team’s overall long-term incentive awards are comprised of performance shares (and, with respect to awards for the 2021-2023 award cycle, performance cash awards) which reflect a target number of shares (and cash) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets established at the time of grant. Performance share grant levels were determined by dividing target award values by the closing price of a share of our common stock on the date of grant.
When determining awards, the Committee utilizes performance metrics consisting of a variety of key financial, operational and strategic objectives. In addition, in order to ensure the awards align with enhancing stockholder value, any awards earned at the end of the three-year performance period are subject to adjustment (by up to +/- 20%) based on our relative total shareholder return (TSR) performance vs. companies in the S&P Homebuilders Select Industry Index.
Performance Measures for the Fiscal 2019-2021 Award Cycle
Each performance share award reflects a target number of shares (based on the fair market value of our common stock on the award date) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets that are either (a) applicable to cumulative results over the entire three-year cycle or (b) applicable only to the final fiscal year of the three-year award cycle. At the end of each award cycle, the Committee confirms performance against the applicable performance targets, and performance shares corresponding to the level of achievement during the award cycle are calculated.
PROPOSAL 2 —
RATIFICATION OF APPOINTMENT
OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
In determining fiscal year 2019-2021 performance share award metrics, the Committee considered the fluid nature of the housing market and need to design metrics that would not be obsolete in the event of a change in strategy during the three-year award cycle ending with fiscal 2021. The Audit Committee of our Board of Directors has selected the firm of Deloitte & Touche LLP, the member firms of Deloitte & Touche Tohmatsu, and their respective affiliates (collectively, Deloitte & Touche), to serve as our independent registered public accounting firmthree metrics used for the fiscal year ending September 30, 2020. Deloitte & Touche has served as our accounting firm since 1996. The services provided to the Company by Deloitte & Touche for the last two fiscal years are described under the caption “Principal Accountant Fees and Services” below. Stockholder approval of the appointment is not required; however, our Board of Directors believes that obtaining stockholder ratification of the appointment is a sound governance practice.
Representatives of Deloitte & Touche will be present at the annual meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from stockholders.2019-2021 award cycle were:
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| PRINCIPAL ACCOUNTANT FEES AND SERVICESCumulative pre-tax income (defined as the Company’s income from continuing operations, before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Committee may approve) over the entire three-year award cycle; |
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| Return on assets, based on the ratio of Adjusted EBITDA to total assets for fiscal 2021 (defined as the Company’s total assets as shown on the consolidated balance sheet included in the Company’s Form 10-K for fiscal 2021); and |
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| Gatherings — A strategic metric tied to the expansion of our Gatherings product line. The Committee believed this metric aligned with its rigorous and business strategy-focused approach and underscored its pay for performance philosophy. |
ForDetermination of Shares Earned
Shares earned are based on achieving the fiscal years ended September 30, 2019 and 2018, the following professional services were performed by Deloitte & Touche.
Audit Fees: The aggregate audit fees billed for the fiscal years ended September 30, 2019 and 2018 were $1,130,000 and $1,065,000, respectively. Audit fees consistedThreshold, Target or Superior levels of fees associated with the audit of our annual financial statements and internal control over financial reporting, reviewsperformance on one or more of the financial statements included in our quarterly reportsmetrics described above. One-third of target shares are earned for each metric achieving Threshold performance, two-thirds of target shares are earned for each metric achieving Target performance and 100% of target shares are earned for each metric achieving Superior performance. The shares earned on Form 10-Q,the three metrics are totaled, subject to both a 175% cap on primary funding metrics and other services that are normally provided bya TSR Modifier to determine the independent registered public accounting firm in connection with statutory and regulatory filings or engagements.final award.
Audit-Related Fees: The aggregate fees billed for audit-related services for the fiscal years ended September 30, 2019 and 2018 were $33,790 and $33,790, respectively. These fees related to assurance and related services performed by Deloitte & Touche that are reasonably related to the performance of the audit or review of our financial statements. These services included employee benefit and compensation plan audits.
Tax Fees: No fees for tax services were billed by or paid to Deloitte & Touche in either fiscal year 2019 or fiscal
year 2018.
All Other Fees: No other fees were billed by or paid to Deloitte & Touche in either fiscal year 2019 or fiscal year 2018.
Our Audit Committee annually approves each year’s engagement for audit services in advance. Our Audit Committee has also established complementary procedures to require pre-approval of all permitted non-audit services provided by our independent auditors.
RECOMMENDATION
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| To illustrate, achievement of a Threshold level of performance on each of the three metrics would result in 33.3% of target shares earned for each metric or a total of 100% of the target number of shares, subject to adjustment based on the TSR Modifier. |
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| Superior-level performance on any one metric (100%) would earn a target number of shares subject to the TSR Modifier. |
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| The maximum number of shares that can be earned based on the results of the three metrics described above would be 175% of Target, even if Superior performance is achieved on all three metrics (300% of target shares). In the event of such maximum achievements, the maximum adjustment under the TSR modifier of 20% would result in shares awarded totaling no more than 210% of target. |
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| For performance between Threshold and Target or between Target and Superior, straight line interpolation between such levels is applied. |
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| The Committee retains the discretion to reduce the number of shares finally awarded notwithstanding the number earned pursuant to the above, and to award any amounts in excess of target in cash instead of shares. |
The Board of Directors recommends a vote FOR ratification of the appointment of Deloitte & Touche as the Company’s independent registered public accounting firmResults for the fiscal year ending September 30, 2020.Fiscal 2019-2021 Award Cycle
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| Cumulative pre-tax income — The performance necessary to earn a Threshold, Target and Superior payout required a cumulative pre-tax income of $220 million, $240 million and $260 million, respectively. Actual cumulative pre-tax income for the fiscal 2019-2021 award cycle was $282.3 million. |
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| Return on Assets — The performance necessary to earn a Threshold, Target and Superior payout required a ROA for fiscal 2021 of 10%, 11% and 12%, respectively. Actual return on assets for fiscal 2021 was 12.64%. |
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| Gatherings — Actual results for the 2019-2021 cycle were below threshold performance levels, resulting in no funding for this component. The specific performance targets for the Gatherings metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. |
REPORT OF THEIn sum, threshold performance was not reached for one of the metrics, however Superior performance was exceeded for two of the metrics, resulting in earned awards of 175.00% of Target. Earned awards were subject to adjustment based on our relative TSR, as discussed below.
AUDIT COMMITTEEWhile our target performance awards are based on specific metrics established at the time of grant, we believe that incentive compensation should also be directly tied to stockholder value. As a result, after determining the number of shares earned based on the achievement of the performance measures for the fiscal 2019-2021 award cycle, the following three-year relative TSR scale is applied as a modifier:
The Audit | | | | | |
TSR PERCENTILE RANK VS. S&P
HOMEBUILDERS SELECT INDUSTRY INDEX | ADJUSTMENT TO # OF
PERFORMANCE SHARES |
At or above 75th Percentile | +20% |
| 70-74th Percentile | +15% |
| 65-69th Percentile | +10% |
| 60-64th Percentile | +5% |
| 40-59th Percentile | No adjustment |
| 35-39th Percentile | -5% |
| 30-34th Percentile | -10% |
| 25-29th Percentile | -15% |
| Below 25th Percentile | -20% |
After application of the TSR modifier, the recipients’ percentage of awards earned attributable to the fiscal 2019-2021 award cycle was reduced by 15% from 175.00% to 148.75% of Target.
Accordingly, through heavy emphasis on variable, performance-based incentives with rigorous performance goals based on key financial, operational and strategic objectives and actual payouts subject to adjustment based on stockholder returns, the Committee meetsbelieves our long-term incentive program appropriately aligns pay for performance while promoting stockholder value creation.
Performance Shares Issued
Shares issued to NEOs for the definition of an audit committee asfiscal 2019-2021 award cycle are set forth in Section 3(a)(58)(A)the following table: | | | | | | | | | | | |
| NAME | PERFORMANCE SHARES AWARD TARGET (#) | PERFORMANCE SHARES EARNED (#) | PERFORMANCE SHARES EARNED AS A PERCENTAGE OF AWARD TARGET (%) |
| Allan P. Merrill | 193,482 | 287,804 | 148.75 |
| David I. Goldberg | 11,668 | 17,356 | 148.75 |
| Keith L. Belknap | 50,916 | 75,738 | 148.75 |
| Robert L. Salomon* | 81,466 | 121,181 | 148.75 |
* Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021.
Performance Measures for 2021-2023 Award Cycle
For Performance Shares and Performance Cash Awards related to the 2021-2023 performance period, the Committee determined that the Company's ongoing commitment to increase the energy efficiency of its homes and to build only NetZero Energy Ready homes by the end of 2025 warranted accountability through the long-term incentive pay program. Thus, the Committee determined to utilize a new performance metric directly linked to the Home Energy Rating System (HERS®) results for homes built by the Company. HERS® is an industry-leading home building scoring system developed by the Residential Energy Services Network (RESNET), an independent non-profit organization, for inspecting and calculating a home's energy performance after construction is complete.
The specific performance targets for the environmental metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. The Committee believes management’s ability to achieve the specific performance targets and the level of difficulty associated with meeting these performance targets is consistent with the other metrics.
In addition, performance metrics for 2021–2023 award cycle, include the following objectives: | | | | | |
| Cumulative pre-tax income — The performance necessary to earn a Threshold payout requires a cumulative pre-tax income of $260 million, Target payout requires a cumulative pre-tax income of $280 million, and the performance necessary to earn a Superior payout requires a cumulative pre-tax income of at least $300 million. |
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| Return on assets — The performance necessary to earn a Threshold payout requires a return on assets for fiscal 2023 of 10.5%, Target payout requires a return on assets of 11.5%, and the performance necessary to earn a Superior payout requires a return on assets for fiscal 2023 of at least 12.5%. |
Target goals for cumulative pre-tax income and return on assets, which were set in November 2020, were set higher than the targets for the 2020–2022 award cycle, as well as actual results for the 2018–2020 award cycle.
Consistent with past practice, for 2021–2023, the actual number of performance shares and cash earned will be based on achieving the Threshold, Target or Superior levels of performance on one or more of the Exchange Actmetrics described above. One-third of target shares and operates undercash will be earned for each metric achieving Threshold performance, two-thirds of target shares and cash will be earned for each metric achieving Target performance and 100% of target shares and cash will be earned for each metric achieving Superior performance. The shares and cash earned on the three metrics will be totaled and will be subject to a written charter adopted by our Board175% cap and a relative TSR Modifier in order to determine the final award. As a result, after determining the number of Directors. Each membershares and cash earned, the three-year relative TSR scale shown above will be applied as a modifier.
Our NEOs receive the standard benefits available to all employees, including: group health (medical, dental, pharmacy, and vision), group life, accidental death and dismemberment, business travel accident, disability plans, defined contribution retirement plans (a Money Purchase Retirement Plan and a 401(k) Savings Plan), and vacation.
Deferred Compensation Plan
The Company maintains the Beazer Homes Deferred Compensation Plan, or the Deferred Plan, to provide eligible employees the opportunity to defer a portion of their current compensation. With respect to fiscal 2021, the Audit Committee is independentCompany made a contribution to the Deferred Plan for the benefit of each NEO as follows: Mr. Merrill, $100,000; Mr. Goldberg, $50,000, and financially literateMr. Belknap, $50,000. These contributions are made in regular installments and are subject to several restrictions and limitations including the Committee’s right to terminate or suspend any such contribution in the judgmentfuture.
Other Benefits
We do not have a defined benefit pension plan or supplemental executive retirement plan. Our executive management team, including our NEOs, participate in our various benefit programs on the same terms as other employees. The Company does not provide to its NEOs supplemental executive retirement plans, company cars (or automobile reimbursements), club memberships or other significant perquisites.
STOCK OWNERSHIP AND HOLDING REQUIREMENTS
The Company maintains a stock ownership and holding policy that requires NEOs and members of the Board of Directors to acquire and retain a meaningful level of stock ownership in the Company. The current stock ownership requirements are based on a multiple of base salary or annual retainer, as required by the Sarbanes-Oxley Actapplicable, and applicable SEC and NYSE rules. The Board of Directors has also determined that Ms. Acton and Messrs. Leemputte, Shepherd and Zelnak qualifyare as “audit committee financial experts,” as defined under SEC regulations.set forth below:
Management is responsible for our internal controls and the financial reporting process. Deloitte & Touche, the Company’s independent registered public accounting firm, is responsible for performing an independent audit | | | | | |
| MULTIPLE OF BASE SALARY/ ANNUAL RETAINER |
| CEO | 5.0 x base salary |
| Other NEOs | 3.0 x base salary |
| Non-employee Directors | 5.0 x annual cash retainer |
For purposes of the Company’s consolidated financial statements in accordance with standardsstock ownership policy, the following types of the Public Company Accounting Oversight Board (United States) (the “PCAOB”)shareholdings are counted towards an individual’s stock ownership: (i) stock that is considered beneficially owned and for issuing a report thereon. The Audit Committee’s responsibility is generally(ii) two-thirds of service-based restricted stock. Unearned performance shares and unexercised stock options (including vested "in-the-money" options) do not count towards ownership requirements. Individuals subject to monitor and oversee these processes, as described in the Audit Committee Charter.
The Audit Committee reviewed and discussed with management the Company’s audited financial statements as of and for the fiscal year ended September 30, 2019. The Audit Committee has discussed with Deloitte & Touche the mattersthis policy are required to be discussedin compliance with ownership requirements no later than the fifth anniversary of the date the individual becomes a NEO or director. The policy also requires NEOs and directors to hold 50% of net after-tax shares issued upon vesting of restricted stock or stock option exercises until their required respective stock ownership levels are achieved. As of December 8, 2021, each of our NEOs and directors was in compliance with the requirements of our stock ownership and holding policy.
COMPENSATION CLAWBACK POLICY
The Committee has adopted an incentive compensation clawback policy that would enable the Company to clawback all or a portion of incentive compensation in the event an individual’s misconduct causes the Company to issue a restatement of its financial statements, to the extent that such individual’s incentive compensation was based on the misstated financials.
In addition, awards under our 2014 Long-Term Incentive Plan are subject not only to our existing clawback policy but any other clawback policy adopted by the applicable requirements of the PCAOBCompensation Committee, and the SEC.
The Audit Committee has also received the written communications from Deloitte & Touche required byauthority to recoup or cancel awards if a participant engages in “detrimental activity” with respect to the PCAOB regarding Deloitte & Touche’s communicationsCompany.
As described in further detail under “Executive Compensation — Potential Payments Upon Termination or Change of Control,” pursuant to the severance agreements with each of our NEOs, any incentive compensation that is paid or granted to the AuditNEOs will be subject to recoupment under the terms thereof.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS
The Committee concerning independence and has discussed with Deloitte & Touche their independence. The Audit Committee has considered whether the provision of the non-audit services described below by Deloitte & Touche is compatible with maintaining their independence and has concluded that the provision of these services does not compromise such independence.
Based on the review and discussions described above, the Auditbelieve our compensation programs encourage inappropriate risk taking. The Committee,
recommended to the Board of Directors that the audited financial statements referred to above be included in the Company’s Annual Report on Form 10-Kwith assistance from Pearl Meyer, arrived at this conclusion for the
fiscal year ended September 30, 2019 for filing with the SEC.following reasons: | | | | | |
| Our employees receive both fixed and variable compensation. The fixed portion provides a steady income regardless of the Company’s stock price or financial performance. This allows executives to focus on the Company’s business without an excessive focus on the Company’s stock price. |
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| Incentive award opportunities are tied to multiple metrics over various time periods that align with key financial, operational and strategic objectives. |
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| Incentive award opportunities are capped, with incentive payouts subject to clawback provisions. |
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| Our equity awards for executives generally vest over three-year periods, which discourages short-term risk taking. |
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| Our equity ownership and holding requirements encourage a long-term perspective by our executives. |
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| Our equity compensation plan provides that our executives’ unvested long-term equity compensation is forfeited upon voluntary termination. |
DANNY R. SHEPHERD (CHAIR)
STEPHEN P. ZELNAK, JR.
REPORT OF THE
The Members of the Audit Committee
PROPOSAL 3 –
ADVISORY VOTE TO APPROVE THE COMPENSATION
OF OUR NAMED EXECUTIVE OFFICERS
In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act and Section 14A of the Securities Exchange Act of 1934, as amended, the Company is asking its shareholdersstockholders to cast an advisory vote to approve the compensation of the Company’s named executive officers (NEOs), as disclosed in this proxy statement pursuant to Item 402 of Regulation S-K. This proposal, commonly known as "Say“Say On Pay"Pay”, gives our shareholdersstockholders the opportunity to express their views on the design and effectiveness of our executive compensation programs. This vote is not intended to address any specific item of compensation, but rather the overall compensation of our NEOs and the philosophy, policies and practices described in this proxy statement.
As described in detail in the section of this proxy statement titled “Compensation Discussion and Analysis,” our executive compensation programs are designed to attract, motivate and retain our executive officers (including our NEOs), who are critical to our success. At the same time our Compensation Committee is committed to ensuring that our executive compensation program reinforces key businessfinancial, operational and strategic objectives in support of long-term shareholderstockholder value creation and appropriately aligns pay for performance without encouraging inappropriate risk taking. Accordingly, our NEOs are rewarded for the achievement of specific annual, long-term and strategic goals in support of long-term value creation. Please read the section of this proxy statement titled “Compensation Discussion and Analysis,” and the Executive Compensation tables that follow it, for additional details about our executive compensation programs.
We have a long history of strong shareholderstockholder support for our executive compensation programs, with Say on Pay support levels averaging over 93%91% over the last five years. The Board and the Compensation Committee have considered the result of these shareholderstockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At our 2019last year's annual meeting of stockholders, over 87%approximately 88% of our shares present in person or represented by proxy voted for approval of our fiscal 2020 executive compensation.compensation program.
At our 20182017 annual meeting of shareholders,stockholders, the Company’s shareholdersstockholders once again determined that our Say On Pay vote should be held on an annual basis. In accordance with this determination, we are asking our shareholdersstockholders to vote FOR the following resolution:
RESOLVED, that the compensation paid to the NEOs, as disclosed in this proxy statement pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, the Executive Compensation tables, and the narrative discussion, is hereby approved.
Our Board of Directors and our Compensation Committee value the opinions of our shareholders,stockholders, and to the extent there is a significant vote against the compensation paid to our NEOs, as disclosed in this proxy statement, we will consider our shareholders’stockholders’ concerns and will evaluate what, if any, further actions are necessary to address those concerns.
RECOMMENDATION
The Board of Directors recommends a vote FOR approval of the compensation of our named executive officers.
COMPENSATION
DISCUSSION AND ANALYSIS
INTRODUCTION
This Compensation Discussion and Analysis (CD&A) describes the compensation programs for our named executive officers (NEOs)*. Our current NEOs,executive officers who also served as our NEOsnamed executive officers in fiscal 2018,2021 are:
| | | | | |
| NAME | TITLE |
| Allan P. Merrill | Chairman, President and Chief Executive Officer |
Robert L. SalomonDavid I. Goldberg | ExecutiveSenior Vice President and Chief Financial Officer |
| Keith L. Belknap | Executive Vice President and General Counsel |
| Robert L. Salomon** | Former Executive Vice President and Chief Financial Officer |
*References to our Named Executive Officers, or NEOs, do not include Mr. Salomon unless specified otherwise.
In fiscal 2019, we implemented several changes to our management structure for corporate functions and departments to better align functional teams**Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with our strategic objectives. As part of these changes,the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021.
In addition to his responsibilities as Chief Financial Officer, Mr. Salomon nowGoldberg oversees all land acquisition,our capital sourcing, investor relations, treasury and information technology functions. Mr. Belknap now leadscontinues to lead our customer teams, which include customer financial services,mortgage & settlement, marketing, customer experience and customer care functions, in addition to his responsibilities as General Counsel. As previously noted, in November 2019, the Board appointed Mr. Merrill as Chairman, in addition to his continuing role as President and Chief Executive Officer.
We are a geographically diversified homebuilder with operations in 13 states within three geographic regions in the United States. Our homes are designed to appeal to homeowners at different price points across various demographic segments, principally first time buyers, first move-up buyers, empty nesters and retirees. Our objective is to provide our customers with homes that incorporate exceptionalextraordinary value and quality at affordable prices, while seeking to maximize our return on invested capital over the course of a housing cycle.
Our three pillars — Mortgage Choice, Surprising Performance and Choice Plans — serve as our primary points of differentiation include: Choice PlansTM,which allows customers to personalize their primary living areas for how they want to live in the home, at no additional cost; Surprising Performance, as every Beazer home is designed and built to provide exceptional quality and comfort that results in lower cost of ownership; anddifferentiation. Mortgage Choice, which makes it easy for our customers to comparison shop among competing lenders, potentially saving them thousands of dollars on their home loan.loan; Surprising Performance, which reflects the fact that every Beazer home is designed and built to meet Energy Star requirements and provide exceptional quality and comfort that results in a lower cost of ownership; and Choice Plans,which allows customers to personalize their primary living areas for how they want to live in their home, at no additional cost.
WeAs we improve our financial and operational performance, we are committed to social and environmental responsibilityalso focused on meaningful ESG accountability — supporting a variety of charitable foundations,and community-based activities, promoting safety, diversityinclusion and inclusiondiversity in our workforce and building our homes and communities with a concern for their impact on the environment. For a discussion of ourmore information on environmental, social and social responsibility efforts,corporate governance matters, see "Corporate Governance — Board Leadership Structure and Governance Practices — Environmental and Social Responsibility"“ESG” beginning on page 7.
5.
20192021 BUSINESS HIGHLIGHTS
As we began fiscal 2019, the new home sales market was very challenging, driven by rapidly rising mortgage rates that contributed to affordability concerns and a softening in demand. In that environment, we increased incentives to spur home sales and allocated capital to debt reduction and share repurchases. This response — together with improvements in the overall sales environment and a successful refinancing to reduce borrowing costs — improved results in ways that will be even more meaningful in fiscal 2020.
For fiscal 2019, we:
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l | Improved new home orders, backlog and community count, which provides a solid foundation for growth as we move into fiscal 2020; |
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l | Improved operations by streamlining our product offerings, which has led to higher customer satisfaction scores, reduced construction cycle times and lower build costs; and |
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l | Improved allocation of capital, which enabled both investment in our business and the return of nearly $90 million to investors. |
In short, despite a tough sales environment at the start of fiscal 2019, we ended the year in a better position than we began. Here are several highlights of our financial and operational achievements in fiscal 2019:
2021:
| | | | | | | | |
| FINANCIAL | |
| $2.1 BILLION | Revenue |
| Achieved a slight increase in revenue despite a 3.7% year-over-year decrease in home closings |
| $2.1 BILLION | Revenue
Achieved $2.1 billion in homebuilding revenue
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| $180.2122.2 MILLION | Adjusted EBITDA
Achieved $180.2 million in Adjusted EBITDA
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| $51.3 MILLION | Debt Repurchases
Repurchased $51.3 million of debt. We expect to reduce outstanding debt in 2020 by more than we did in 2019, with the goal of reducing debt below $1 billion over time
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| $500.0 MILLION | RefinancingNet Income |
| | We issued $350Generated net income from continuing operations of $122.2 million of 7.25% unsecured Senior Notes due 2029 and entered into an unsecured term loan with a principal amount of $150 million. The proceeds from these transactions were usedcompared to refinance $500$53.3 million of 8.75% unsecured Senior Notes due 2022, which generated a $11 million per year reduction in cash interest costfiscal 2020 |
| $34.6262.7 MILLION | Share RepurchasesAdjusted EBITDA |
| | We repurchased $34.6Achieved $262.7 million in Adjusted EBITDA, an increase of our outstanding common stock at an average price of $10.54 per share$58.3 million, or 28.5%, year-over-year |
| $80.7 MILLION | Debt Reduction |
| | Reduced our outstanding debt by $80.7 million | | | |
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| OPERATIONAL | |
| 2.8 3.7 HOME
SALES/MONTH | Sales Pace Achieved average monthly home sales pace per community of 2.8, in line with our targets3.7, a year-over-year increase of 13.8% |
| $595.5 MILLION | Land Acquisition and Land Development Spending |
| | Spent $595.5 million on land acquisition and land development, a 35.1% year-over-year increase |
| $1.3 BILLION | Dollar Value of Backlog |
| | Ended the year with dollar value of homes in backlog of $1.3 billion, a year-over-year increase of 29.0% |
| $402,400 | Average Selling Price |
| | Average selling price (ASP) for our homes was $402,400, marking our tenth consecutive year of ASP growth and reflecting an increase of more than 4% year-over-year |
| 127 COMMUNITIES | Average Community Count |
| | Average active community count was 127, a 22.3% year-over-year decrease |
| 21,987 LOTS | Number of Controlled Lots |
| | Ended the year with 21,987 lots controlled either through ownership or options to purchase, a year-over-year increase of 23.3% |
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| $377.7 THOUSAND | Average Selling Price |
| | Our average selling price (ASP) for the year was $377,700, marking our eighth consecutive year of ASP growth and reflecting an increase of 4.9% year-over-year, primarily related to changes in geographic mix |
| 166 COMMUNITIES | Community Count
Ended the year with an active community count of 166
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DuringFor fiscal 2020,2022, we expect to continue to pursue our balanced growth strategy, which is designed to improve profitability and returns from a more efficient and less leveraged balance sheet. In particular, we are targetingto: •grow EBITDA growth in excess of 10% andby more than $50 million in10%, leading to earnings per share of more than $5.00, •grow our lot position by double digits, with lots controlled by options remaining around 50% •deliver a return on total equity of about 20%, or nearly 25% excluding our deferred tax assets, and •reduce our total debt reduction, with a net debt to EBITDA ratio below 5 times. | | $1 billion |
For purposes of this CD&A:
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l | “Adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding charges, including debt extinguishment charges, inventory impairment and abandonment charges and other non-recurring items for the period to EBITDA. |
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l | “EBITDA” means earnings before interest, taxes, depreciation and amortization, and is calculated by adding non-cash charges, including depreciation and amortization for the period, to EBIT. |
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l | “EBIT” means net income (loss) before (a) previously capitalized interest amortized to home construction and land sales expenses, capitalized interest impaired and interest expense not qualified for capitalization; and (b) income taxes. |
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l | “Bonus Plan EBITDA” means Adjusted EBITDA before accrual of corporate bonuses. |
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| Please see Annex I for a reconciliation of non-GAAP measures to GAAP measures. Statements regarding expectations for fiscal 2022 are forward-looking statements, which involve known and unknown risks, uncertainties and other factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021. |
FISCAL 20192021 COMPENSATION HIGHLIGHTS
Base Salaries (PG. 32)
ActionsAs we reported in our 2020 Proxy Statement, due to a significant decline in net new orders and the Company's focus on protecting liquidity at the onset of the COVID-19 pandemic, our NEOs voluntarily reduced their respective salaries by 20%, effective April 1, 2020. Those reductions remained in place for all of fiscal 2020.
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l | No changes were made to Mr. Merrill’s base salary. Mr. Salomon’s base salary was increased from $550,000 to $600,000, and Mr. Belknap's base salary was increased from $450,000 to $500,000, in each case primarily to align salary more closely with industry peers. See “— Elements of Fiscal 2019 Compensation Program — Base Salary” for more information about these salary adjustments. |
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l | No changes were made to Mr. Merrill’s long-term incentive award opportunity. Mr. Salomon’s long-term incentive target award opportunity was increased from 175% to 200% of base salary, and Mr. Belknap's long-term incentive target award opportunity was increased from 125% to 150%, in each case primarily to align target incentives more closely with expanded roles and responsibilities. See "— Introduction" and “— Elements of Fiscal 2019 Compensation Program — Long-Term Incentive Compensation” for more information about these adjustments to target compensation. |
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l | No changes were made to the short-term incentive award opportunities, expressed as percentages of base salary, of any NEO. We based 65% of the fiscal 2019 short-term incentive opportunity for NEOs on achievement of Bonus Plan EBITDA, 10% on Return on Assets and 25% on key operational metrics. |
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l | We determined to use operational objectives identical to those used in determining the fiscal 2018 short-term incentive opportunity, with the addition of an objective related to further improving overhead efficiency. |
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l | We determined that NEOs would be eligible to receive an award for the operational components of the 2019 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. |
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l | We retained the discretion to deduct from awards earned for failure to achieve certain construction quality standards based on the assessment of an independent third-party expert. |
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l | We continued our practice of awarding performance shares equal to two-thirds of an NEO’s overall long-term incentive award opportunity, and time-based restricted stock equal to one-third of award opportunity. |
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l | We based 2019-2021 performance share metrics on cumulative pre-tax income, return on assets and expansion of our Gatherings® product line. |
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l | We continued to include an adjustment to performance shares based on relative total shareholder return (TSR) performance. |
While market conditions had improved dramatically by the beginning of fiscal 2021, our NEOs voluntarily extended a portion of base salary reductions, equal to 10% of their respective pre-pandemic annual salaries, into fiscal 2021, subject to the possibility of salaries being restored for the second half of fiscal 2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan. As a result, Mr. Merrill began fiscal 2021 with a base salary of $877,500 and Mr. Goldberg and Mr. Belknap began fiscal 2021 with base salaries of $382,500 and $486,000, respectively. Because the Company's results for the first half of fiscal 2021 exceeded 95% of the Company's annual plan, the NEOs salaries were restored to pre-pandemic levels for the second half of the year, resulting in actual base salaries earned in fiscal 2021 of $926,384 for Mr. Merrill, $403,808 for Mr. Goldberg and $513,074 for Mr. Belknap.
OutcomesShort-Term Incentive Opportunities (PG. 33)
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l | Annual cash incentives were earned between threshold and target award opportunity levels based on actual vs. planned outcomes for the operational and financial performance factors, with payouts for the NEOs lower by an average of approximately 41% compared with the prior year, despite a reduction in EBITDA of 12.0%. Additional details are provided under “— Elements of Fiscal 2019 Compensation Program — Short-Term Incentive Compensation” below. |
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l | The three-year award cycle of the 2017 performance share program ended on September 30, 2019, with results yielding a payout relative to target of 157.5%, as described under “— Elements of Fiscal 2019 Compensation Program — Long-Term Incentive Compensation” below. |
In addition to the reduction in base salaries discussed above, our NEOs voluntarily reduced their respective target short-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in short-term incentive opportunities, the target short-term incentive award opportunities for our NEOs (expressed as percentages of weighted salary) were 157.5% for Mr. Merrill, 90.0% for Mr. Goldberg and 112.5% for Mr. Belknap.Our Compensation Committee determined that our NEOs would be eligible to receive an award for the operational components of the 2021 short-term bonus opportunity only if threshold Bonus Plan EBITDA was achieved. Furthermore, the Committee retained the discretion to deduct from awards earned for any reason, including the failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.
Long-Term Incentive Opportunities (PG. 35)
In addition to the reductions discussed above, our NEOs voluntarily reduced their respective target long-term incentive award opportunities by 10% for all of fiscal 2021. After taking into account these 10% reductions in long-term incentive opportunities, the target long-term incentive award opportunities for our NEOs (expressed as percentages of already reduced salary) were 270.0% for Mr. Merrill, 135.0% for Mr. Goldberg and 157.5% for Mr. Belknap.
For the 2021-2023 performance period, our Compensation Committee continued its practice of tying two-thirds of target long-term incentive award opportunities to multi-year performance goals, with one-half of the performance -based component payable in cash and one-half payable in performance shares, subject to the same performance criteria.
In addition, our Compensation Committee continued to include a relative total shareholder return (TSR) modifier to NEO performance share and performance cash awards, which could result in an adjustment to any earned awards (by up to +/- 20%) based on our three-year relative TSR performance vs. companies in the S&P Homebuilders Select Industry Index.
OUR OVERALL COMPENSATION
PHILOSOPHY AND OBJECTIVES
Our executive compensation philosophy is to design compensation programs that:
l Attract, retain and reward top talent;
l Align pay with performance without encouraging inappropriate risk taking; and
l Provide a substantial portion of our compensation in long-term equity-based compensation to reinforce key business and strategic objectives in support of long-term value creation. | | | | | |
| Attract, retain and reward top talent; |
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| Align pay with performance without encouraging inappropriate risk taking; and |
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| Provide a substantial portion of our compensation in long-term equity-based compensation to reinforce key financial, operational and strategic objectives in support of long-term value creation. |
CORE PRINCIPLES AND KEY OBJECTIVES
We utilize a combination of base salary, short-term cash incentives and long-term equityincentives. Most of long-term incentives in the form ofare tied to multi-year performance shares and, togoals, along with a lesser extent,portion provided in time-based restricted stock. The Committee generally seeks to align overall target compensation opportunities within a competitive range (plus or minus 10%) of the peer group 50th percentile.
Our Compensation Committee reviews our core compensation philosophy annually in conjunction with the review of our compensation programs. While our core compensation philosophy and objectives have remained consistent in recent years, the Committee has made adjustments to various aspects of our compensation programs to meet changing needs and circumstances of the Company. For example, the debt reduction metric used in the three-year award cycle beginning in fiscal 2021, which is associated with performance shares grantedthat may be earned in fiscal 2017 was2023, the result of a strategic objective to aggressively reduce debt rather than maximize near-term growth. Similarly, beginning with the three-year award cycle associated with performance shares granted in fiscal 2018, the debt reduction metric wasCommittee replaced with a growth metric related to our Gatherings® product line with a metric related to reinforcethe home energy rating achievements of the Company's completed homes in order to link these awards with a key strategic priority.component of the Company's ESG strategy.
The Committee believes that salary and incentive compensation opportunities should be set based on a variety of factors, including key business objectivesfinancial, operational and strategic priorities,objectives, Company performance, the compensation practices of our peer group, each executive’s specific responsibilities and skill sets, and the relationship among the compensation levels of members of our management team. The Committee has taken into consideration our need to attract and retain qualified executives in an industry that continues to experience an intense level of competition for senior executives.
By structuring compensation programs with features that are balanced between short- and long-term incentives as well as cash and equity awards, the Committee believes it can:can align management’s interests with those of our stockholders in both the short- and long-term; reduce risks that may be associated with compensation that is overly focused on short-term objectives; and attract, retain and motivate senior management personnel.
Further, while the Compensation Committee believes benchmarking against pay practices at other publicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2021, it did not establish compensation levels based solely on benchmarking industry practices. Based on data for the 2021 Peer Group, Pearl Meyer advised the Compensation Committee that target total compensation for our NEOs after their voluntary compensation reductions (noted elsewhere in this proxy statement) was positioned below a competitive range (plus or minus 15%) of the 2021 Peer Group 50th percentile, individually and in the aggregate.
Our Compensation Committee is committed to ensuring that our executive compensation program reinforces key businessfinancial, operational and strategic objectives in support of long-term shareholderstockholder value creation and appropriately aligns pay with performance. This is demonstrated by the heavy emphasis placed on variable, performance-based incentives for our named executive officersNEOs (representing approximately64% ofof target total compensation for our CEO and averaging 59%approximately 57% of target total compensation for other senior executive officers), use of challenging financial performance hurdles,NEOs in fiscal 2021) and differences in realized pay relative to target opportunity. As part of that philosophy, failure to reach such goals can result in no compensation under a
particular plan or metric. For example, none of the performance shares granted to our NEOs in fiscal years 2011 through 2015 vested because required performance targets were not achieved.
PAY BEST PRACTICES
Our compensation practices include:
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l | Emphasis on Performance-Based Pay: 64% of the ongoing pay mix for our CEO, and an average of 59%57% of the target pay mix for our other NEOs, iswas variable and performance-based.performance-based for fiscal 2021. In the aggregate, 62%61% of the target compensation for our CEO and other NEOs for 2019fiscal 2021 was variable and performance-based.performance based. |
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l | Long-term vesting:Long-Term Vesting: Our equity-based pay vehicles have multi-year vesting periods to reward long-term performance and value creation, enhance retention and deter inappropriate risk taking.
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l | Multiple Performance Measures: We use multiple metrics to evaluate Company performance, covering both short-term and long-term performance objectives, with award funding caps to deter inappropriate risk taking. |
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l | Stock Ownership Requirements: We have meaningful stock ownership requirements for our directors and officers. For example, our CEO must hold common stock equivalent in valueequal to at least five times his base salary. |
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l | No Repricing: Our stock options cannot be repriced, reset or exchanged for cash if under water without stockholder approval. |
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l | Anti-Pledging and Hedging Policies: We prohibit our directors and executive officers from (i) holding Beazer securities in a margin account or pledging any Beazer securities as collateral for a loan and (ii) entering into any hedge or other transaction in Beazer securities that limits the risk of ownership of Beazer common stock or stock options. |
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l | Double Trigger Change in Control Provisions: We have a policy of requiring a double trigger to receive cash severance and to receive accelerated vesting of equity awards upon a change inof control. |
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l | Clawback: Each equity award is conditioned on repayment or forfeiture as required by existing law. In addition, each executive officer’s incentive compensation is subject to repayment or such other means of recovery (or a combination thereof) as is necessary to comply with law or related rules and regulations of the SEC or NYSE. |
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l | No Tax Gross-Ups: We maintain severance agreements with our NEOs that standardize executive separation terms, minimize the risk of excessive payouts and do not provide for any tax gross-ups. |
ROLE OF THE COMPENSATION COMMITTEE, MANAGEMENT AND COMPENSATION CONSULTANTS
The principal responsibilities of our Compensation Committee include:
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l | meeting with its independent compensation consultant, with and without the presence of management, to review and structure objectives and compensation programs for our NEOs that are aligned with both the Company’s business and financial strategy and stockholder interests; |
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l | evaluating the performance of our NEOs in light of those objectives; and |
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l | based on this evaluation, determining and approving the compensation level for our CEO and for other executive officers. |
The Committee has retained Pearl Meyer for each of the last seven fiscal years to provide advice regarding compensation plan design, compensation levels and benchmarking data and advice. Prior to retaining Pearl Meyer for fiscal 2019,2021, the Committee determined that Pearl Meyer qualifies as an independent compensation consultant. Pearl Meyer reports directly to the Committee and does not provide any other services to the Company.
In relation to compensation program design for fiscal 2019,2021, the Committee took into account discussions with, and presentations by, key members of our management team to ensure that our compensation plans were aligned with our operating,key financial, operational and strategic objectives.
On Also, on an annual basis, Mr. Merrill reviews the performance of the other NEOs, and makes recommendations to the Committee based on his review. In addition, our non-executive chairmanLead Director discussed Mr. Merrill’s performance with the Committee. Mr. Merrill is present for the Committee’s deliberations related to the compensation of the other NEOs, but not for the Committee’s discussions related to his own compensation.
PEER GROUPS AND DATA
For fiscal year 2019,2021, our peer group comprisedwas composed of Century Communities, Inc., Green Brick Partners, Inc., Hovnanian Enterprises, Inc., KB Home, LGI Homes, Inc., M/I Homes, Inc., M.D.C. Holdings, Inc., Meritage Homes Corporation, Taylor Morrison Home Corp., and TRI Pointe Group, Inc. and William Lyon Homes (the 2019(the" 2021 Peer Group)Group"). These companies were chosen because, in addition to being among our chief competition among publicly-tradedpublicly traded homebuilders, they are most closely aligned to us in terms of size. Former peer AV Homes, Inc. was removed from the peer group for fiscal year 2019 because it was acquired during our fiscal year 2018.
Each year, the Committee’s independent consultantPearl Meyer conducts a review of peer group pay levels and practices, which the Committee takes into consideration when establishing NEO compensation levels, along with a variety of other factors, such as Company and individual performance, each incumbent’s qualifications and responsibilities, the Company’s recruiting experience and talent management needs and the Committee’s business judgment.
While the Committee believes benchmarking against pay practices at other publicly-heldpublicly-traded homebuilders is useful in determining whether our executive compensation practices are reasonable for fiscal 2019,2021, it did not establish compensation levels based solely on benchmarking industry practices. Nonetheless, basedBased on data for the 20192021 Peer Group, Pearl Meyer advised the Committee was advised by Pearl Meyer that target total compensation for our NEOs after their voluntary compensation reductions was positioned withinbelow a competitive range (plus or minute 10%minus 15%) of the 2021 Peer Group 50th percentile, market valuesindividually and in the aggregate and within or below a competitive range of the 50th percentile for each NEO.
aggregate.
ELEMENTS OF FISCAL
20192021 COMPENSATION PROGRAM
CONSIDERATION OF SAY ON PAY VOTES
We have a long history of strong shareholderstockholder support for our executive compensation programs, with Say on Pay support levels averaging over 93%91% for the last five years. The Board and the Compensation Committee have considered the result of these shareholderstockholder votes in setting compensation policies and making compensation decisions for each of the fiscal years that has followed. At our 2019last year's annual meeting of stockholders, over 87%approximately 88% of our shares present in person or represented by proxy voted for approval of our fiscal 2020 executive compensation.compensation program.
In designing the compensation program for fiscal 2019,2021, the Committee considered the results of the 20182020 Say on Pay vote, our ongoing dialogue with stockholders, internal considerations such as key business and talent management objectives, consistency from year to yearyear-to-year and an evaluation of peer practices. After consideration, the Committee concluded that, for fiscal 2019,2021, it was appropriate to maintain most elements of the existing compensation program design for our NEOs, with only minor changes to the short-term incentive plan metrics and weightings and no change in the componentsintroduction of a new performance metric for the long-term incentive plan which reflectstied to the Company’s current strategic direction.Company's energy-efficiency score achievements to link these awards to a key component of the Company's ESG strategy. The fiscal 20192021 compensation program continues to tie the majority of our NEOs’ compensation to performance metrics that support the Company’s strategy of balanced growth.Balanced Growth Strategy.
BASE SALARY
Our ability to recruit and retain executive talent depends on setting competitive base salaries. We begin with an analysis of base pay relative to the market. We target base pay at or near the peer group 50th percentile (or median) and then evaluate the need to make any adjustments based on variables such as pay parity relative to other officers and internal accountability. We review base salaries annually, unless circumstances require otherwise. For non-CEO NEO salaries, we solicit CEO input.
Based on its reviewEntering fiscal 2021, no changes were made by the Committee to the pre-pandemic base salaries of Messrs. Merrill and Belknap. The Committee approved a 30.8% increase in base salary for Mr. Goldberg from $325,000 to $425,000 in connection with his promotion to Chief Financial Officer. However, as noted above, our NEOs voluntarily reduced their respective base salaries for fiscal 2021 by 10% with the possibility of the salaries being restored for the 2019second half of fiscal year,2021 if the Company's performance at that time was on pace to exceed 95% of its annual plan.
Because the Committee determined that no changes would be madethe Company's performance and the overall market conditions warranted a restoration of NEO salaries, our NEOs began receiving their respective full base salaries as of April 1, 2021, and the actual salaries paid to the NEOs for fiscal 2021 were $926,384 to Mr. Merrill's base salary. The Committee determinedMerrill; $403,808 to increase Mr. Salomon’s base salary by 9.09%Goldberg; and $513,074 to $600,000 and to increase Mr. Belknap's base salary by 11.11% to $500,000. These increases were made primarily to align base salaries more closely with industry peers. Based on Pearl Meyer’s market pay analysis, fiscal 2019 salaries were positioned slightly above and within a competitive range of the peer group 50th percentile for Messrs. Merrill and Salomon, respectively, and between the 25th and 50th percentiles for Mr. Belknap.
SHORT-TERM INCENTIVE COMPENSATION
Our annual cash incentive plan is designed to motivate and reward executives for achieving key businessfinancial, operational and strategic objectives that continue to drive the Company’s success and generate returns for our stockholders. We set annual cash incentive bonus
targets hierarchically based on a multiple of base salary. Based on Pearl Meyer’s analysis,
Entering fiscal 20192021, Mr. Merrill’s short-term incentive targets positioned target total annual cash compensation betweenaward opportunity (expressed as a percentage of base salary) would have been 175%, Mr. Goldberg's would have been 100% and Mr. Belknap’s target award opportunity would have been 125%. However, our NEOs voluntarily reduced their respective short-term incentive target awards by 10% for fiscal 2021 due to the peer group 25thcontinued uncertainty surrounding the pandemic and 50th percentiles.market conditions at the beginning of fiscal 2021. Accordingly, Mr. Merrill's short-term incentive target award opportunity (expressed as a percentage of weighted salary) was 157.5%, Mr. Goldberg's was 90% and Mr. Belknap's was 112.5%.
ForSimilar to prior years, for fiscal 2019,2021, the Committee determinedlarge majority (75%) of short-term incentive award opportunities for our NEOs were tied to use operational objectives identical to those used in determining fiscal 2018 bonus opportunity,actual vs. planned Bonus Plan EBITDA, with the additionremaining 25% tied to various financial, operational and strategic objectives. Specifically, 5% of an objective relatedthe NEO short-term incentive award was tied to limiting growth in overhead expenses. In addition,securing new land holdings; 5% was tied to operating margin improvement; and the remaining 15% was tied equally to: employee engagement and performance review objectives; improvement of customer satisfaction; and reduction of underperforming communities. Consistent with prior years, NEOs would bewere eligible to receive an award for other components of the 20192021 Bonus Plan only if threshold 20192021 Bonus Plan EBITDA was achieved. The Committee also added Return on Assets to the financial component to further reinforce this key strategic objective within our annual business plan. The Committee retained the discretion to adjust results for unanticipated and exceptional items and to deduct from awards earned for failure to achieve certain construction quality standards based on the assessment of an independent third-party expert.No such discretion was exercised with respect to fiscal 2019 award determinations.by the Committee.
20192021 OBJECTIVES
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l | Bonus Plan EBITDA — 65%75% of bonus opportunity — In light of the demonstrated success of the Adjusted EBITDA metric as a driver of financial results in prior years and because improvement in Adjusted EBITDA is key to accomplishment of theaccomplishing our strategic plan, the Committee determined that 65%75% of the overall annual bonus opportunity would be based on the achievement of levels of Bonus Plan EBITDA. The Committee established a 20192021 Bonus Plan EBITDA objective with a $175.0$200 million threshold: $195.00threshold, $215 million target and a $215.00$230 million maximum. |
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l | Return on Assets — 10% of bonus opportunity — Return on assets is based on the ratio of Adjusted EBITDA to total assets (defined as the Company’s total assets as shown on the consolidated balance sheet included in the Company’s Form 10-K for fiscal 2019) for fiscal 2019.
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l | Customer Satisfaction Scores — 10% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company would have to improve on aggregate customer satisfaction survey scores from the prior year to achieve either a threshold, target or maximum award.
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l | Construction Cycle TimesIncrease Land Position — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company would havewas required to improve on construction cycle times frommeet internal (and proprietary) goals for its minimum lot position (i.e., the prior year, and a threshold, targettotal lots controlled either through ownership or maximum award would be earned depending onoptions to purchase for the numberfiscal year), as well as increases in the percentage of days of overall improvement.lots controlled through options to purchase.
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l | OverheadReduce Underperforming Communities — 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to reduce the percentage of actively selling communities that failed to meet internally budgeted (and proprietary) sales pace objectives for the fiscal year.
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| Improve Internal Operating Margin - 5% of bonus opportunity — In order to achieve a bonus with respect to this metric, the Company was required to improve the percentage with respect to an internal (and proprietary) measure of operating margin that takes into account varying operational efficiencies and overheads among divisions and corporate. |
| Improve Customer Experience — 5% of bonus opportunity — NEOs were eligibleIn order to receive 20% ofachieve a bonus with respect to this 5% overall component for each quarter thatmetric, the Company met or exceeded a benchmark combinationwas required to realize specific levels of cost savings and the remaining 20% of this metric if the benchmark was achieved for the full year.year-over-year improvement in customer satisfaction as measured through third-party customer surveys. |
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l | Sales PaceEmployee Engagement and MarginPerformance Review — 5% of bonus opportunity — NEOs were eligibleIn order to receive 20% of this 5% overall component for each quarter that the Company met or exceededachieve a benchmark combination of sales pace and margin contribution and the remaining 20% ofbonus with respect to this metric, if the benchmarka minimum level of employee engagement and performance reviews was achieved for the full year.required.
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2019 ACHIEVEMENT OF OBJECTIVES
In 2019,The specific performance targets for operational metrics are not disclosed here because we believe that the following results were achieved against these objectives:
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| OBJECTIVE | WEIGHTING (%) | RESULT | ACHIEVEMENT |
| Bonus Plan EBITDA | 65 | | $184.95 million | Between threshold and target |
| Return on Assets | 10 | | 9.21% | Did not meet threshold |
| Customer Satisfaction Scores | 10 | | Improved by 101 bps | Between target and maximum |
| Construction Cycle Times | 5 | | Improved by 2.25% | Maximum |
| Overhead | 5 | | Exceeded benchmark for
3 quarters and full year | Between threshold and target |
| Sales Pace / Margin | 5 | | Below benchmark for 4 quarters and full year | Did not meet threshold |
| Total | 100 | | | Between threshold and target |
disclosure would result in competitive harm to us by providing competitors, vendors and suppliers with insight into our business strategies and operations beyond what is disclosed publicly.
2021 ACHIEVEMENT OF OBJECTIVES
In 2021, the following results were achieved against these objectives: | | | | | | | | | | | |
| OBJECTIVE | WEIGHTING (%) | RESULT | ACHIEVEMENT |
| Bonus Plan EBITDA | 75 | $270.9 million, a 26.4% year-over-year increase | Maximum achievement level |
| Increase Land Position | 5 | Grew total lot count by 21.0% | Maximum achievement level |
| Reduce Underperforming Communities | 5 | Reduced Underperforming Communities by 82.0% | Maximum achievement level |
| Improve Internal Operating Margin | 5 | Increased Internal Operating Margin by 27.3% | Maximum achievement level |
| Improve Customer Experience | 5 | Improved by 52 bps | Threshold achievement level |
| Employee Engagement and Performance Review | 5 | Above benchmark for four quarters and full year | Maximum achievement level |
| Total | 100 | — | Between target and maximum on an overall basis |
To the extent actual 20192021 Bonus Plan performance was between the threshold and target performance levels, or between the target and maximum performance levels, linear interpolation was applied to determine the actual payout under each component of the 20192021 Bonus Plan. Because
2021 BONUSES AWARDED
Actual awards for our NEOs were equal to 192.5% of reduced target award opportunities, as shown in the slope from threshold to maximum performance levels differs among the NEOs, the bonustable below. Payment of bonuses as a percentage of target shown inbonus opportunities before the table below will also vary among the NEOs.
2019 BONUSES AWARDED
The annual cash incentive bonuses awarded to the NEOs for 2019 were lower by an average of 41% compared with the prior year. Actual awards are shown in the following table:
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| NAME | 2019 TARGET BONUS (%) | 2019 TARGET BONUS ($) | 2019 ANNUAL CASH INCENTIVE BONUS ($) | BONUS AS A PERCENTAGE OF TARGET (%) |
| Allan P. Merrill | 150 | | 1,425,000 | | 1,128,332 | | 79.2 | |
| Robert L. Salomon | 125 | | 750,000 | | 530,281 | | 70.7 | |
| Keith L. Belknap | 100 | | 500,000 | | 395,906 | | 79.2 | |
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| NAME | 2021 TARGET BONUS (% of actual base salary) | 2021 TARGET BONUS ($) | 2021 ANNUAL CASH INCENTIVE BONUS ($) | BONUS AS A PERCENTAGE OF TARGET (%) |
| Allan P. Merrill | 157.5 | 1,459,054 | 2,808,679 | 192.5 |
| David I. Goldberg | 90 | 363,427 | 699,598 | 192.5 |
| Keith L. Belknap | 112.5 | 577,208 | 1,111,126 | 192.5 |
LONG-TERM INCENTIVE COMPENSATION
BasedLONG-TERM INCENTIVE COMPENSATION
For fiscal 2021, based on recommendations from Pearl Meyer and other factors, the Committee awardeddetermined to modify its past practice of awarding performance shares equal to two-thirds of overall long-term incentive target award opportunity, and time-based restricted stock equal to one-third of overall target award opportunity. Instead, for the fiscal 2021-2023 Award Cycle, the Committee changed the award mix to include a third component consisting of a long-term, performance-based cash award and weighted all three components equally (i.e., performance shares, time-based restricted stock and performance-based cash award each equal one-third of the long-term incentive target award opportunity). This award mix change was made to help manage equity plan share usage while continuing to tie the majority (two-thirds) of award opportunities to multi-year performance goals.
Entering fiscal 2021, no changes were made by the Committee to the target pre-pandemic long-term incentive award opportunities, expressed as a percentage of base salary, of Messrs. Merrill or Belknap. The Committee intended to establish a mix of equity awards that remains highly performance-based, while at the same time providing retention strength. The Committee also determined to increase theMr. Goldberg's long-term incentive award opportunity for Messrs. Salomon and Belknapfrom 100% to 200% and 150%, respectively, of his base salary in each case primarilyconnection with his promotion to alignChief Financial Officer. However, as noted above, Messrs. Merrill, Goldberg and Belknap voluntarily reduced their respective target incentives more closely with expanded roles and responsibilities as described under "—Introduction" above. Long-termlong-term incentive award opportunities by 10.0% for the NEOs were positioned between peer group 50th percentile and 75th percentile market values.entirety of fiscal 2021.
RESTRICTED STOCK
Time-based restricted stock awards generally vest ratably over a three-year period, beginning with the first anniversary of the grant date. In fiscal 2019,2021, the NEOs were granted the following number of shares of restricted stock:stock, which were calculated by dividing the applicable target award value by the average daily closing price of a share of common stock for the 30 consecutive trading days on the NYSE ending on November 16, 2020: Mr. Merrill: 96,741;57,984; Mr. Salomon: 40,733Goldberg: 12,637; and Mr. Belknap: 25,458.18,733.
PERFORMANCE SHARES
Background
In order to facilitate pay for performance, our core compensation philosophy continues to be focused on providing incentive compensation to our management team when they achieve challengingkey financial, operational and non-financial goalsstrategic objectives that the Compensation Committee and our Board of Directors believe are critical to enhancing long-term shareholderstockholder value. As part of that philosophy, the Committee believes that a significant portion of equity awards should be performance-based, with failure to reach such goals resulting in no compensation under a particular plan or metric. Accordingly, two-thirds of our senior executive management team’s overall long-term incentive awards are comprised of performance shares (and, with respect to awards for the 2021-2023 award cycle, performance cash awards) which reflect a target number of shares (and cash) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets established at the time of grant. Due toPerformance share grant levels were determined by dividing target award values by the limited numberclosing price of shares available for issuance undera share of our common stock on the 2014 Plan, in fiscal 2019, the portiondate of any earned awards that exceeded target was paid in cash rather than shares.grant.
When determining awards, the Committee utilizes performance metrics consisting of a variety of challengingkey financial, goals aligned with keyoperational and strategic objectives. In addition, in order to ensure the awards align with enhancing shareholder
stockholder value, any awards earned at the end of the three-year performance period are subject to adjustment (by up to +/- 20%) based on our relative total shareholder return (TSR) compared to industry peers.
The chart below sets forthperformance vs. companies in the Committee’s performance share metrics for awards granted in fiscal 2015 through 2019, which we believe illustrate the Committee’s rigorous approach:
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Performance Period | 3-Year Target Performance Metric | | | | | |
| Cumulative Pre-Tax Income ($) | | Return on Assets (%) | | Net Debt to Adjusted EBITDA | |
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2015 - 2017 | 83.1 million | | N/A | | N/A | |
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2016 - 2018 | 140.0 million | | 9* | | 6x** | |
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2017 - 2019 | 160.0 million | | 10 | | 5x | |
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2018 - 2020 | 200.0 million | | 10 | | N/A*** | |
2019 - 2021 | 240.0 million | | 11 | | N/A*** | |
* Return on Assets was 5.9% for fiscal 2015.
** Net Debt to Adjusted EBITDA was 8.8x as of September 30, 2015.
*** Beginning with grants in fiscal 2018, this metric was replaced with a proprietary growth metric related to our Gatherings product line to reinforce a key strategic priority.
For the award cycle ending in fiscal 2018, as a result of achieving specific long-term strategic goals (which were established in fiscal 2016), performance shares were earned by our management team for the first time since 2011, which we believe underscores the rigor the Committee applies when setting performance goals.S&P Homebuilders Select Industry Index.
Performance Measures for the Fiscal 2017 - 20192019-2021 Award Cycle
Each performance share award reflects a target number of shares (based on the fair market value of our common stock on the award date) that may be issued to the award recipient at the end of a three-year award cycle based on the achievement of performance targets that are either (a) applicable to cumulative results over the entire three-year cycle or (b) applicable only to the final fiscal year of the three-year award cycle. At the end of each award cycle, the Committee confirms performance against the applicable performance targets, and performance shares corresponding to the level of achievement during the award cycle are calculated.
In determining fiscal year 2017-20192019-2021 performance share award metrics, the Committee considered the fluid nature of the housing market and need to design metrics that would not be obsolete in the event of a change in strategy during the three-year award cycle ending with fiscal 2019.2021. The three metrics used for the fiscal 2017-20192019-2021 award cycle were:
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l | Cumulative pre-tax income (defined as the Company’s income from continuing operations, before taxes and excluding impairments and abandonments, bond losses and such other non-recurring items as the Committee may approve) over the entire three-year award cycle; |
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l | Return on assets, based on the ratio of Adjusted EBITDA to total assets for fiscal 2021 (defined as the Company’s total assets as shown on the consolidated balance sheet included in the Company’s Form 10-K for fiscal 2019) for fiscal 2019;2021); and |
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l | Debt reduction, as measured at September 30, 2019, based onGatherings — A strategic metric tied to the ratioexpansion of net debt (defined as the Company’s total debt as shown on the consolidated balance sheet included in the Company’s Form 10-Kour Gatherings product line. The Committee believed this metric aligned with its rigorous and business strategy-focused approach and underscored its pay for fiscal 2019, less unrestricted cash) to Adjusted EBITDA for fiscal 2019. |
Determination of Shares Earned
Shares earned are based on achieving the Threshold, Target or Superior levels of performance on one or more of the metrics described above. One-third of target shares are earned for each metric achieving Threshold performance, two-thirds of target shares are earned for each metric achieving Target performance and 100% of target shares are earned for each metric achieving Superior performance. The shares earned on the three metrics are totaled, subject to both a 175% cap on primary funding metrics and a TSR Modifier to determine the final award. As noted above, due to the limited number of shares available for issuance under the 2014 Plan, in fiscal 2019, shares earned in excess of target were paid in cash.
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l | To illustrate, achievement of a Threshold level of performance on each of the three metrics would result in 33.3% of target shares earned for each metric or a total of 100% of the target number of shares, subject to adjustment based on the TSR Modifier. |
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l | Superior-level performance on any one metric (100%) would earn a target number of shares subject to the TSR Modifier. |
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l | The maximum number of shares that can be earned based on the results of the three metrics described above would be 175% of Target, even if Superior performance is achieved on all three metrics (300% of target shares). In the event of such maximum achievements, the maximum adjustment under the TSR modifier of 20% would result in shares awarded totaling no more than 210% of target. |
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l | For performance between Threshold and Target or between Target and Superior, straight line interpolation between such levels is applied. |
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l | The Committee retains the discretion to reduce the number of shares finally awarded notwithstanding the number earned pursuant to the above, and to award any amounts in excess of target in cash instead of shares. |
Results for the Fiscal 2017-20192019-2021 Award Cycle
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l | Cumulative pre-tax income — The performance necessary to earn a Threshold, Target and Superior payout required a cumulative pre-tax income of $140$220 million, $160$240 million and $180$260 million, respectively. Actual cumulative pre-tax income for the fiscal 2017-20192019-2021 award cycle was $193.4$282.3 million. |
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l | Return on assetsAssets — The performance necessary to earn a Threshold, Target and Superior payout required a ROA for fiscal 20192021 of 9%10%, 10%11% and 11%12%, respectively. Actual return on assets for fiscal 20192021 was 9.21%12.64%. |
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l | Ratio of net debtGatherings — Actual results for the 2019-2021 cycle were below threshold performance levels, resulting in no funding for this component. The specific performance targets for the Gatherings metric are not disclosed here because we believe that the disclosure would result in competitive harm to Adjusted EBITDA — The performance necessary to earn a Threshold, Targetus by potentially disrupting our vendor and Superior payout required a net debt to Adjusted EBITDA ratio at the end of fiscal 2019 of no more than 6 times, 5 timessupplier relationships and 4 times, respectively. As measured at September 30, 2019, the actual ratio of net debt to Adjusted EBITDA for fiscal 2019 was 5.9 times.providing competitors with insight into our business strategies beyond what is disclosed publicly. |
In sum, threshold performance was not reached for one of the metrics, however Superior performance was exceeded for all three metrics, and a Superior performance level was exceeded for onetwo of the metrics. For performance between Threshold and Target and between Target and Superior, straight line interpolation between such levels was applied,metrics, resulting in earned awards of 175.0%175.00% of Target. However, earnedEarned awards were subject to adjustment based on our relative TSR, as discussed below.
While our target performance awards are based on specific metrics established at the time of grant, we believe that incentive compensation should also be directly tied to shareholderstockholder value. As a result, after determining the number of shares earned based on the financialachievement of the performance measures for the fiscal 2019-2021 award cycle, the following three-year relative TSR scale is applied as a modifier:
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TSR PERCENTILE RANK VS. S&P
HOMEBUILDERS SELECT INDUSTRY INDEX | ADJUSTMENT TO # OF
PERFORMANCE SHARES |
At or above 75th Percentile | +20% |
| 70-74th Percentile | +15% |
| 65-69th Percentile | +10% |
| 60-64th Percentile | +5% |
| 40-59th Percentile | No adjustment |
| 35-39th Percentile | -5% |
| 30-34th Percentile | -10% |
| 25-29th Percentile | -15% |
| Below 25th Percentile | -20% |
After application of the TSR modifier, the recipients’ percentage of awards earned attributable to the fiscal 2017-20192019-2021 award cycle was reduced by 15% from 175.0%175.00% to 157.5%148.75% of Target. During the same 3-year period ended September 30, 2019, our TSR increased by a total of 23.5%, which was at the 34th percentile vs. peers.
As further illustration of the Committee’s commitment to linking executive compensation to shareholder value, based on our stock price as of September 30, 2019 and assuming performance at target for performance awards that are subject to actual performance in fiscal years 2020 and 2021, realizable pay for our executive management team for equity grants (including all restricted stock and performance shares granted) over the past five fiscal years (fiscal years 2015 – 2019) represents approximately 78% of their grant date value.
Accordingly, through heavy emphasis on variable, performance-based incentives with rigorous performance goals based on key businessfinancial, operational and strategic objectives and actual payouts subject to adjustment based on shareholderstockholder returns, the Committee believes our long-term incentive program appropriately aligns pay for performance while facilitating shareholderpromoting stockholder value creation.
Performance Shares Issued
Shares issued to NEOs for the fiscal 2017-20192019-2021 award cycle are set forth in the following table:
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| NAME | PERFORMANCE SHARES AWARD TARGET (#) | PERFORMANCE SHARES EARNED (#)* | PERFORMANCE SHARES EARNED AS A PERCENTAGE OF AWARD TARGET (%) |
| Allan P. Merrill | 119,904 | 188,848 | 157.5 |
| Robert L. Salomon | 48,960 | 77,112 | 157.5 |
| Keith L. Belknap** | 0 | 0 | 0 |
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| NAME | PERFORMANCE SHARES AWARD TARGET (#) | PERFORMANCE SHARES EARNED (#) | PERFORMANCE SHARES EARNED AS A PERCENTAGE OF AWARD TARGET (%) |
| Allan P. Merrill | 193,482 | 287,804 | 148.75 |
| David I. Goldberg | 11,668 | 17,356 | 148.75 |
| Keith L. Belknap | 50,916 | 75,738 | 148.75 |
| Robert L. Salomon* | 81,466 | 121,181 | 148.75 |
* Due toMr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the limited number of shares available under the 2014 Plan, for fiscal 2019, shares earned in excess of award target were paid in cash. As a result, Messrs. Merrill and Salomon received cash payments of $1,048,638 and $428,192 respectively, in lieu of additional shares.
** JoinedCompany. He remained employed by the Company in 2018.a non-executive capacity through November 20, 2021.
Performance Measures for 2019-20212021-2023 Award Cycle
For Performance Shares
In fiscal 2016 and 2017, we utilized a debt reduction metric forPerformance Cash Awards related to the three-year award cycles associated with2021-2023 performance period, the performance shares granted in fiscal 2016Committee determined that the Company's ongoing commitment to increase the energy efficiency of its homes and 2017 as a resultto build only NetZero Energy Ready homes by the end of a strategic objective2025 warranted accountability through the long-term incentive pay program. Thus, the Committee determined to aggressively reduce debt. During fiscal 2018, we successfully achieved this objective as we completed our three-year, $250 million debt reduction plan. Accordingly, in order to align our compensation program with the changing needs and circumstances of the Company, we replaced the debt reduction metric beginning with 2018-2020 performance awards withutilize a new key strategicperformance metric tieddirectly linked to the expansion of our Gatherings® product line. The Committee believes this new metric aligns with its rigorousHome Energy Rating System (HERS®) results for homes built by the Company. HERS® is an industry-leading home building scoring system developed by the Residential Energy Services Network (RESNET), an independent non-profit organization, for inspecting and business strategy-focused approach and underscores its pay forcalculating a home's energy performance philosophy.
after construction is complete.
With respectThe specific performance targets for the environmental metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. The Committee believes management’s ability to achieve the specific performance targets and the level of difficulty associated with meeting these performance targets is consistent with the other metrics.
In addition, performance metrics for 2019–2021 performance awards, the Committee set2021–2023 award cycle, include the following targets:
objectives: | | | | | |
l | Cumulative pre-tax income — The performance necessary to earn a Threshold payout requires a cumulative pre-tax income of $220$260 million, Target payout requires a cumulative pre-tax income of $240$280 million, and the performance necessary to earn a Superior payout requires a cumulative pre-tax income of at least $260$300 million. |
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l | Return on assets — The performance necessary to earn a Threshold payout requires a return on assets for fiscal 20212023 of 10%10.5%, Target payout requires a return on assets of 11%11.5%, and the performance necessary to earn a Superior payout requires a return on assets for fiscal 20212023 of at least 12%12.5%. |
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l | Gatherings communities — The specific performance targets for the Gatherings metric are not disclosed here because we believe that the disclosure would result in competitive harm to us by potentially disrupting our vendor and supplier relationships and providing competitors with insight into our business strategies beyond what is disclosed publicly. The Committee believes management’s ability to achieve the specific performance targets and the level of difficulty associated with meeting these performance targets is consistent with the other metrics for these performance shares. |
Target goals for cumulative pre-tax income and return on assets, which were set in November 2020, were set higher than the targets for the 2020–2022 award cycle, as well as actual results for the 2018–2020 award cycle.
Consistent with performance share awards in prior years,past practice, for 2019–2021 performance share grants,2021–2023, the actual number of performance shares and cash earned will be based on achieving the Threshold, Target or Superior levels of performance on one or more of the metrics described above. One-third of target shares and cash will be earned for each metric achieving Threshold performance, two-thirds of target shares and cash will be earned for each metric achieving Target performance and 100% of target shares and cash will be earned for each metric achieving Superior performance. The shares and cash earned on the three metrics will be totaled and will be subject to a 175% cap and a relative TSR Modifier in order to determine the final award. As a result, after determining the number of shares and cash earned, the three-year relative TSR scale shown above will be applied as a modifier.
BENEFITS
Our NEOs receive the standard benefits available to all employees, including: group health (medical, dental, pharmacy, and vision), group life, accidental death and dismemberment, business travel accident, disability plans, defined contribution retirement plans (a Money Purchase Retirement Plan and a 401(k) Savings Plan), and vacation.
Deferred Compensation Plan
The Company maintains the Beazer Homes Deferred Compensation Plan, or the Deferred Plan, to provide eligible employees the opportunity to defer a portion of their current compensation. With respect to fiscal 2019,2021, the CommitteeCompany made a contribution to the Deferred Plan for the benefit of each NEO as follows: Mr. Merrill, $100,000; Mr. Salomon, $75,000,Goldberg, $50,000, and Mr. Belknap, $50,000. These contributions are made in regular installments and are subject to several restrictions and limitations including the Committee’s right to terminate or suspend any such contribution in the future.
Other Benefits
We do not have a defined benefit pension plan or supplemental executive retirement plan. Our executive management team, including our NEOs, participate in our various benefit programs on the same terms as other employees. The Company does not provide to its NEOs supplemental executive retirement plans, company cars (or automobile reimbursements), club memberships or other significant perquisites.
STOCK OWNERSHIP AND HOLDING REQUIREMENTS
The Company maintains a stock ownership and holding policy that requires NEOs and members of the Board of Directors to acquire and retain a meaningful level of stock ownership in the Company. In November 2019, the Board amended the policy to increase the ownership requirement for non-employee directors to 4.0 times the annual board cash retainer.
The current stock ownership requirements are based on a multiple of base salary or annual retainer, as applicable, and are as set forth below:
| | | | | |
| MULTIPLE OF BASE SALARY/ ANNUAL RETAINER |
| CEO | 5.0 x base salary |
| Other NEOs | 3.0 x base salary |
| Non-employee Directors | 4.0 5.0 x annual cash retainer |
For purposes of the stock ownership policy, the following types of share holdingsshareholdings are counted towards an individual’s stock ownership: (i) stock that is considered beneficially owned and (ii) two-thirds of service-based restricted stock and (iii) one-third of “in the money” stock options.stock. Unearned performance shares and unexercised stock options (including vested "in-the-money" options) do not count towards ownership requirements. Individuals subject to this policy are required to be in compliance with ownership requirements no later than the fifth anniversary of the date the individual becomes a NEO or director. As of December 11, 2019, each of our NEOs and directors was in compliance with the requirements of our stock ownership and holding policy.
The policy also requires NEOs and directors to hold 50% of net after-tax shares issued upon vesting of restricted stock or stock option exercises until their required respective stock ownership levels are achieved. As of December 8, 2021, each of our NEOs and directors was in compliance with the requirements of our stock ownership and holding policy.
COMPENSATION CLAWBACK POLICY
In 2011, theThe Committee has adopted an incentive compensation clawback policy that would enable the Company to clawback all or a portion of incentive compensation in the event an individual’s misconduct causes the Company to issue a restatement of its financial statements, to the extent that such individual’s incentive compensation was based on the misstated financials.
In addition, awards under our 2014 Long-Term Incentive Plan are subject not only to our existing clawback policy but any other clawback policy adopted by the Compensation Committee, and the Committee has the authority to recoup or cancel awards if a participant engages in “detrimental activity” with respect to the Company.
As described in further detail under “Executive Compensation — Potential Payments Upon Termination or Change of Control,” pursuant to the severance agreements with each of our NEOs, any incentive compensation that is paid or granted to the NEOs will be subject to recoupment under the terms thereof.
RISK CONSIDERATIONS IN OUR COMPENSATION PROGRAMS
The Committee does not believe our compensation programs encourage inappropriate risk taking. The Committee, with assistance from Pearl Meyer, arrived at this conclusion for the following reasons:
| | | | | |
l | Our employees receive both fixed and variable compensation. The fixed portion provides a steady income regardless of the Company’s stock price or financial performance. This allows executives to focus on the Company’s business without an excessive focus on the Company’s stock price. |
| |
l | Incentive award opportunities are tied to multiple metrics over various time periods that align with key financial, operational and strategic objectives. |
| |
l | Incentive award opportunities are capped, with incentive payouts subject to clawback provisions. |
| |
l | Our equity awards for executives generally vest over three-year periods, which discourages short-term risk taking. |
| |
l | Our equity ownership and holding requirements encourage a long-term perspective by our executives. |
| |
l | Our equity compensation plan provides that our executives’ unvested long-term equity compensation is forfeited upon voluntary termination. |
TAX LEGISLATION RELATED TO COMPENSATION
Historically, it has been the Committee’s general policy to consider whether particular payments and awards are deductible by the Company for federal income tax purposes under Section 162(m) of the Internal Revenue Code. Section 162(m) has limited the deductibility for federal income tax purposes of compensation payments to certain executive officers in excess of $1 million, subject to certain exemptions and exceptions for qualified performance-based compensation. Although the Committee has taken into consideration the provisions of Section 162(m), being eligible for tax deductibility has not been a primary focus, but one consideration among many in the design of our executive compensation programs.
On December 22, 2017, H.R. 1, the “Tax Cuts and Jobs Act” was signed into law. The new law repeals certain exceptions to the deductible limit for performance-based compensation for tax years beginning after 2017. In addition, the new law requires compensation of the principal executive officer, principal financial officer and three highest compensated officers (“covered employees”) to be subject to the limit. Once an employee is treated as a covered employee in a tax year after December 31, 2016, the individual remains a covered employee for all future years, including once they are no longer employed by the corporation or with respect to payments made after the death of a covered employee. The new law does provide for a transition rule to these Section 162(m) changes whereby the expansion of the rules mentioned above does not apply to remuneration paid under a written, binding contract in effect on November 2, 2017, which is not materially modified on or after this date. While the Compensation Committee cannot predict how our compensation policies may be further affected by this limitation, it is anticipated that certain compensation paid to our executives that have not met the requirements of this new law will not be deductible.
Internal Revenue Code section 409A requires “nonqualified deferred compensation plans” to meet requirements in order to avoid acceleration of the recipient’s federal income taxation of the deferred compensation. The Internal Revenue Service issued final regulations in April 2007 regarding the application of Section 409A, which were generally effective January 1, 2009. Prior to effectiveness, companies were expected to comply in “good faith” with the statute, taking note of the interim guidance issued by the Internal Revenue Service. We provide benefits through several plans that are intended to meet the requirements of the final regulations.
REPORT OF THE
COMPENSATION COMMITTEE
The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis set forth above with management. Based on such review and discussions, the Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis set forth above be included in this Proxy Statement.
PETER M. ORSER (CHAIR)
BRIAN C. BEAZERLLOYD E. JOHNSON
NORMA A. PROVENCIO
DANNY R. SHEPHERD
DAVID J. SPITZ
The Members of the Compensation Committee
EXECUTIVE
COMPENSATION
SUMMARY COMPENSATION TABLE
The table below summarizes compensation information for our named executive officersNEOs for the fiscal years 2019, 20182021, 2020 and 2017.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
NAME AND
PRINCIPAL POSITION | FISCAL
YEAR | SALARY ($) | BONUS ($) | STOCK AWARDS ($) (1) | STOCK OPTIONS ($) (2) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($) (3) | ALL OTHER COMPENSATION ($) (4) | TOTAL
($) |
Allan P. Merrill President and Chief Executive Officer | 2019 | 950,000 | | — | | 2,981,558 | | 21,850 | | 1,128,332 | | 108,400 | | 5,190,140 | |
| 2018 | 949,231 | | — | | 3,030,152 | | — | | 2,064,537 | | 108,250 | | 6,152,170 | |
| 2017 | 900,000 | | — | | 2,380,694 | | — | | 2,380,849 | | 110,023 | | 5,771,566 | |
Robert L. Salomon Executive Vice President and Chief Financial Officer | 2019 | 599,038 | | — | | 1,255,391 | | — | | 530,281 | | 83,400 | | 2,468,110 | |
| 2018 | 549,616 | | — | | 1,023,342 | | — | | 845,092 | | 83,273 | | 2,501,323 | |
| 2017 | 525,000 | | — | | 972,101 | | — | | 925,886 | | 80,882 | | 2,503,869 | |
Keith L. Belknap Executive Vice President and General Counsel
| 2019 | 499,038 | | — | | 784,616 | | — | | 395,906 | | 58,154 | | 1,737,714 | |
| 2018 | 320,192 | | — | | 608,521 | | — | | 651,959 | | 44,490 | | 1,625,162 | |
| | | | | | | | | |
2019. | | | | | | | | | | | | | | | | | | | | | | | | | | |
NAME AND
PRINCIPAL POSITION | FISCAL
YEAR | SALARY ($) | BONUS ($) | STOCK AWARDS ($) (1) | STOCK OPTIONS ($) (2) | NON-EQUITY INCENTIVE PLAN COMPENSATION ($) (3) | ALL OTHER COMPENSATION ($) (4) | TOTAL
($) |
Allan P. Merrill President and Chief Executive Officer | 2021 | 926,384 | — | 1,671,256 | — | 2,808,679 | 108,700 | 5,515,019 |
| 2020 | 879,904 | — | 3,094,751 | — | 3,002,673 | 108,550 | 7,085,878 |
| 2019 | 950,000 | — | 2,981,558 | 21,850 | 1,128,332 | 108,400 | 5,190,140 |
David I. Goldberg(5) Senior Vice President and Chief Financial Officer | 2021 | 403,808 | | 364,234 | | 699,598 | 50,163 | 1,517,803 |
| | | | | | | |
| | | | | | | |
Keith L. Belknap Executive Vice President and General Counsel
| 2021 | 513,074 | — | 539,935 | — | 1,111,126 | 58,367 | 2,222,502 |
| 2020 | 487,331 | — | 999,830 | — | 1,187,871 | 58,427 | 2,733,459 |
| 2019 | 499,038 | — | 784,616 | — | 395,906 | 58,154 | 1,737,714 |
Robert L. Salomon(6) Former Executive Vice President and Chief Financial Officer | 2021 | 50,000 | — | 0 | — | 0 | 15,519 | 65,519 |
| 2020 | 541,479 | — | 1,269,645 | — | 1,319,856 | 83,550 | 3,214,530 |
| 2019 | 599,038 | — | 1,255,391 | — | 530,281 | 83,400 | 2,468,110 |
| | | | | |
| Represents the aggregate grant date fair value of restricted stock and performance shares awarded in each of the fiscal years indicated above, determined in accordance with FASB ASC Topic 718. These are not amounts paid to or realized by the NEOs. The grant date fair value of the performance shares was calculated based on a “Monte Carlo” simulation model, which utilizes numerous arbitrary assumptions about financial variables that determine the probability of satisfying the performance conditions stipulated in the award. Further information regarding the valuation of stock and option awards can be found in Notes 2 and 16 to our Consolidated Financial Statements in our 20192021 Form 10-K. We caution that the amounts reported in the table for equity-related awards and, therefore, total compensation, may not represent the amounts that each NEO will actually realize from the awards. Whether, and to what extent, an NEO realizes value will depend on a number of factors, including Company performance and stock price. For more information on restricted stock and performance shares, see “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Long-Term Incentive Compensation” above. |
| Represents the grant date fair value of an option to purchase 5,000 shares of common stock with a per share exercise price of $9.62. For more information, see Note 6 to the Grants of Plan-Based Awards Table below.in the Company's proxy statement for the 2020 annual meeting of stockholders filed with the SEC on December 20, 2019. |
| Amounts in this column are paid pursuant to the Company’s short-term incentive plan as described under “Compensation Discussion and Analysis — Elements of Fiscal 20192020 Compensation Program — Short-Term Incentive Compensation” above. |
| For information on All Other Compensation, see table below. |
| Mr. Goldberg was appointed CFO effective November 20, 2020. |
| Mr. Salomon retired as CFO effective November 20, 2020 after more than 12 years with the Company. He remained employed by the Company in a non-executive capacity through November 20, 2021. |
ALL OTHER COMPENSATION
The table below provides a detailed breakdown of the amounts for fiscal 20192021 under “All Other Compensation” in the Summary Compensation Table above.
| | | | | | | | | | | | | | |
NAME | YEAR | DEFERRED COMPENSATION OR
DISCRETIONARY LUMP SUM
CONTRIBUTIONS ($) | 401(K)
COMPANY
MATCH ($) | TOTAL ($) |
| Allan P. Merrill | 2019 | 100,000 | 8,400 | | 108,400 | |
| Robert L. Salomon | 2019 | 75,000 | 8,400 | | 83,400 | |
| Keith L. Belknap | 2019 | 50,000 | 8,154 | 58,154 | |
| | | | | | | | | | | | | | | | | |
NAME | YEAR | DEFERRED COMPENSATION OR
DISCRETIONARY LUMP SUM
CONTRIBUTIONS ($) | 401(K)
COMPANY
MATCH ($) | TOTAL ($) | |
| Allan P. Merrill | 2021 | 100,000 | 8,700 | 108,700 | |
| David I. Goldberg | 2021 | 40,385 | 9,778 | 50,163 | |
| Keith L. Belknap | 2021 | 50,000 | 8,367 | 58,367 | |
| Robert L. Salomon | 2021 | 14,423 | 1,096 | 15,519 | |
GRANTS OF PLAN-BASED AWARDS TABLE
The following table shows information about eligible or granted plan-based awards for fiscal 20192021 to our NEOs. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | AWARD TYPE (1) | GRANT
DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2) | ESTIMATED FUTURE ISSUANCES OF SHARES UNDER EQUITY INCENTIVE PLANS (3) | ALL OTHER STOCK-BASED AWARDS (#) (4) | GRANT DATE FAIR VALUE OF STOCK- BASED AWARDS ($) (5) | ALL OTHER OPTION AWARDS (#) | EXERCISE OR BASE PRICE OF OPTION AWARDS ($) |
THRESHOLD
($) | TARGET
($) | MAXIMUM
($) | THRESHOLD
(#) | TARGET
(#) | SUPERIOR
(#) |
| Allan P. Merrill | BP | 11/16/20 | 729,527 | | 1,459,054 | | 2,918,108 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/16/20 | — | | 789,750 | | 1,658,475 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/16/20 | — | | — | | — | | — | | — | | — | | 57,984 | | 815,835 | | — | | — | |
| PS | 11/16/20 | — | | — | | — | | — | | 56,130 | | 117,873 | | — | | 855,421 | | — | | — | |
| David I. Goldberg | BP | 11/16/20 | 181,713.5 | | 363,427 | | 726,854 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/16/20 | — | | 172,125 | | 361,463 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/16/20 | — | | — | | — | | — | | — | | — | | 12,637 | | 177,803 | | — | | — | |
| PS | 11/16/20 | — | | — | | — | | — | | 12,233 | | 25,689 | | — | | 186,431 | | — | | — | |
| Keith L. Belknap | BP | 11/16/20 | 288,604 | | 577,208 | | 1,154,416 | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/16/20 | — | | 255,150 | | 535,815 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/16/20 | — | | — | | — | | — | | — | | — | | 18,733 | | 263,573 | | — | | — | |
| PS | 11/16/20 | — | | — | | — | | — | | 18,134 | | 38,081 | | — | | 276,362 | | — | | — | |
| Robert L. Salomon | BP | 11/16/20 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| PA | 11/16/20 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/16/20 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| PS | 11/16/20 | — | | — | | — | | — | | — | | — | | — | | — | | — | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NAME | AWARD TYPE (1) | GRANT
DATE | ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE PLAN AWARDS (2) | | | ESTIMATED FUTURE ISSUANCES OF SHARES UNDER EQUITY INCENTIVE PLANS (3) | | | ALL OTHER STOCK-BASED AWARDS (#) (4) | GRANT DATE FAIR VALUE OF STOCK- BASED AWARDS ($) (5) | ALL OTHER OPTION AWARDS (#)(6) | EXERCISE OR BASE PRICE OF OPTION AWARDS ($) |
| | | THRESHOLD
($) | TARGET
($) | MAXIMUM
($) | THRESHOLD
(#) | TARGET
(#) | SUPERIOR
(#) | | | | |
| Allan P. Merrill | BP | 11/15/18 | 712,500 | | 1,425,000 | | 2,850,000 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/15/18 | — | | — | | — | | — | | — | | — | | 96,741 | | 949,997 | | — | | — | |
| PS | 11/15/18 | — | | — | | — | | — | | 193,482 | | 406,312 | | — | | 2,031,561 | | — | | — | |
| NQSO | 05/22/19 | — | | — | | — | | — | | — | | — | | — | | — | | 5,000 | | 9.62 | |
| Robert L. Salomon | BP | 11/15/18 | 300,000 | | 750,000 | | 1,200,000 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/15/18 | — | | — | | — | | — | | — | | — | | 40,733 | | 399,998 | | — | | — | |
| PS | 11/15/18 | — | | — | | — | | — | | 81,466 | | 171,079 | | — | | 855,393 | | — | | — | |
| Keith L. Belknap | BP | 11/15/18 | 250,000 | | 500,000 | | 1,000,000 | | — | | — | | — | | — | | — | | — | | — | |
| RS | 11/15/18 | — | | — | | — | | — | | — | | — | | 25,458 | | 249,998 | | — | | — | |
| PS | 11/15/18 | — | | — | | — | | — | | 50,916 | | 106,924 | | — | | 534,618 | | — | | — | |
| | | | | |
| Award Type: “BP” means potential cash awards under 20192021 Short-Term Incentive Plan; "PA" means performance cash awards under the 2021 Long-Term Incentive Plan; “RS” means shares of time-vesting restricted stock; “PS” means performance shares.share awards under the 2021 Long-Term Incentive Plan. |
| Amounts represent the range of possible cash payouts for fiscal 20192021 under the 20192021 Short-Term Incentive Plan, as described under “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Short-Term Incentive Compensation” above, and the range of possible cash payouts for performance cash awards under the 2021 Long-Term Incentive Plan, assuming achievement of threshold, target and superior performance. See "Compensation Discussion and Analysis — Elements of Fiscal 2021 Compensation Program -— Long-Term Incentive Compensation — Performance Measures for 2021-2023 Award Cycle" above. The awards that were earned based on actual performance for fiscal 20192021 were paid in November 20192021 and are shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above. |
| Represents the range of shares of Common Stock that may vest after the end of the three-year award cycle applicable to a performance share award, assuming achievement of threshold, target and superior performance. See “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Long-Term Incentive Compensation — Performance Measures for 2019-2021 Performance Shares”2021-2023 Award Cycle” above. |
| Represents time-vested restricted stock. The shares of restricted stock generally vest in equal installments on the first, second and third anniversaries of the grant date. See “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Long-Term Incentive Compensation — Restricted Stock” above. |
| See footnote 1 to the Summary Compensation Table above for an explanation of the calculation of the grant date fair value of stock-based awards. |
| Represents an option to purchase 5,000 shares of common stock with a per share exercise price of $9.62, the closing price of common stock on the NYSE on the date of grant. The option was awarded in connection with a 2019 employee stock option program that matches open market purchases of common stock with the grant of stock options on a 1:1 basis, up to a maximum of 5,000 shares per employee, with a term of eight years. The program was available to all full-time employees of the Company, with vesting of options on the second anniversary of the grant dates, subject to continued employment through the vesting date. |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END TABLE
The following table provides information with respect to outstanding unexercised options and unvested performance-based restricted stock and time-based restricted stock held by our NEOs at September 30, 2019.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | OPTION AWARDS | | | | | STOCK AWARDS | | | | | |
| NAME | GRANT
DATE | | NUMBER OF SECURITIES UNDERLYING OPTIONS/SSARS | | OPTION
EXERCISE
PRICE ($) | OPTION
EXPIRATION
DATE | | NUMBER OF SHARES OF STOCK THAT HAVE NOT VESTED (#) (1) | MARKET VALUE OF SHARES OF STOCK THAT HAVE NOT VESTED ($) (2) | NUMBER
OF PER-
FORMANCE
SHARES
THAT HAVE
NOT VESTED
(#) | | MARKET VALUE OF PERFOR- MANCE SHARES THAT HAVE NOT VESTED ($) (3) | |
| | | (#) | | | | | | | | | | |
| | | EXERCISABLE | UNEXERCIS-ABLE | | | | | | | | | |
| Allan P. Merrill | 11/16/11 | | 58,264 | | — | | 10.80 | | 11/16/19 | | — | | — | | — | | | — | | |
| 11/14/12 | | 86,000 | | — | | 13.33 | | 11/14/20 | | — | | — | | — | | | — | | |
| 11/8/13 | | 86,000 | | | | 19.11 | | 11/8/21 | | — | | — | | — | | | — | | |
| 5/22/19 | | — | | 5,000 | | 9.62 | | 5/22/27 | | — | | — | | — | | | — | | |
| 11/17/16 | | — | | — | | — | | — | | | 19,984 | | 297,762 | | — | | | — | | |
| 11/17/16 | (4) | — | | — | | — | | — | �� | | | — | | — | | 119,904 | | (4) | 1,786,570 | | |
| 11/16/17 | | — | | — | | — | | — | | | 30,955 | | 461,230 | | — | | | — | | |
| 11/16/17 | (5) | — | | — | | — | | — | | | — | | — | | 92,864 | | (5) | 1,383,674 | | |
| 11/15/18 | | — | | — | | — | | — | | | 96,741 | | 1,441,441 | | — | | | — | | |
| 11/15/18 | (6) | — | | — | | — | | — | | | — | | — | | 193,482 | | (6) | 2,882,882 | | |
| Robert L. Salomon | 11/16/11 | | 20,392 | | — | | 10.80 | | 11/16/19 | | — | | — | | — | | | — | | |
| 11/14/12 | | 30,200 | | — | | 13.33 | | 11/14/20 | | — | | — | | — | | | — | | |
| 11/8/13 | | 30,200 | | — | | 19.11 | | 11/8/21 | | — | | — | | — | | | — | | |
| 11/17/16 | | — | | — | | — | | — | | | 8,160 | | 121,584 | | — | | | — | | |
| 11/17/16 | (4) | — | | — | | — | | — | | | — | | — | | 48,960 | | (4) | 729,504 | | |
| 11/16/17 | | — | | — | | — | | — | | | 10,454 | | 155,765 | | — | | | — | | |
| 11/16/17 | (5) | — | | — | | — | | — | | | — | | — | | 31,362 | | (5) | 467,294 | | |
| 11/15/18 | | — | | — | | — | | — | | | 40,733 | | 606,922 | | — | | | — | | |
| 11/15/18 | (6) | — | | — | | — | | — | | | — | | — | | 81,466 | | (6) | 1,213,843 | | |
| Keith L. Belknap | 1/8/18 | | — | | — | | — | | — | | | 6,266 | | 93,363 | | — | | | — | | |
| 1/8/18 | (5) | — | | — | | — | | — | | | — | | — | | 18,796 | | (5) | 280,060 | | |
| 11/15/18 | | — | | — | | — | | — | | | 25,458 | | 379,324 | | — | | | — | | |
| 11/15/18 | (6) | — | | — | | — | | — | | | — | | — | | 50,916 | | (6) | 758,648 | | |
2021. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | OPTION AWARDS | | STOCK AWARDS | |
| NAME | GRANT
DATE | | NUMBER OF SECURITIES UNDERLYING OPTIONS/SARS | OPTION
EXERCISE
PRICE ($) | OPTION
EXPIRATION
DATE | | NUMBER OF SHARES OF STOCK THAT HAVE NOT VESTED (#) (1) | MARKET VALUE OF SHARES OF STOCK THAT HAVE NOT VESTED ($) (2) | NUMBER
OF PER-
FORMANCE
SHARES
THAT HAVE
NOT VESTED
(#) | | MARKET VALUE OF PERFOR- MANCE SHARES THAT HAVE NOT VESTED ($) (3) | |
| (#) | |
| EXERCISABLE | UNEXERCIS-ABLE | |
| | | | | | | | | | | | | |
| Allan P. Merrill | 11/8/13 | | 86,000 | | | 19.11 | | 11/8/21 | | — | | — | | — | | | — | | |
| 5/22/19 | | — | | 5,000 | | 9.62 | | 5/22/27 | | — | | — | | — | | | — | | |
| 11/15/18 | | — | | — | | — | | — | | | 32,247 | | 556,261 | | — | | | — | | |
| 11/15/18 | (4) | — | | — | | — | | — | | | — | | — | | 287,804 | | (4) | 4,964,619 | | |
| 11/15/19 | | — | | — | | — | | — | | | 41,613 | | 717,824 | | — | | | — | | |
| 11/15/19 | (5) | — | | — | | — | | — | | | — | | — | | 124,839 | | (5) | 2,153,473 | | |
| 11/16/20 | | — | | — | | — | | — | | | 57,984 | | 1,000,224 | | — | | | — | | |
| 11/16/20 | (6) | — | | — | | — | | — | | | — | | — | | 56,130 | | (6) | 968,243 | | |
| | | | | | | | | | | | | |
| David I. Goldberg | 11/15/18 | | — | | — | | — | | — | | | 1,945 | | 33,551 | | — | | | — | | |
| 11/15/18 | (4) | — | | — | | — | | — | | | — | | — | | 17,356 | | (4) | 299,391 | | |
| 11/15/19 | | — | | — | | — | | — | | | 4,624 | | 79,764 | | — | | | — | | |
| 11/15/19 | (5) | — | | — | | — | | — | | | — | | — | | 13,871 | | (5) | 239,275 | | |
| 11/16/20 | | — | | — | | — | | — | | | 12,637 | | 217,988 | | — | | | — | | |
| 11/16/20 | (6) | — | | — | | — | | — | | | — | | — | | 12,233 | | (6) | 211,019 | | |
| Keith L. Belknap | 11/15/18 | | — | | — | | — | | — | | | 8,486 | | 146,384 | | — | | | — | | |
| 11/15/18 | (4) | — | | — | | — | | — | | | — | | — | | 75,738 | | (4) | 1,306,481 | | |
| 11/15/18 | | — | | — | | — | | — | | | 13,444 | | 231,909 | | — | | | — | | |
| 11/15/18 | (5) | — | | — | | — | | — | | | — | | — | | 40,332 | | (5) | 695,727 | | |
| 11/16/20 | | — | | — | | — | | — | | | 18,733 | | 323,144 | | — | | | — | | |
| 11/16/20 | (6) | — | | — | | — | | — | | | — | | — | | 18,134 | | (6) | 312,812 | | |
| Robert L. Salomon | 11/15/18 | | — | | — | | — | | — | | | 13,578 | | 234,221 | | — | | | — | | |
| 11/15/18 | (4) | — | | — | | — | | — | | | — | | — | | 121,181 | | (4) | 2,090,372 | | |
| 11/15/19 | | — | | — | | — | | — | | | 17,072 | | 294,492 | | — | | | — | | |
| 11/15/19 | (5) | — | | — | | — | | — | | | — | | — | | 51,216 | | (5) | 883,476 | | |
| | | | | |
| Award vests ratably over a three-year period. |
| Reflects the value using the closing price of common stock on the NYSE on the last trading day of fiscal year 20192021 (September 30, 2019)2021) of $14.90$17.25 per share. |
| “Market value” is calculated by multiplying the number of shares that have not vested by the closing price of common stock on the NYSE on September 30, 20192021 of $14.90$17.25 per share. |
| Represents performance shares awarded in fiscal 2017 for a three-year award cycle (fiscal 2017 through fiscal 2019). The performance shares shown are based on actual performance and represent the award target. Shares earned in excess of award target were paid in cash. As a result, Messrs. Merrill and Salomon received cash payments of $1,048,638 and $428,192, respectively. See “Compensation Discussion and Analysis — Elements of Fiscal 2019 Compensation Program — Long-Term Incentive Compensation — Performance Shares” above. These performance shares vested in November 2019. For more information regarding these performance shares, see pages 28-30 of the Company’s proxy statement for the 2018 annual meeting of stockholders filed with the SEC on December 15, 2017. |
| Represents performance shares awarded in fiscal 2018 for a three-year award cycle (fiscal 2018 through fiscal 2020). The performance shares shown assume target performance for the award cycle. For more information regarding these performance shares, see pages 25-27 of the Company’s proxy statement for its 2018 annual meeting of stockholders filed with the SEC on December 21, 2018. |
| Represents performance shares awarded in fiscal 2019 for a three-year award cycle (fiscal 2019 through fiscal 2021). The performance shares shown are based on actual performance. See “Compensation Discussion and Analysis — Elements of Fiscal 2021 Compensation Program — Long-Term Incentive Compensation — Performance Shares” above. These performance shares vested in November 2021. For more information regarding these performance shares, see pages 32-33 of the Company’s proxy statement for the 2020 annual meeting of stockholders filed with the SEC on December 20, 2019. |
| Represents performance shares awarded in fiscal 2020 for a three-year award cycle (fiscal 2020 through fiscal 2022). The performance shares shown assume target performance for the award cycle. For more information regarding these performance shares, see pages 40-41 of the Company’s proxy statement for its 2021 annual meeting of stockholders filed with the SEC on December 18, 2020. |
| Represents performance shares awarded in fiscal 2021 for a three-year award cycle (fiscal 2021 through fiscal 2023). The performance shares shown assume target performance for the award cycle. See “Compensation Discussion and Analysis — Elements of Fiscal 20192021 Compensation Program — Long-Term Incentive Compensation — Performance Measures for 2019-2021 Performance Shares”2021-2023 Award Cycle” above. |
OPTION EXERCISES AND STOCK VESTED TABLE
The table below provides supplemental information relating to the value realized upon the exercise of stock options and upon the vesting of restricted stock during fiscal 20192021 for each NEO.
| | | STOCK AWARDS | | | STOCK AWARDS |
| NAME | NAME | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED UPON
VESTING ($) | NAME | NUMBER OF SHARES ACQUIRED ON VESTING (#) | VALUE REALIZED UPON
VESTING ($) |
| Allan P. Merrill | Allan P. Merrill | 200,491 | | 2,100,887 | | Allan P. Merrill | 204,512 | 2,982,133 |
| David I. Goldberg | | David I. Goldberg | 10,733 | 151,779 |
| Keith L. Belknap | | Keith L. Belknap | 44,510 | 628,993 |
| Robert L. Salomon | Robert L. Salomon | 80,774 | | 846,668 | | Robert L. Salomon | 76,354 | 1,186,047 |
| Keith L. Belknap | 3,132 | | 36,363 | | |
NON-QUALIFIED DEFERRED COMPENSATION TABLE
The table below provides supplemental information relating to compensation deferred during fiscal 20192021 under the terms of the Beazer Homes Deferred Compensation.
| | | | | | | | | | | | | | | | | |
| NAME | EXECUTIVE
CONTRIBUTIONS
IN LAST FY ($) | COMPANY
CONTRIBUTIONS
IN LAST FY ($) | AGGREGATE EARNINGS/ (LOSSES) IN LAST FY ($) (1) | AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($) | AGGREGATE BALANCE AT LAST FYE ($) (2) |
Allan P. Merrill | 0 | | 100,000 | | 47,179 | | 0 | | 1,550,213 | |
| Robert L. Salomon | 0 | | 75,000 | | 20,762 | | 0 | | 654,405 | |
| Keith L. Belknap | 0 | | 50,000 | | 4,611 | | 0 | | 91,648 | |
| | | | | | | | | | | | | | | | | |
| NAME | EXECUTIVE
CONTRIBUTIONS
IN LAST FY ($) | COMPANY
CONTRIBUTIONS
IN LAST FY ($) | AGGREGATE EARNINGS/ (LOSSES) IN LAST FY ($) (1) | AGGREGATE
WITHDRAWALS/
DISTRIBUTIONS
($) | AGGREGATE BALANCE AT LAST FYE ($) (2) |
Allan P. Merrill | 0 | 100,000 | 413,914 | 0 | 2,359,095 |
| David I. Goldberg | 0 | 40,385 | 923 | 0 | 41,308 |
| Keith L. Belknap | 0 | 50,000 | 21,849 | 0 | 223,987 |
| Robert L. Salomon | 0 | 14,423 | 135,899 | 0 | 991,252 |
| | | | | |
| Represents amounts of earnings on the balance of the participants’ accounts that are attributable to the performance of independently managed funds available to and selected by each participant under the Deferred Plan and in which deferred amounts are deemed to be invested. None of the earnings in this column are included in the “Summary Compensation Table” above because they were not preferential or above-market. |
| Aggregate balances include unvested amounts of Company contributions. |
Narrative Disclosure to Non-Qualified Deferred Compensation Table
Under the Deferred Plan, participants select from a menu of investment options which track a variety of independently managed benchmark funds in which the funds are deemed to be invested. The return on the underlying investments determines the amount of earnings and losses that are credited or debited to the participants’ account. There is no guaranteed rate of return on these funds and the rate of return depends on the participants’ deemed investment option elections and on the market performance of the underlying funds. Deferred amounts and Company contributions are deposited in a trust that qualifies as a grantor trust under the Internal Revenue Code. Our obligations under the Deferred Plan are unsecured general obligations and rank equally with our other unsecured general creditors. Amounts deferred by participants and earnings and losses thereon are 100% vested.
POTENTIAL PAYMENTS UPON TERMINATION OR
CHANGE OF CONTROL
SEVERANCE AND CHANGE INOF CONTROL AGREEMENTS
We have entered into severance and change inof control agreements with each of our named executive officers. TheseNEOs. As noted above, Mr. Salomon retired as Chief Financial Officer effective November 20, 2020. Though he remained employed by the Company in a non-executive capacity and his employment continued through November 20, 2021, as of November 20, 2020, the severance and “change of control” provisions described below were no longer applicable to Mr. Salomon.
The agreements set forth each executive’s then current base salary, eligibility to receive awards pursuant to short-term and long-term incentive compensation programs, deferred compensation and severance payments, all of which are described in greater detail below. The agreements are substantially identical in non-economic terms and set forth each executive’s non-competition and non-solicitation, confidentiality and intellectual property obligations. Base salaries, performance metrics and actual target opportunities for any given year remain within the discretion of the Company’s Compensation Committee.
The agreements provide for a lump sum severance payment in the event of a “change of control” of the Company followed by a termination of the executive without “cause” or a resignation by the executive for “good reason” within two years of the change of control. In such event, the severance payment for Mr. Merrill would be three times the sum of his then current base salary and annual cash incentive bonus target for the fiscal year in which the termination occurs, and, in the case of Messrs. SalomonGoldberg and Belknap, the severance payments would be two times the sum of the executive’s then current base salary and target annual incentive bonus for the fiscal year in which the termination occurs, in each case payable in a lump sum.
Where there is no “changechange of control,” in the event of a termination of the executive without “cause” or a resignation by the executive for “good reason,” such executive would receive a severance payment. The severance payment for Mr. Merrill in this situation would be (1) two times the sum of his then current base salary and target annual incentive bonus for the fiscal year in which the termination occurs, payable in equal installments over twelve months, and (2) a pro rata annual incentive bonus for the fiscal year in which the termination occurs calculated based on actual performance for the year, payable at the same time bonuses are paid to other executives. For Messrs. SalomonGoldberg and Belknap, the severance payment would be (1) one and one-fourth times the sum of the executive’s then current base salary and target annual incentive bonus for the fiscal year in which termination occurs, payable in equal installments over twelve months, and (2) a pro rata annual incentive bonus for the fiscal year in which the termination occurs calculated based on actual performance for the year, payable at the same time bonuses are paid to other executives. No severance will be payable in the event the executive is terminated for “cause” or the executive resigns without “good reason.”
The agreements do not entitle the executives to any extension or continuation of employee benefits after termination, except in the event the executive is entitled to receive severance pay, in which case the executive may receive up to twelve months of coverage under the group health, dental and vision plans the executive participated in prior to termination. In addition, there is no provision to “gross up” any payment to account for taxes for which the executive may be liable. Under the agreements, any incentive compensation that is paid or granted to the executives will be subject to recoupment under the terms of the Company’s “clawback” policy.
DISPOSITION OF OUTSTANDING EQUITY AWARDS
The severance and change inof control agreements with each of our named executive officersNEOs also govern the disposition of outstanding equity awards issued under our 2014 Long-Term Incentive Plan in the event the executive’s employment is terminated under various scenarios or in the event there is a change inof control of the Company.
Termination of Employment by the Company with Cause or Resignation by Executive
Pursuant to the severance agreements, equity grants under our 2014 Long-Term Incentive Plan provide that all unvested awards will be forfeited in the event the executive is terminated by the Company for “cause” or the executive voluntarily resigns and the resignation is not within two years after of a change inof control of the Company.
Termination of Employment by the Company without “Cause,” by Executive for Good Reason or Retirement
If the executive’s employment is terminated by the Company without cause, the executive resigns for “good reason,” or the executive retires, unvested equity grants under our 2014 Long-Term Incentive Plan will generally vest as follows:
• awards that vest solely on a time basis will vest pro rata based on the number of months the executive was employed during the applicable vesting period; and
• awards that vest based on the Company’s performance will vest pro rata based on the Company’s performance during the applicable performance period and the number of months the executive was employed during such period.
Death or Disability
If the executive’s employment is terminated due to death or disability, all unvested equity grants under our 2014 Long-Term Incentive Plan will fully vest.
Change of Control
In the event of an anticipated change inof control of the Company, the Company’s Compensation Committee has the authority to determine that awards granted under our 2014 Long-Term Incentive Plan:
• will be continued by the Company (if the Company is the surviving entity);
• will be assumed by the surviving entity or its parent or subsidiary; or
• will be substituted for by the surviving entity or its parent or subsidiary with an equivalent award for the outstanding award.
If an award is continued, assumed or substituted upon a change inof control, such award will generally provide similar terms and conditions and preserve the same benefits as the outstanding award that is being continued or replaced, and, in the event executive’s employment is terminated without cause or the executive terminates his employment for good reason within two years following the change inof control, the unvested outstanding award (or assumed or substituted award) will fully vest. Awards that are not continued, assumed or substituted upon a change of control will fully vest, subject to the Compensation Committee's discretion.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL TABLE
The table below summarizes the compensation payable to each NEO in the event of termination of employment. The amount of compensation payable to each NEO in each situation is listed, assuming termination had occurred on the last day of our most recent fiscal year, September 30, 2019.2021. All equity awards have been valued as of September 30, 2019,2021, the last trading day in the fiscal year.
| | | | | | | | | | | | | | |
| | TYPE OF TERMINATION | | |
| NAME | PAYMENT OR BENEFIT TYPE | TERMINATION
FOLLOWING
CHANGE OF
CONTROL WITHOUT CAUSE ($) | DEATH OR
DISABILITY ($) | WITHOUT CAUSE OR FOR GOOD REASON ($) |
| Allan P. Merrill | Severance | 7,125,000 | | — | | 5,878,332 | |
| Vesting of Unvested Long-Term Awards | 8,253,557 | | 8,279,957 | | 4,350,683 | |
| Benefits Continuation | 17,405 | | — | | 17,405 | |
| Total | 15,395,962 | | 8,279,957 | | 10,246,420 | |
| Robert L. Salomon | Severance | 2,700,000 | | — | | 2,217,781 | |
| Vesting of Unvested Long-Term Awards | 3,294,911 | | 3,294,911 | | 1,701,248 | |
| Benefits Continuation | 13,907 | | — | | 13,907 | |
| Total | 6,008,818 | | 3,294,911 | | 3,932,936 | |
| Keith L. Belknap | Severance | 2,000,000 | | — | | 1,645,906 | |
| Vesting of Unvested Long-Term Awards | 1,511,397 | | 1,511,397 | | 1,036,121 | |
| Benefits Continuation | 18,270 | | — | | 18,270 | |
| Total | 3,529,667 | | 1,511,397 | | 2,700,297 | |
| | | | | | | | | | | | | | |
| | TYPE OF TERMINATION |
| NAME | PAYMENT OR BENEFIT TYPE | TERMINATION
FOLLOWING
CHANGE OF
CONTROL WITHOUT CAUSE ($) | DEATH OR
DISABILITY ($) | WITHOUT CAUSE OR FOR GOOD REASON ($) |
| Allan P. Merrill | Severance | 7,531,875 | — | 7,829,929 |
| Vesting of Unvested Long-Term Awards | 11,150,393 | 11,188,543 | 6,864,861 |
| Benefits Continuation | 18,167 | — | 18,167 |
| Total | 18,700,435 | 11,188,543 | 14,712,957 |
| David I. Goldberg | Severance | 1,615,000 | — | 1,708,973 |
| Vesting of Unvested Long-Term Awards | 1,253,114 | 1,253,114 | 660,526 |
| Benefits Continuation | — | — | — |
| Total | 2,868,114 | 1,253,114 | 2,369,499 |
| Keith L. Belknap | Severance | 2,295,000 | — | 2,545,501 |
| Vesting of Unvested Long-Term Awards | 3,271,606 | 3,271,606 | 1,996,639 |
| Benefits Continuation | 16,748 | — | 16,748 |
| Total | 5,583,354 | 3,271,606 | 4,558,888 |
PAY RATIO
The following is a reasonable estimate, prepared under applicable SEC rules, of the ratio of the annual total compensation of our Chief Executive Officer to the annual total compensation of our median employee.
We identified the median employee using the employee population on September 30, 20192021 that received taxable compensation (other than our Chief Executive Officer) for the fiscal year 2019 ,2021, which included our reviewing gross compensation, excluding equity, within the fiscal year 2019.2021. Compensation was annualized for employees who joined the Company during the fiscal year. The annual total compensation of our median employee (other than the Chief Executive Officer) for the fiscal year 20192021 was $101,513.$99,020. As disclosed in the Summary Compensation Table above, our Chief Executive Officer’s annual total compensation for fiscal 20192021 was $5,190,140.$5,515,019. For purposes of determining the ratio, the annual total compensation of the CEO and the median employee includes the dollar value of non-discriminatory health and welfare benefit contributions made by the Company, which are not required to be reported as compensation in the Summary Compensation Table. Based on the foregoing, our estimate of the ratio of the annual total compensation of our CEO to the annual total compensation of our median employee was 51:54:1.
For fiscal 2019,2021, long-term equity-based compensation comprised 58%30% of our CEO’s compensation, the ultimate value of which is related directly to company and common stock performance. As a result of this emphasis on equity and stockholder alignment, the CEO pay ratio is 22:38:1 when utilizing a methodology for determining the median employee that excludes equity.
This information is being provided for compliance purposes. Because SEC rules permit significant flexibility in terms of approaches used to calculate compensation and identify the median employee, comparisons of pay ratios among companies may not be very meaningful, even for companies within the same industry. Neither the Compensation Committee nor the executives of our Company used the pay ratio measure in making compensation decisions.
PROPOSAL 4 –
APPROVAL OF AMENDED AND RESTATED
2014 LONG-TERM INCENTIVE PLAN
BACKGROUND
On February 6, 2014, our stockholders approved the Company’s 2014 Long-Term Incentive Plan (as amended, the “2014 Plan”) and authorized issuance of 2,000,000 shares under the 2014 Plan. On February 3, 2017, our stockholders approved an amendment to the 2014 Plan, which, among other things, authorized the issuance of an additional 1,850,000 shares. As of December 11, 2019, only 622,975 shares remain available for future issuance under the 2014 Plan (the “Remaining Shares”), which will not be sufficient to fund grants at competitive levels for fiscal year 2021 and beyond. On November 6, 2019, our Board approved the Amended and Restated 2014 Long-Term Incentive Plan (the “Amended 2014 Plan”), subject to approval by our stockholders at the Annual Meeting, and is now asking our stockholders to approve the Amended 2014 Plan. The Amended 2014 Plan would amend and restate the 2014 Plan as follows:
•Increase the number of shares available under the 2014 Plan from 3,850,000 to 5,550,000.
•In addition to retaining individual participant award limits, limit the maximum value of equity awards that may be granted to any non-employee director during any fiscal year to $350,000.
•Extend the term of the 2014 Plan to 10 years from the date of the Annual Meeting.
•Added a requirement that all awards are subject to a minimum one-year vesting period, except for vesting due to death, disability or awards that, in the aggregate, do not exceed five percent (5%) of the total number of shares available under the 2014 Plan.
•Clarified that dividends or dividend equivalents will not be paid until the underlying award becomes vested.
•Update the share withholding rules to be consistent with revised accounting rules.
•Make certain other conforming changes consistent with the foregoing.
All other terms of the 2014 Plan will remain in effect.
Selected Data as of December 11, 2019
Set forth below is information regarding awards currently outstanding under the 2014 Plan and the 2010 Equity Incentive Plan (the "2010 Plan"), which are the Company's only outstanding equity incentive plans. The Company made annual award grants to employees and non-employee directors in November 2019, and those awards are included in the data below. The 2010 Plan expires on February 3, 2020 and no additional awards will be granted under that plan.
| | | | | |
Stock options outstanding | 400,287 | |
Weighted average exercise price | $15.35 | |
Weighted average remaining contractual life | 2.75 |
Restricted shares outstanding | 634,586 | |
Performance shares outstanding | 796,024 | |
Shares remaining for grant under the 2014 Plan | 622,975 | |
Shares remaining for grant under the 2010 Plan | 160 |
Common stock outstanding | 31,383,048 |
Purpose of the Amended 2014 Plan and Why You Should Vote to Approve It
The objectives of the Amended 2014 Plan are to (1) attract and retain employees, non-employee directors, consultants, advisors and other persons who perform services for the Company by providing compensation opportunities that are competitive with other companies; (2) provide incentives to those individuals who contribute significantly to the long-term performance and growth of the Company and its affiliates; and (3) align the long-term financial interests of employees and other individuals who are eligible to participate in the Amended 2014 Plan with those of stockholders and reinforce key strategic objectives in support of long-term value creation.
The Amended 2014 Plan authorizes the Compensation Committee to provide equity-based compensation in the form of stock options, SARs, restricted stock, restricted stock units (“RSUs”), performance shares, performance units, other stock-based awards and long-term incentive compensation awards for the purpose of providing our officers and other employees, and those of our subsidiaries, and non-employees who provide services to the Company, incentives and rewards for performance. In conjunction with independent compensation consultants we have designed the Amended 2014 Plan to reflect our commitment to effective management of equity-based incentive compensation. We have designed the Amended 2014 Plan to ensure that it implements best practices in long-term compensation plan design, and that we continue to operate the plan in an effective manner. The details of the key design elements of the Amended 2014 Plan are set forth in the section entitled “—Plan Summary” below.
The use of our stock as part of our compensation program is important to our continued success because we believe it fosters a pay-for-performance culture that is an important element of our overall compensation philosophy. Equity-based compensation aligns the compensation interests of our employees with the interests of our stockholders and promotes a focus on long-term value creation because our equity-based compensation awards can be subject to time-based vesting and/or performance criteria.
As further described in the section entitled “Compensation Discussion and Analysis” beginning on page 20 of this Proxy Statement, we believe our future success depends in large part on our ability to attract, motivate and retain high quality employees. Our ability to provide awards under our long-term compensation plans is critical to achieving this success. As described above, the number of shares remaining available for future grants under the Amended 2014 Plan is very limited. If the Amended 2014 Plan is not approved, we would be at a severe competitive disadvantage as we would not be able to use equity-based awards to recruit and compensate our officers and other employees. In such a circumstance, the Company could be faced with losing key talent or using cash incentives.
If the Amended 2014 Plan is approved, we intend to utilize the shares authorized to continue our practice of incentivizing key individuals through annual equity-based grants. We expect that the authorized share request will allow us to continue to grant long-term incentives for the next three years, subject to future stock prices and participation levels. We believe that we have demonstrated a commitment to sound equity compensation practices in recent years. We recognize that equity-based compensation awards dilute shareholder equity, so we have carefully managed our equity-based incentive compensation. Our equity-based compensation practices are targeted to be competitive and consistent with market practices, and we believe our historical share usage has been responsible and mindful of stockholder interests, as described above.
In evaluating this proposal, stockholders should specifically consider the information set forth under the section entitled “—Plan Summary” below.
Plan Summary
The following summary of the material terms of the Amended 2014 Plan is qualified in its entirety by reference to the full text of the Amended 2014 Plan, which is attached as Appendix I to this Proxy Statement.
The Amended 2014 Plan is not a tax-qualified deferred compensation plan under Section 401(a) of the Code, and is not intended to be an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974.
Administration of the Amended 2014 Plan. The Amended 2014 Plan will continue to be administered by the Compensation Committee or such other committee consisting of two or more members as may be appointed by the Board (in each case, the “Committee”). The Committee will determine the individuals to whom awards will be granted, the
number of shares subject to an award, and the other terms and conditions of an award. So long as our shares are traded on the NYSE, all of the members of the Committee must be independent directors within the meaning of the listing standards of the NYSE relating to corporate governance matters. If any member of the Committee does not qualify as a “non-employee director” within the meaning of Rule 16b-3 of the Exchange Act, the Board will appoint a subcommittee of the Committee, consisting of at least two members of the Board who qualify as “non-employee directors”, to grant awards to officers and members of the Board who are subject to Section 16 of the Exchange Act (“Insiders”). References to the Committee in this summary include and, as appropriate, apply to any such subcommittee.
Subject to the express provisions of the Amended 2014 Plan, the Committee is authorized and empowered to do all things that the Committee in its discretion determines to be necessary or appropriate in connection with the administration and operation of the Amended 2014 Plan. The Committee may delegate its authority to one or more of its members (but not less than two members with respect to Insiders). To the extent permitted by law and applicable stock exchange rules, the Committee may also delegate its authority to one or more persons who are not members of the Board, except that no such delegation will be permitted with respect to Insiders.
Eligible Participants. Employees of the Company or certain affiliates, non-employee members of the Board, and any other individual who provides bona fide services to the Company or certain affiliates not in connection with the offer or sale of securities in a capital raising transaction (subject to certain limitations) are eligible for selection by the Committee for the grant of awards under the Amended 2014 Plan. While all employees of the Company are potentially eligible to receive awards under the Amended 2014 Plan, the Company has historically granted awards under its long-term incentive plans to a more limited group of approximately 55 employees and non-employee directors.
Types of Awards. The Amended 2014 Plan provides for the grant of non-qualified stock options (“NQSOs”), incentive stock options (“ISOs”), SARs, restricted stock, RSUs, performance shares, performance units, other stock-based awards and long-term incentive compensation awards to eligible participants. ISOs may only be granted to employees of the Company or its subsidiaries.
Minimum Vesting Requirements. No award may be subject to a vesting period of less than one year from the date of grant, except in the case of death or disability of the participant and, if the Amended 2014 Plan is approved, with respect to awards which in the aggregate do not exceed five percent (5%) of the total number of shares available under the Amended 2014 Plan.
Award Pool. The number of shares that will be available for issuance pursuant to awards granted under the Amended 2014 Plan is 5,550,000 shares, which includes the Remaining Shares (the “Award Pool”), subject to adjustment as described in the 2014 Plan. In determining the number of shares to request for the Amended 2014 Plan, the Committee worked with Pearl Meyer, the Committee’s independent compensation consultant, to evaluate our recent share usage, our share availability under prior long term incentive plans, our historical burn rate under the 2014 Plan, the potential cost to stockholders of the new share request under Amended 2014 Plan, and the overhang cost associated with outstanding equity-based awards that we granted previously. The shares issued by the Company under the Amended 2014 Plan will be authorized but unissued shares or shares currently held (or subsequently acquired) as treasury shares, including shares purchased on the open market or in private transactions.
Each NQSO, ISO, and SAR that may be settled in shares will be counted as one share and deducted from the Award Pool. SARs that may not be settled in shares will not result in a reduction of the Award Pool.
Each share of restricted stock, each share-settled RSU, and each other stock-based/stock-settled award will be counted as one share and deducted from the Award Pool (restricted stock units and other stock-based awards that may not be settled in shares will not result in a deduction from the Award Pool).
Each performance share that may be settled in shares will be counted as one share (based on the number of shares that would be paid for achievement of target performance) and deducted from the Award Pool. A performance unit that may be settled in shares will be counted as a number of shares (based on the number of shares that would be paid for achievement of target performance), with the number determined by dividing the value of the performance unit at the time of grant by the fair market value of a share at the time of grant (the closing price of a share of the Company on the NYSE on the immediately preceding trading day), and the resulting number of shares will be deducted from the Award Pool. If a performance share or performance unit is later settled based on above-target performance, the actual number of shares
corresponding to the above-target performance, calculated pursuant to the applicable methodology specified above, will be deducted from the Award Pool at the time of settlement; in the event that the Award is later settled based upon below-target performance, the actual number of shares corresponding to the below-target performance, calculated pursuant to the applicable methodology specified above, will be added back to the Award Pool. Performance shares and units that may not be settled in shares will not result in a reduction in the Award Pool. If shares awarded or subject to issuance under the Amended 2014 Plan are not issued, or are reacquired by the Company, for reasons including, but not limited to, a forfeiture of restricted stock or an RSU or the termination, expiration or cancellation of an NQSO, ISO, SAR, performance share or performance unit or the settlement of an award in cash in lieu of shares, that number of shares will be added back to the Award Pool.
Limitation on Share Recycling. The Amended 2014 Plan provides that if the tax withholding obligation, exercise price or purchase price under an award is satisfied by the Company retaining shares that otherwise would have been issued in settlement of the award or by shares tendered by the participant, the number of shares so retained or tendered will not be added back to the Award Pool. In addition, any shares that are purchased by the Company with proceeds from the exercise of an award shall not be added back to the Award Pool.
Individual Limits. Subject to adjustment as described in the Amended 2014 Plan, the maximum number of NQSOs, ISOs, and SARs that, in the aggregate, may be granted pursuant to awards in any one fiscal year to any one participant is 750,000, the maximum number of shares of restricted stock and RSUs that, in the aggregate, may be granted pursuant to awards in any one fiscal year to any one participant is 250,000 shares and units, the maximum number of performance units (valued as of the grant date) that, in the aggregate, may be granted pursuant to awards in any one fiscal year to any one participant is 500,000 shares (to the extent settled in shares) or $3,000,000 (to the extent settled in cash), the maximum number of performance shares and other stock-based awards that, in the aggregate, may be granted pursuant to awards in any one fiscal year to any one participant is 500,000, and the maximum long-term incentive compensation awards that, in the aggregate, may be granted pursuant to awards in any one fiscal year to any one participant is $3,000,000. In addition, if the Amended 2014 Plan is approved, the maximum fair value of equity awards that, in the aggregate, may be granted in any one fiscal year to any one non-employee director is $350,000. The limitations on performance shares, performance units and other awards will be applied based on the maximum amount that could be paid under each such award.
Adjustments. The Committee will make equitable adjustments in the number and class of securities available for issuance under the Amended 2014 Plan (including under any awards then outstanding), the number and type of securities subject to the individual limits set forth in the Amended 2014 Plan, and the terms of any outstanding award, as it determines are necessary and appropriate, to reflect any merger, reorganization, consolidation, recapitalization, reclassification, stock split, reverse stock split, spin-off combination, or exchange of shares, distribution to stockholders (other than an ordinary cash dividend), or similar corporate transactions or events.
Stock Options. A stock option provides the participant with the right to buy a specified number of shares at a specified price (“exercise price”) after certain conditions have been met. The Committee may grant both NQSOs and ISOs under the Amended 2014 Plan. The tax treatment of NQSOs is different from the tax treatment of ISOs, as explained in the section below entitled “—Certain Federal Income Tax Consequences.” The Committee will determine and specify in the award agreement whether the option is an NQSO or ISO, the number of shares subject to the option, the exercise price of the option and the period of time during which the option may be exercised (including the impact of a termination of employment). A participant receiving options will not possess voting rights and will accrue dividend equivalents on options only to the extent provided in the agreement relating to the award. Any rights to dividend equivalents on options will be subject to the same restrictions on vesting and payment as the underlying award. No option can be exercisable more than ten years after the date of grant and the exercise price of a stock option must be at least equal to the fair market value of a share on the date of grant of the option.
A participant may pay the exercise price under an option in cash; in a cash equivalent approved by the Committee; if approved by the Committee, by tendering previously-acquired shares (or delivering a certification or attestation of ownership of such shares) having an aggregate fair market value at the time of exercise equal to the total option price (provided that the tendered shares must have been held by the participant for any period required by the Committee); or by a combination of these payment methods. The Committee may also allow cashless exercises as permitted under the Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the
Committee determines to be consistent with the Amended 2014 Plan’s purpose and applicable law. No certificate representing a share (to the extent shares are so evidenced) will be delivered until the full option price has been paid.
Stock Appreciation Rights (SARs). A SAR entitles the participant to receive cash, shares, a combination thereof, or such other consideration as the Committee may determine, in an amount equal to the excess of the fair market value of a share on the exercise date over the grant price for the SAR, after certain conditions have been met. The Committee will determine and specify in the SAR award agreement the number of shares subject to the SAR, the grant price, which generally must be at least equal to the fair market value of a share on the date of grant of the SAR, and the period of time during which the SAR may be exercised (including the impact of a termination of employment). A participant receiving SARs will not possess voting rights and will accrue dividend equivalents on SARs only to the extent provided in the agreement relating to the award. Any rights to dividend equivalents on SARs will be subject to the same restrictions on vesting and payment as the underlying award. No SAR can be exercisable more than ten years after the date of grant. SARs may be granted in tandem with a stock option or independently. If a SAR is granted in tandem with a stock option, the participant may exercise the stock option or the SAR, but not both.
Restricted Stock and Restricted Stock Units (RSUs). The Committee will specify the terms of a restricted stock or RSU award in the award agreement, including the number of shares of restricted stock or units; the purchase price, if any, to be paid for such restricted stock/unit, which may be more than, equal to, or less than the fair market value of a share and may be zero; any restrictions applicable to the restricted stock/unit such as continued service or achievement of performance goals; subject to the minimum vesting requirements, the length of the restriction period and whether any circumstances, such as death or disability, shorten or terminate the restriction period; the rights of the participant during the restriction period to vote and receive dividends in the case of restricted stock or to receive dividend equivalents in the case of RSUs that accrue dividend equivalents; and whether restricted stock units will be settled in cash, shares or a combination of both. Any rights to dividends or dividend equivalents will be subject to the same restrictions on vesting and payment as the underlying award.
Performance Shares and Performance Units. A performance share will have an initial value equal to the fair market value of a share on the date of grant. A performance unit will have an initial value that is established by the Committee at the time of grant. In addition to any non-performance terms applicable to the performance share or performance unit, the Committee will set performance goals which, depending on the extent to which they are met, will determine the number or value of the performance shares or units that will be paid out to the participant. The Committee may provide for payment of earned performance shares/units in cash or in shares or in the form of other awards granted under the Amended 2014 Plan which have a fair market value equal to the value of the earned performance shares/units at the close of the applicable performance period.
Performance shares/units will not possess voting rights and will accrue dividend equivalents only to the extent provided in the agreement relating to the award; provided, however, that rights to dividend equivalents are permitted only to the extent they comply with, or are exempt from, Section 409A of the Code (“Section 409A”). Any rights to dividend equivalents will be subject to the same restrictions on vesting and payment as the underlying award.
Long-Term Incentive Compensation Awards. The Committee will have the authority to grant long-term performance-based incentive compensation awards. Any such long-term incentive compensation award must relate to a period of more than one fiscal year of the Company. The Committee will determine all terms and conditions of such awards, including the performance measures (as described below), the performance period, the potential amount payable, and the timing of the payment. The long-term incentive compensation awards will be payable in cash and the Committee may provide participants with the right to defer all or part of any award.
Performance Measures. The Committee may select performance measures for awards from among the following: earnings, earnings per share, consolidated pre-tax earnings, net earnings, net income, operating income, earnings before interest and taxes (“EBIT”), earnings before interest, taxes, depreciation and amortization (“EBITDA”), gross margin, operating margin, profit margin, revenues, revenue growth, market value added, market share, economic value added, return measures (including but not limited to return on equity, return on investment, return on assets, return on net assets, and return on capital employed), total stockholder return, relative total stockholder return, profit, operating profit, economic profit, capitalized economic profit, after-tax profit, pre-tax profit, cash, cash flow measures (including but not limited to operating cash flow, free cash flow and cash flow return), sales, sales volume, sales growth, sales velocity, assets, inventory turnover ratio, productivity ratios, share price, cost, unit cost, expense ratios, charge-off levels, operating
efficiency, operating expenses, improvement in or attainment of expense levels, working capital, improvement in or attainment of working capital levels, debt, debt to equity ratio, debt reduction, capital targets, consummation of acquisitions, dispositions, projects or other specific events or transactions and/or such other metrics as may be approved by the Committee from time to time. Any performance measure may be applied to the Company and certain affiliates in the aggregate, to a selection of or one or more of these entities, to each as a whole or alternatively, or to any business unit of the Company or any other entity included in the term “Employer,” either individually, alternatively or in any combination and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to results for previous years or to a designated comparison group of entities or to a published or stock market or other index, in each case as specified by the Committee. The Committee will specify the period over which the performance goals for a particular award will be measured.
The Committee will determine whether the applicable performance goals have been met with respect to a particular award and, if they have, the Committee must so certify in writing and ascertain the amount payable under the award. The Committee is authorized to make adjustments in performance-based criteria or in the terms and conditions of other awards in recognition of unusual or nonrecurring events affecting the Company or its financial statements (including, but not limited to, asset write-downs; litigation or claim judgments or settlements; reorganizations or restructuring programs; extraordinary, unusual, or nonrecurring items of gain or loss as defined under U.S. generally accepted accounting principles; mergers, acquisitions or divestitures; and foreign exchange gains and losses) or changes in applicable laws, regulations or accounting principles. The adjustments must be made in accordance with guidelines established by the Committee at the time the performance-based award is granted. The Committee also has discretion to adjust downward the determination of the degree of attainment of the pre-established performance goals.
Other Stock-Based Awards. The Committee may grant other forms of equity-based or equity-related awards that the Committee determines to be consistent with the purpose of the Amended 2014 Plan and the interests of the Company. These other awards may provide for cash payments based in whole or in part on the value or future value of shares, for the acquisition or future acquisition of shares, or any combination thereof. Where the value of such an award is based on the difference in the value of a share at different points in time, the grant or exercise price must generally not be less than 100% of the fair market value of a share on the date of grant. A participant receiving these other awards will not possess voting rights and will accrue dividend equivalents on these other awards only to the extent provided in the agreement relating to the award. Any rights to dividend equivalents on these other awards will be subject to the same restrictions on vesting and payment as the underlying award.
Change in Control. Unless otherwise provided in an employment, change in control or similar agreement with the Company that provides for the effect of a Change in Control of the Company (as defined in the Amended 2014 Plan) on outstanding awards granted under the Amended 2014 Plan (each, an “Outstanding Award”), the individual award agreement may provide (in addition to other provisions) that upon a Change in Control the Committee shall have the authority to determine that Outstanding Awards: (a) will be continued by the Company (if the Company is the surviving entity); or (b) will be assumed by the surviving entity or its parent or subsidiary; or (c) will be substituted for by the surviving entity or its parent or subsidiary with an equivalent award for the Outstanding Award.
The Amended 2014 Plan further provides that, if an Outstanding Award is not continued, assumed or substituted upon a Change in Control, the agreement may provide that the Committee will in its discretion determine the impact of the Change in Control on the Outstanding Award, including the right to determine to fully vest Outstanding Awards that are not continued, assumed or substituted and to cash out Outstanding Awards.
The determinations by the Committee may be different with respect to (i) the type of Outstanding Award, (ii) the date on which the Outstanding Award was granted, or (iii) the participant’s employment position.
If an Outstanding Award is continued, assumed or substituted upon a Change in Control, the continued, assumed or substituted award will provide (i) similar terms and conditions and preserve the same benefits as the Outstanding Award that is being continued or replaced, and (ii) that, in the event of the participant’s involuntary termination without Cause (as defined in the Amended 2014 Plan) or termination for Good Reason (as defined in the Amended 2014 Plan) on, or within the two-year period following, the date of the Change in Control, the Outstanding Award (or substituted award) will fully vest and become immediately exercisable and/or nonforfeitable.
Under the Amended 2014 Plan, the award agreement may contain such other provisions relating to the treatment of Outstanding Awards upon a Change in Control as the Committee determines are necessary or desirable.
The Committee has determined that the agreements governing future equity awards to our NEOs under the Amended 2014 Plan will generally include provisions requiring that the NEO’s employment be terminated without Cause or for Good Reason after the Change in Control for the NEO’s unvested Outstanding Awards to fully vest (a “double-trigger” provision).
Clawback Policies. Awards under the Amended 2014 Plan, as well as any future awards under the 2010 Equity Incentive Plan, are subject to any policy (a “clawback policy”) of recoupment or forfeiture of compensation adopted by the Committee from time to time, including clawback policies to comply with Section 954 of the Dodd-Frank Act and Section 304 of the Sarbanes-Oxley Act. The Committee may also provide for recoupment or forfeiture of awards if a participant engages in “detrimental activity” with respect to the Company. For information regarding the Company's existing incentive compensation clawback policy, see “Corporate Governance—Board Corporate Governance Practices—Compensation Clawback Policy.” In addition, the definition of “Cause” as a ground for termination and forfeiture of outstanding awards includes a material violation of the Company’s Code of Business Conduct and Ethics.
Transferability. Awards generally may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated by a participant other than by will or the laws of descent and distribution, and each option or SAR may be exercisable only by the participant during his or her lifetime. However, the Committee may provide in an award agreement for an NQSO that the NQSO be transferable consistent with securities law and other applicable law. NQSOs and SARs may not be transferred for value or consideration.
Amendment and Termination. The Committee may amend or terminate the Amended 2014 Plan in whole or in part at any time, but the amendment or termination cannot adversely affect any rights or obligations with respect to an award previously granted without the affected participant’s written consent. The Company must obtain the approval of the stockholders before amending the Amended 2014 Plan to the extent required by Section 422 of the Code or the rules of the NYSE or other applicable law.
The Committee may amend an outstanding award agreement in a manner not inconsistent with the terms of the Amended 2014 Plan, but the amendment will not be effective without the participant’s written consent if the amendment is adverse to the participant. The Committee cannot reprice a stock option or SAR except in accordance with the adjustment provisions of the Amended 2014 Plan (as described above) or to the extent the stockholders approve the repricing. For this purpose, a repricing generally is an amendment to the terms of an outstanding stock option or SAR that would reduce the option exercise price or SAR price or a cancellation, exchange, substitution, buyout or surrender of an outstanding stock option or SAR in exchange for cash, another award or stock option or SAR with an option exercise price or SAR price that is less than the option exercise price or SAR price of the original stock option or SAR.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is intended only as a brief summary of the federal income tax rules relevant to the primary types of awards available for issuance under the Amended 2014 Plan and is based on the terms of the Code, and the regulations and rulings thereunder, as currently in effect. The applicable statutory provisions are highly technical and subject to change in the future (possibly with retroactive effect), as are their interpretations and applications. The following summary is limited only to United States federal income tax treatment.
Nonqualified Stock Options (NQSOs). A participant is not taxed upon the grant of an NQSO. However, the participant will recognize ordinary income upon exercise of the NQSO in an amount equal to the difference between the NQSO exercise price and the fair market value of the shares acquired on the date of exercise. The Company generally will have a deduction in an amount equal to the amount of ordinary income recognized by the participant in the Company’s tax year during which the participant recognizes ordinary income. Upon the sale of shares acquired pursuant to the exercise of an NQSO, the participant will recognize capital gain or loss to the extent that the amount realized from the sale is different than the fair market value of the shares on the date of exercise. This gain or loss will be long-term capital gain or loss if the shares have been held for more than one year after exercise.
Incentive Stock Options (ISOs). A participant is not taxed on the grant or exercise of an ISO. The difference between the exercise price and the fair market value of the shares covered by the ISO on the exercise date will, however, be a preference item for purposes of the alternative minimum tax. If a participant holds the shares acquired upon exercise of an ISO for at least two years following the ISO grant date and at least one year following exercise, the participant’s gain, if any, upon a subsequent disposition of the shares is long-term capital gain. The amount of the gain is the difference between the proceeds received on disposition and the participant’s basis in the shares (which generally equals the ISO exercise price). If a participant disposes of shares acquired pursuant to exercise of an ISO before satisfying these holding periods, the participant will recognize both ordinary income and capital gain in the year of disposition. The Company is not entitled to a federal income tax deduction on the grant or exercise of an ISO or on the participant’s disposition of the shares after satisfying the holding period requirement described above. If the holding periods are not satisfied, the Company will be entitled to a deduction in the year the participant disposes of the shares in an amount equal to the ordinary income recognized by the participant.
In order for an option to qualify as an ISO for federal income tax purposes, the grant of the option must satisfy various other conditions specified in the Code. In the event an option intended to be an ISO fails to qualify as an ISO, it will be taxed as an NQSO as described above.
Restricted Stock Awards. For restricted stock awards, the participant generally will recognize taxable ordinary income when the substantial risk of forfeiture lapses. If the substantial risk of forfeiture lapses in increments over several years, the participant will recognize income in each year in which the substantial risk of forfeiture lapses as to an increment. The income recognized upon lapse of a substantial risk of forfeiture will be equal to the fair market value of the shares determined as of the time that the substantial risk of forfeiture lapses less any purchase price paid for the shares. The Company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant.
Alternatively, if the shares are subject to a substantial risk of forfeiture, the participant may make a timely election under Section 83(b) of the Code (“Section 83(b)”) to recognize ordinary income for the taxable year in which the participant received the shares in an amount equal to the fair market value of the shares at that time. That income will be taxable at ordinary income tax rates. If a participant makes a timely Section 83(b) election, the participant will not recognize income at the time the substantial risk of forfeiture lapses with respect to the shares. At the time of disposition of the shares, a participant who has made a timely Section 83(b) election will recognize gain taxable at the applicable capital gains rate in an amount equal to the difference between the amount he has previously recognized as ordinary income and the amount received on the disposition of the shares.
Restricted Stock Units (RSUs). A participant generally is not taxed upon the grant of an RSU. Generally, if an RSU is designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, then the participant will recognize ordinary income at that time equal to the amount of cash and the fair market value of the shares received by the participant, and the Company will be entitled to an income tax deduction for the same amount. However, if an RSU is not designed to be paid on or shortly after the RSU is no longer subject to a substantial risk of forfeiture, the RSU may be deemed a nonqualified deferred compensation plan under Section 409A. In that case, the participant will recognize ordinary income at the time he receives the shares and any cash.
Performance Share/Unit Awards; Stock Appreciation Rights (SARs). A participant generally is not taxed upon the grant of a performance share/unit or SAR. The participant will recognize taxable income at the time of settlement of the performance share/unit or at the time of exercise of the SAR in an amount equal to the amount of cash and the fair market value of the shares received upon settlement or exercise. The income recognized will be taxable at ordinary income tax rates. The Company generally will be entitled to a deduction in an amount equal to the amount of ordinary income recognized by the participant. Any gain or loss recognized upon the disposition of the shares acquired pursuant to settlement of a performance share/unit or exercise of a SAR will qualify as long-term capital gain or loss if the shares have been held for more than one year after settlement or exercise.
Long-Term Incentive Compensation Awards. A participant who is paid a long-term incentive compensation award will recognize ordinary income equal to the amount of cash paid, and the Company will be entitled to a corresponding income tax deduction.
GOLDEN PARACHUTE PAYMENTS
The terms of the agreement evidencing an award under the Amended 2014 Plan may provide for accelerated vesting or accelerated payout of the award in connection with a Change in Control of the Company. In such event, certain amounts with respect to the award may be characterized as “parachute payments” under the golden parachute provisions of the Code potentially resulting in adverse tax consequences to the individual and the Company. In such event, the Committee generally has the authority in its discretion to reduce the amount payable with respect to an award.
TAX WITHHOLDING
The Amended 2014 Plan permits the plan administrator to allow for the withholding or surrender of shares in satisfaction of tax withholding with respect to awards with a value up to the maximum individual statutory tax rate in the applicable jurisdiction at the time of such withholding (or such other rate as may be required to avoid the liability classification of the applicable award under U.S. generally accepted accounting principles).
NEW AMENDED 2014 PLAN BENEFITS
No awards have been granted yet under the Amended 2014 Plan. The Committee will grant future awards at its discretion. We cannot determine the number of awards that may be granted in the future but the number will not exceed the amount approved by stockholders.
ADDITIONAL EQUITY COMPENSATION PLAN INFORMATION
The following table details the number of equity grants over the past three fiscal years, including those subject to service-based vesting provisions and those subject to performance-based vesting provisions, as well as performance share vesting activity. We believe that our equity grant levels are well within the bounds of competitive practice versus peers and our significant emphasis on performance share grants to executive officers demonstrates our commitment to pay for performance and long-term value creation.
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| Fiscal Year Ending September 30 | Weighted Average Number of Common Shares Outstanding(1) | Number of Stock Options Granted | Number of Service-Based Restricted Shares Granted | Target Number of Performance Shares Granted(2) | Number of Performance Shares Vested | Total Number of Service-Based Shares Granted Plus Vested Performance Shares |
| 2019 | 30,617,357 | | 30,782 | | 448,657 | | 467,819 | | 321,833 | | 770,490 | |
| 2018 | 32,140,703 | | 25,230 | | 277,165 | | 165,085 | | — | | 277,165 | |
| 2017 | 31,951,989 | | 29,410 | | 271,855 | | 263,696 | | — | | 271,855 | |
| 3-Year Totals | | | 85,422 | | 997,677 | | 896,600 | | 321,833 | | 1,319,510 | |
| 3-Year Average | | 28,474 | | 332,559 | | 298,867 | | 107,278 | | 439,837 | |
(1) Reflects weighted average number of common shares outstanding used to calculate our basic earnings per share as reported in our audited consolidated financial statements.
(2) Target number for the twelve months ending September 30,2019 includes 86,050 shares that were issued above target based on performance level achieved under performance-based vesting
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information about the Company’s shares of common stock that may be issued under our existing equity compensation plans as of September 30, 2019, all of which have been approved by our stockholders:
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| Plan Category | Number of Common Shares to be Issued Upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Common Shares Remaining Available for Future Issuance Under Equity Compensation Plans |
| Equity compensation plans approved by stockholders | 523,754 | | $14.34 | | 1,195,633 | |
REGISTRATION WITH THE SEC
We intend to file an amendment to the Company's current Registration Statement on Form S-8 relating to the issuance of shares of common stock under the Amended 2014 Plan with the SEC pursuant to the Securities Act as soon as practicable after approval of the Amended 2014 Plan by our stockholders.
REQUIRED VOTE
This proposal requires the affirmative vote of a majority of our common stock present in person or by proxy at the Annual Meeting.
RECOMMENDATION
The Board of Directors recommends a vote FOR approval of the Amended and Restated 2014 Long-Term Incentive Plan.
SECURITY
OWNERSHIP
GREATER THAN 5% BENEFICIAL OWNERS
The following table sets forth, to the best of our knowledge and belief, certain information regarding the beneficial ownership of our common stock by each person known to the Company to be the beneficial owner (as defined in Rule 13d-3 of the Exchange Act) of more than 5% of our outstanding common stock, based on the number of shares of our common stock outstanding as of December 11, 2019.
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| NAME AND ADDRESS OF BENEFICIAL OWNER | NUMBER OF COMMON
SHARES BENEFICIALLY OWNED | PERCENT OF OUTSTANDING (1) |
| BlackRock, Inc. (2) 55 East 52nd Street New York, NY 10022 | 2,693,575 | | 8.58% | |
| | |
| Capital World Investors(3) 333 South Hope Street Los Angeles, CA 90071 | 1,659,813 | | 5.29% | |
| | |
| Donald Smith & Co., Inc.(4) 152 West 57th Street New York, NY 10019 | 3,001,447 | | 9.56% | |
| | |
| LSV Asset Management(5) 155 N. Wacker Drive, Suite 4600 Chicago, IL 60606 | 1,687,884 | | 5.38% | |
| | |
| Towle & Co.(6) 1610 Des Peres Road, Suite 250 St. Louis, MO 63131 | 2,426,370 | | 7.73% | |
| | |
| The Vanguard Group(7) 100 Vanguard Blvd. Malvern, PA 19355 | 1,656,114 | | 5.28% | |
8, 2021. | | | | | | | | |
| NAME AND ADDRESS OF BENEFICIAL OWNER | NUMBER OF COMMON
SHARES BENEFICIALLY OWNED | PERCENT OF OUTSTANDING (1) |
| BlackRock, Inc. (2) 55 East 52nd Street New York, NY 10022 | 2,575,656 | 8.20% |
| | |
| Capital World Investors(3) 333 South Hope Street Los Angeles, CA 90071 | 1,659,813 | 5.35% |
| | |
| Donald Smith & Co., Inc.(4) 152 West 57th Street New York, NY 10019 | 2,179,200 | 7.03% |
| | |
The Vanguard Group(5)
100 Vanguard Blvd.
Malvern, PA 19355 | 1,565,424 | 5.01% |
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| Based upon 31,383,04831,459,708 shares of common stock outstanding as of December 11, 2019.8, 2021. Beneficial ownership is determined in accordance with the rules of the SEC under which shares are beneficially owned by the person or entity that holds investment and/or voting power. |
| Based upon information set forth in a Schedule 13G13G/A filed by BlackRock, Inc. on February 4, 2019,January 29, 2021, BlackRock, Inc. reported beneficial ownership and sole voting power of 2,615,1432,546,180 shares and beneficial ownership and sole dispositive power of 2,693,5752,575,656 shares. |
| Based upon information set forth in a Schedule 13G filed by Capital World Investors, a division of Capital Research and Management Company (CRMC), on February 12, 2019,2020, Capital World Investors reported beneficial ownership, sole voting and dispositive power of 1,659,813 shares. Capital World Investors of CRMC and Capital International Limited collectively provide investment management services under the name Capital World Investors. Capital World Investors holds more than five percent of the outstanding common stock on behalf of SMALLCAP World Fund, Inc. |
| Based upon information set forth in a Schedule 13G/A13G filed by Donald Smith & Co., Inc. on March 26, 2019,February 11, 2021, Donald Smith & Co., Inc. reported beneficial ownership and sole voting power of 2,634,5472,146,700 shares and beneficial ownership and sole dispositive power of 3,001,4472,165,200 shares. |
| Based upon information set forth in a Schedule 13G filed by LSV Asset Management on February 13, 2019, LSV Asset Management reported beneficial ownership and sole voting power of 837,317 shares and beneficial ownership and sole dispositive power of 1,687,884 shares. |
| Based upon information set forth in a Schedule 13G filed by Towle & Co. on December 31, 2018, Towle & Co. reported beneficial ownership and sole voting power of 2,002,890 shares and beneficial ownership and sole dispositive power of 2,426,370 shares. |
| Based upon information set forth in a Schedule 13G filed by The Vanguard Group on February 11, 2019,10, 2021, The Vanguard Group reported beneficial ownership and sole voting power of 31,3100 shares and beneficial ownership and sole dispositive power of 1,619,3671,519,132 shares. |
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information, as of December 11, 2019,8, 2021, with respect to the beneficial ownership of our common stock by each director, each of our NEOs, and all directors and executive officers as a group. Except as otherwise indicated, each beneficial owner possesses sole voting and investment power with respect to all shares.
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| NAME OF BENEFICIAL OWNER | NUMBER OF COMMON SHARES BENEFICIALLY OWNED (1) (2) (3) (4) | PERCENT OF OUTSTANDING (5) |
| Elizabeth S. Acton | 57,497 | | * | |
| Laurent Alpert | 66,777 | | * | |
| Brian C. Beazer | 142,685 | | * | |
| Keith L. Belknap | 160,458 | | * | |
| Peter G. Leemputte | 60,315 | | * | |
| Allan P. Merrill | 1,294,771 | | 4.10% | |
| Peter M. Orser | 39,532 | | * | |
| Norma A. Provencio | 61,677 | | * | |
| Robert L. Salomon | 509,905 | | 1.62% | |
Danny R. Shepherd | 45,682 | | * | |
| David J. Spitz | 9,286 | | * | |
| C. Christian Winkle | 9,286 | | * | |
Stephen P. Zelnak, Jr. | 354,730 | | 1.13% | |
| Directors and Executive Officers as a Group (13 persons) | 2,812,601 | | 8.90% | |
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| NAME OF BENEFICIAL OWNER | NUMBER OF COMMON SHARES BENEFICIALLY OWNED (1) (2) (3) (4) | PERCENT OF OUTSTANDING (5) |
| Elizabeth S. Acton | 74,353 | * |
| | |
| Keith L. Belknap | 206,660 | * |
| David I. Goldberg | 113,224 | * |
| Lloyd E. Johnson | 9,374 | * |
| Allan P. Merrill | 1,229,239 | 3.91% |
| Peter M. Orser | 56,388 | * |
| Norma A. Provencio | 78,533 | * |
| Robert L. Salomon | 208,438 | * |
Danny R. Shepherd | 62,538 | * |
| David J. Spitz | 26,142 | * |
| C. Christian Winkle | 43,218 | * |
| Directors and Executive Officers as a Group (11 persons) | 1,899,669 | 6.04% |
*Less than 1%
Beneficial ownership includes shares of unvested, time-based restricted stock within 60 days of December 11, 2019:stock: Ms. Acton - 8,002, Mr. Alpert - 8,002,7,679, Mr. Belknap - 40,271, 37,610, Mr Goldberg -26,736, Mr Johnson - 9,374,Mr. Merrill - 142,391,114,317, Mr. Orser - 8,002,-7,679, Ms. Provencio - 8,002, Mr. Salomon - 57,991,7,679, Mr. Shepherd - 8,002,7,679, Mr.Spitz - 9,2867,679 and Mr. Winkle 9,286.7,679.
Beneficial ownership for Messrs. Merrill, SalomonGoldberg and Belknap includes unvested performance shares granted in November 2017,2019, November 20182020 and November 2019:2021: Mr. Merrill - 411,185,227,697, Mr. SalomonGoldberg - 164,04439,733 and Mr. Belknap - 110,044.74,139. Beneficial ownership for Mr. Salomon includes 34,144 unvested performance shares granted in November 2019.
Beneficial ownership includes shares underlying vested stock options: Mr. Merrill - 172,000 and Mr. Salomon - 60,400.5,000.
All of the vested shares beneficially owned by Ms. Acton are held indirectly through the Robert and Elizabeth Acton Living Trust dated as of December 17, 2010 as amended. Mr. Beazer’s ownership includes 58,600All of the vested shares of common stockbeneficially owned by C. Christian Winkle are held indirectly through BC Beazer Investments PTE Ltd. Mr. Leemputte’s ownership includes 2,460the Charles C. Winkle Revocable Trust UA 9/29/18. 1,185 of the vested shares of common stockbeneficially owned by David I. Goldberg are held indirectly through Peter Leemputte TTEEFBO Peter G. Leemputte Trust.the David I. Goldberg & Susan S. Goldberg JT Ten WROS account. 5,600 of the vested shares beneficially owned by Norma A. Provencio are held indirectly through an IRA account.
Based upon 31,383,04831,459,708 shares of outstanding common stock as of December 11, 20198, 2021 and shares deemed outstanding with respect to each person pursuant to Exchange Act Rule 13d-3(d)(1). Adjusted as necessary to reflect the shares issuable to such person upon the vesting or exercise of his stock options listed in footnote 3 above (and assuming no other stock options are exercised). Shares of common stock subject to stock options that are currently exercisable or vested, or will become exercisable or vested within 60 days of December 11, 2019,8, 2021, are deemed outstanding for computing the percentage ownership of the person holding such stock options, but are not deemed outstanding for computing the percentage ownership of any other persons.
DELINQUENT SECTION 16(A) REPORTS
Section 16(a) of the Securities Exchange Act requires our executive officers and directors and persons who own more than 10% of our stock, as well as certain affiliates of such persons, to file initial reports of ownership and changes of ownership with the SEC. These parties are required to furnish us with copies of the reports they file. Based solely on a review of the copies of the Section 16(a) reports and amendments thereto known to us, we believe that all reports required pursuant to Section 16(a) for fiscal year 2019 were timely filed by our executive officers and directors, except for a Form 4/A filed on November 19, 2019 for Mr. Merrill, which reported the acquisition of a stock option to purchase of 5,000 shares of common stock that was inadvertently omitted.
EXECUTIVE OFFICERS OF THE COMPANY
EXECUTIVE OFFICERS
Biographical information, as of September 30, 2019,2021, for the executive officers of the Company is set forth below. Biographical information for Allan P. Merrill is set forth above under “Proposal 1 — Election of Directors — Nominees.”
ROBERT L. SALOMON. Mr. Salomon, 59, our Executive Vice President and Chief Financial Officer, joined the Company in February 2008 as Senior Vice President, Chief Accounting Officer and Controller. Mr. Salomon was previously with the homebuilding company Ashton Woods Homes where he served as Chief Financial Officer and Treasurer since 1998. Previously, he held various financial management roles of increasing responsibility over a six-year period with homebuilder M.D.C. Holdings, Inc. Mr. Salomon has 35 years of financial management experience, 26 of which have been in the homebuilding industry. Mr. Salomon is a member of the American Institute of Certified Public Accountants and a graduate of the University of Iowa with a Bachelor of Business Administration degree.
KEITH L. BELKNAP. Mr. Belknap, 61,63, joined the Company as Executive Vice President, General Counsel and Corporate Secretary in January 2018. Mr. Belknap was previously EVP, Business Development, General Counsel and Chief Compliance Officer of Mueller Water Products, Inc. Previously, he served as SVP and General Counsel of PRIMEDIA, Inc., a digital media and real estate advertising company. In addition, Mr. Belknap held senior legal positions with PPG Industries and Georgia-Pacific Corporation. He began his legal career at Skadden, Arps, Slate, Meagher & Flom LLP where he practiced for 10 years.LLP. Mr. Belknap received a Bachelor of Arts degree from the University of Tulsa and a Juris Doctor from Harvard Law School.
DAVID I. GOLDBERG. Mr. Goldberg, 44, was appointed Senior Vice President and Chief Financial Officer and became an executive officer of the Company following Mr. Salomon's retirement on November 20, 2020. Mr. Goldberg joined the Company in March 2015, serving as the Company’s Vice President, Treasurer and Head of Investor Relations prior to his appointment as Senior Vice President and Chief Financial Officer. Previously, Mr. Goldberg served as the lead Equity Research analyst for the US housing sector at UBS Investment Bank in New York, where he was widely recognized for his broader industry insights and stock specific research. Mr. Goldberg received a Bachelor of Arts from American University and a MBA from Columbia University.
PROPOSAL 4 AND 5 —
APPROVAL OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND NEW SECTION 382 RIGHTS AGREEMENT
| | | | | |
| BACKGROUND AND FREQUENTLY ASKED QUESTIONS |
BACKGROUND
Until recently, we generated significant net operating losses for tax purposes, or NOLs, which we use (and want to continue to use) to offset the taxable income we are now generating and expect to continue to generate in the future. Accordingly, our NOLs, along with our other deferred tax assets, have substantial value to us. As of September 30, 2021, our deferred tax assets, including our NOLs, totaled approximately $205 million.
However, the Internal Revenue Code places strict limits on our ability to fully maximize our NOLs. For example, under Section 382 of the Code, the value of our NOLs could be significantly reduced if we experienced an “ownership change,” which would occur if a 5% stockholder (or a group of stockholders) increased its ownership by more than 50% during a rolling three-year period. If this were to occur, Section 382 would impose an annual limit on the amount of NOLs we could use to offset our income taxes, which could result in a material amount of our NOLs expiring unused. A number of complex tax rules are involved in making this determination, including who is considered a 5% stockholder and whether any ownership change has, in fact, occurred. Because of this complexity, and the simple reality that we — like any public company — have limited knowledge about the true ownership of our outstanding shares, it is very difficult for us to comply with Section 382’s limitations without the use of the protective devices described in Proposals 4 and 5.
The charter amendment described in Proposal 4 has been in place since 2011 when our stockholders first overwhelmingly approved it. Similarly, the Section 382 Rights Agreement described in Proposal 5 has been in place since 2013 when it, too, was overwhelmingly approved by our stockholders. Since then, our stockholders have re-approved Proposals 4 and 5 by wide margins and extended by our stockholders on multiple occasions since. Because both of these protective devices are set to expire in November 2022, the purpose of Proposals 4 and 5 is to renew them for another three years until November 2025.
Accordingly, our Board of Directors strongly recommends that stockholders once again approve the adoption of both Proposals 4 and 5.
FREQUENTLY ASKED QUESTIONS
We have prepared the following frequently asked questions to assist our stockholders in their understanding of the complexities involved in determining the value of our deferred tax assets, including our NOLs, as well as our ability to maximize them. We urge our stockholders to read carefully Proposals 4 and 5, including their related Appendices, and the other documents to which Proposals 4 and 5 refer or are otherwise incorporated herein by reference, because this section does not provide all of the information that might be important to them.
Are the amount of the Company’s NOLs subject to challenge by the IRS?
The IRS could challenge the amount of our NOLs, but has not done so to date. If the IRS were to audit or otherwise seek to validate the amount of our NOLs. our ability to use our NOLs could be reduced, perhaps significantly. In addition, the complexity of Section 382’s provisions and the limited knowledge any public company has or is able to obtain about the ownership of its publicly-traded stock make it difficult to determine whether an ownership change has occurred. Therefore, we cannot assure you that the IRS will not claim that we experienced an ownership change and attempt to reduce or eliminate the benefit of our NOLs even if Proposals 4 and 5 are approved.
Will Proposals 4 and 5 prevent all transfers that could result in an ownership change?
Although Proposals 4 and 5 are intended to reduce the likelihood of an ownership change, we cannot assure that they will prevent all transfers of our stock that could result in such an ownership change. In particular, absent a court determination, we cannot assure you that the charter amendment described in Proposal 4 will be enforceable against all of our stockholders. In addition, the new Rights Agreement described in Proposal 5 may deter, but ultimately cannot block, all transfers of our stock that might result in an ownership change. However, our Board of Directors believes that both measures are needed and that they will serve as important tools to help prevent an ownership change that could substantially reduce or eliminate the significant long-term potential benefits of our NOLs.
Will the charter amendment and the new Rights Plan impact the liquidity or trading value of the Company’s common stock?
The protective devices described in Proposals 4 and 5 generally restrict a stockholder’s ability to acquire, directly or indirectly, additional shares of our common stock in excess of 4.95%. Furthermore, a stockholder’s ability to dispose of its common stock may be limited by reducing the number of acquirers capable of purchasing the shares in light of their own ownership levels. We recommend that stockholders monitor carefully their ownership of our stock and consult their own legal advisors and/or us to assist them in determining whether their ownership of our stock approaches the restricted levels described in Proposals 4 and 5.
If the protective devices contained in Proposals 4 and 5 are extended, our Board of Directors intends to continue to disclose that our shares continue to be subject to transfer restrictions, both on certificates representing newly-issued or transferred shares as well as publicly so that potential recipients of uncertificated shares will have the ability to be aware of the transfer restrictions and ownership limitations imposed by the protective provisions. Because certain buyers, including persons who wish to acquire 4.95% or more of our common stock as well some institutional holders who may not be comfortable holding common stock with transfer restrictions or other ownership limits, may not be able to purchase our common stock, extending the protective mechanisms could depress the trading value of our common stock in an amount that could more than offset any value preserved from protecting our NOLs.
Will the charter amendment and the new Rights Plan have an anti-takeover effect?
Our Board of Directors approved the adoptions of the protective provisions contained in Proposals 4 and 5 in order to preserve the value of our NOLs, not as part of a plan to render more difficult, or discourage, a takeover of the Company, such as a merger, tender offer, proxy contest or assumption of control by a substantial holder of our common stock. However, if extended, the protective provisions contained in Proposals 4 and 5 could have an anti-takeover effect because, among other things, they will restrict the ability of a person or group to accumulate 4.95% or more of our common stock and the ability of a person or group now owning 4.95% or more of our common stock to acquire additional shares without the approval of our Board of Directors. We are not aware presently aware of any potential takeover transaction.
What is the effect of the transfer restrictions contained in the charter amendment on my shares if I vote against Proposal 4 but it is nonetheless still approved by stockholders?
Delaware law provides that the transfer restrictions contained in the charter amendment for common stock issued prior to the amendment’s adoption will be effective as to (1) stockholders with respect to shares that were voted in favor of the amendment and (2) purported transferees of such shares if:
| | | | | |
| the transfer restriction is conspicuously noted on the certificate(s) representing such shares; or |
| |
| the transferee had actual knowledge of the transfer restrictions (even absent the conspicuous notation). |
If Proposal 4 is approved, we intend to continue having newly-issued certificated or certificated transferred shares issued with the relevant transfer restrictions conspicuously noted on the certificate(s). In addition, if Proposal 4 is approved, we intend to give a notice regarding the relevant transfer restrictions to registered holders of our common stock in uncertificated form, as contemplated by Delaware law. For the purpose of determining whether a stockholder is subject to the transfer restrictions imposed by the protective provisions, we have taken and intend to continue to take the position that all shares issued prior to the effectiveness of Proposal 4 that are proposed to be transferred were voted in favor of Proposal 4, unless the contrary is established. We may also assert that stockholders have waived the right to challenge or otherwise cannot challenge the enforceability of the charter amendment, unless a stockholder establishes that it did not vote in favor of extending the protective provisions. Nonetheless, a court could find that the protective provisions
contained in the charter amendment are unenforceable, either in general or as applied to a particular stockholder or fact situation.
PROPOSAL 4 —
ADOPTION OF CHARTER AMENDMENT TO EXTEND
NOL PROTECTIVE PROVISIONS
This proposal is asking our stockholders to extend protective provisions contained in our charter that are designed to assist us to in protecting the value of our NOLs by limiting and/or prohibiting transfers of our stock that could affect the percentage of stock that is treated as being owned by a holder of 4.95% of our shares. These provisions were first approved by our stockholders in 2011 and have been re-approved and extended by our stockholders on multiple occasions since. Because the provisions are due to expire in November 2022, we are once again asking stockholders to extend them for another three years to November 12, 2025.
DESCRIPTION OF THE NOL PROTECTIVE PROVISIONS
The following description of the protective provisions is qualified in its entirety by reference to the full text of our charter, which was filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on February 8, 2011 (as amended by the first, second and third extensions, which were filed as Exhibit 3.1 to our Current Report on Form 8-K filed with the SEC on November 7, 2013, Exhibit 3.8 to our Annual Report on Form 10-K filed with the SEC on November 15, 2016, and Exhibit 3.8 to our Annual Report on Form 10-K filed with the SEC on November 13, 2019, respectively), and the full text of the proposed extension to the protective provisions, which is attached hereto as Appendix I. We urge you to carefully read our charter in its entirety as the discussion of the protective provisions below is only a summary.
Prohibited Transfers. The protective provisions generally prohibit any direct or indirect transfer (such as transfers of our stock that result from the transfer of interests in other entities that own our stock) if the effect would be to:
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| increase the direct or indirect ownership of our stock by any person from less than 4.95% to 4.95% or more; or |
| |
| increase the percentage of our common stock owned directly or indirectly by a person owning or deemed to own 4.95% or more of our common stock. |
Complicated common stock ownership rules prescribed by the Code apply in determining whether a person is a 4.95% stockholder. For purposes of determining the existence and identity of, and the amount of our common stock owned by, any stockholder, we are entitled to rely on the existence or absence of certain public securities filings as of any date, subject to our actual knowledge of the ownership of our common stock. We also have the right to require a proposed transferee, as a condition to registration of a transfer of our common stock, to provide all information reasonably requested regarding such person’s direct and indirect ownership of our common stock.
These transfer restrictions may result in the delay or refusal of certain requested transfers of our common stock or may prohibit ownership (thus requiring dispositions) of our common stock due to a change in the relationship between two or more persons or entities or to a transfer of an interest in an entity other than us that, directly or indirectly, owns our common stock. The transfer restrictions will also apply to proscribe the creation or transfer of certain “options” (which are broadly defined by Section 382) with respect to our common stock to the extent that, in certain circumstances, the creation, transfer or exercise of the option would result in a proscribed level of ownership.
Consequences of Prohibited Transfers. Any direct or indirect transfer attempted in violation of the protective provisions is void immediately, and the purported transferee will not be recognized as the owner of the shares owned in violation of the protective provisions for any purpose, including for purposes of voting and receiving dividends or other distributions in respect of such common stock, or in the case of options, receiving our common stock in respect of their exercise. In this Proxy Statement, our common stock purportedly acquired in violation of the protective provisions is referred to as “excess stock.”
In addition to a prohibited transfer being void as of the date it is attempted, upon the Company’s demand, the purported transferee must transfer the excess stock to our agent along with any dividends or other distributions paid with respect to such excess stock. Our agent is required to sell such excess stock in an arm’s-length transaction (or series of transactions) that would not constitute a violation under the protective provisions. The net proceeds of the sale, together
with any other distributions with respect to such excess stock received by our agent, after deduction of all costs incurred by the agent, will be distributed first to the purported transferee in an amount, if any, up to the cost (or in the case of gift, inheritance or similar transfer, the fair market value of the excess stock on the date of the prohibited transfer) incurred by the purported transferee to acquire such excess stock, and the balance of the proceeds, if any, will be distributed to a charitable beneficiary. If the excess stock is sold by the purported transferee, such person will be treated as having sold the excess stock on behalf of the agent and will be required to remit all proceeds to our agent (except to the extent we grant written permission to the purported transferee to retain an amount not to exceed the amount such person otherwise would have been entitled to retain had our agent sold such shares).
Any stockholder who knowingly violates the protective provisions will be liable for any and all damages we suffer as a result of such violation, including damages resulting from any limitation in our ability to use our NOLs and any professional fees incurred in connection with addressing such violation.
Modification and Waiver of Transfer Restrictions. Our Board of Directors has the discretion to approve a transfer of our common stock that would otherwise violate the transfer restrictions if it determines that the transfer is in our stockholders’ best interests. If our Board of Directors decides to permit such a transfer, that transfer or later transfers may result in an ownership change that could limit our use of our NOLs.
In the event of a change in law, our Board of Directors will have the unilateral authority to modify the 4.95% ownership threshold, as well as any of the definitions, terms and conditions of the transfer restrictions, or to eliminate the transfer restrictions in their entirety. Our Board of Directors may also establish, modify, amend or rescind by-laws, policies and any procedures for purposes of determining whether any transfer of common stock would jeopardize our ability to use our NOLs.
EXPIRATION
If approved, the protective provisions will expire on the earliest of (i) the determination by our Board of Directors that the provisions are no longer necessary for the preservation of our NOLs because of the amendment or repeal of Section 382 or any successor statute, (ii) the beginning of a taxable year to which our Board of Directors determines that none of our NOLs may be carried forward (iii) such date as our Board of Directors otherwise determines that the provisions are no longer necessary for the preservation of our NOLs and (iv) November 12, 2025.
EFFECTIVENESS AND ENFORCEABILITY
Although the protective provisions are intended to reduce the likelihood of an ownership change, we cannot eliminate the possibility that an ownership change will occur. The effectiveness of the protective provisions is limited by, among other things:
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| Our Board of Directors’ right to permit a transfer to an acquirer that results or contributes to an ownership change if it determines that such transfer is in our stockholders’ best interests. |
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| A court’s finding that part or all of our charter is not enforceable, either in general or as to a particular fact situation. |
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| Certain changes in relationships among stockholders or other events could cause an ownership change under Section 382. |
Accordingly, we cannot assure you that an ownership change will not occur even if the protective provisions are extended. However, our Board of Directors believes that the protective provisions, together with the Rights Agreement discussed in Proposal 5, provide significant protections to preserve our ability to use our NOLs to offset future income tax liabilities.
REQUIRED VOTE
This proposal requires the affirmative vote of a majority of our outstanding shares of common stock.
The Board of Directors recommends a vote FOR this proposal.
PROPOSAL 5 —
APPROVAL OF SECTION 382 RIGHTS AGREEMENT
In February 2013, our stockholders first approved the adoption of a Section 382 Rights Agreement, which was intended to act as a deterrent to any person desiring to acquire 4.95% or more of our common stock. By its terms, the original Rights Agreement was to expire in November 2016. Accordingly, in February 2016, our stockholders adopted a new Rights Agreement which contained substantially the same terms as the first Rights Agreement. The stockholders similarly approved the entry into a new Section 382 Rights Agreement at the 2019 annual meeting. Because that Rights Agreement is scheduled to expire in November 2022, we are now seeking stockholder approval to enter into yet another new Section 382 Rights Agreement, which is the same in all material respects as the previous Rights Agreements approved by stockholders in 2013, 2016 and 2019, except that it will expire on November 14, 2025 if adopted.
Because the Section 382 charter protections described in Proposal 4 will not eliminate the possibility that an ownership change will occur, we believe the new Rights Agreement, which is designed to deter transfers of our stock that could result in an ownership change, is an important tool to further protect our ability to utilize our NOLs.
DESCRIPTION OF THE RIGHTS AGREEMENT
The following description of the Rights Agreement is qualified in its entirety by reference to the text of the Rights Agreement, which is attached to this Proxy Statement as Appendix II. We urge you to read it carefully in its entirety as the discussion below is only a summary.
The Rights. Our Board of Directors authorized the issuance of one right per outstanding common share payable upon the effectiveness of the Rights Agreement to our stockholders of record as of [to be updated based on Rights Agreement]. Subject to the terms, provisions and conditions of the Rights Agreement, if the rights become exercisable, each right would initially represent the right to purchase from us one one-thousandth of a share of our Series A Junior Participating Preferred Shares, for a purchase price of $50.00 per right (which we refer to as the “purchase price”). If issued, each fractional Series A Preferred Share would give the stockholder approximately the same dividend, voting and liquidation rights as does one share of our common stock. However, prior to exercise, a right will not give its holder any rights as a stockholder of the Company, including any dividend, voting or liquidation rights.
Exercisability. The rights are not exercisable until the earlier of (1) ten calendar days after a public announcement by us that a person has acquired at least 4.95% or more of our outstanding stock (which we refer to as an “acquiring person”) and (2) ten business days (or such later date as may be determined by our Board of Directors) after the commencement of a tender or exchange offer by or on behalf of a person that, if completed, would result in such person becoming an acquiring person. We refer to the date that the rights become exercisable under the proposed Rights Agreement as the “distribution date.”
Any transfer of our stock prior to the distribution date will constitute a transfer of the associated rights. After the distribution date, the rights may be transferred separately from the transfer of the underlying common stock until our Board of Directors determines otherwise (as described below).
After the distribution date, each holder of a right (other than the acquiring person) will generally be entitled to exercise the right and, upon payment of $100.00 (i.e., two times the purchase price), will be entitled to receive that number of shares of our common stock or other securities having a market value of $100.00.
Exemptions. Our Board of Directors recognizes there may be instances when an acquisition of our common stock that would cause a stockholder to become an acquiring person may not jeopardize or endanger in any material respect the availability of our NOLs or there may be situations when the acquisition would otherwise be in the Company’s and its stockholders’ best interests. Accordingly, the Rights Agreement grants full discretion to our Board of Directors to exempt acquisitions in such instances.
Redemption. We may redeem the rights (at a price of $0.001 per share) at any time until ten calendar days following the public announcement that a person has become an acquiring person. Upon any such redemption, the ability to exercise the rights will terminate and the only right the holder will have is the right to receive the redemption price of $0.001 per right.
Expiration. If approved and adopted, the Rights Agreement will expire on the earliest of the following:
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| the close of business on November 14, 2025; |
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| the redemption of the rights; |
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| the exchange of the rights; |
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| the effective date of the repeal of Section 382 or any successor statute if our Board of Directors determines that the Rights Agreement is no longer necessary or desirable; and |
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| the first day of a taxable year to which our Board of Directors determines that no tax benefits may be carried forward. |
Anti-Dilution Provisions. Our Board of Directors may adjust the purchase price of the Series A Preferred Shares, the number of Series A Preferred Shares issuable and the number of outstanding rights to prevent dilution that may occur due to any number of events, including among others, a share dividend or a share split. In general, no adjustments to the purchase price of less than 1% will be made.
Amendments. Prior to the distribution date, our Board of Directors will have the general right to supplement or amend any provision of the Rights Agreement in any respect. After the distribution date, no amendment may be made by our Board of Directors that would adversely affect the interests of any rights holders.
REQUIRED VOTE
This proposal requires the affirmative vote of a majority of our common stock present in person or by proxy at the Annual Meeting.
The Board of Directors recommends a vote FOR this proposal.
TRANSACTIONS WITH
RELATED PERSONS
REVIEW, APPROVAL OR RATIFICATION OF
TRANSACTIONS WITH RELATED PERSONS
The Audit Committee of our Board of Directors, in accordance with its charter and our Related Party Transactions Policy, is responsible for conducting an appropriate review of all proposed related party transactions to identify potential conflict of interest situations. Any identified related party transactions are then presented to our Board of Directors for approval and implementation of appropriate action to protect us from potential conflicts of interest. We have also adopted a Code of Ethics pursuant to which all directors and employees must disclose any potential conflicts of interest or related party transactions prior to entering into any such transactions.
There were no reportable transactions with related persons during fiscal year 2019.2021.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The members of our Compensation Committee during fiscal year 20192021 were Messrs. Beazer,Johnson, Orser Shepherd and Spitz and Ms. Provencio. Mr. Spitz joined the Compensation Committee in August 2019. None of the members of our Compensation Committee has ever been an officer or employee of the Company or any of our subsidiaries. None of the members of our Compensation Committee had any relationship requiring disclosure under “Transactions with Related Persons.” During fiscal year 2019,2021, none of our executive officers served as a director or member of the compensation committee (or other committee of the board of directors performing equivalent functions) of another entity that had an executive officer serving on our Board of Directors.
PROPOSALS FOR THE
NEXT ANNUAL MEETING
PROPOSALS TO BE INCLUDED IN OUR PROXY STATEMENT
FOR THE 20212023 ANNUAL MEETING
Any proposal by a stockholder to be included in the proxy statement for our 20212023 annual meeting of stockholders must be received at our principal executive offices, 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328, not later than August 22, 2020.__, 2022. Any such proposal must also meet the other requirements of the rules of the SEC relating to stockholder proposals.
STOCKHOLDER PROPOSALS REGARDING NOMINATIONS OR
OTHER BUSINESS AT THE 20212023 ANNUAL MEETING
Any proposal by a stockholder for nominations or other business at our 20212023 annual meeting of stockholders (outside of the processes for proposals to be included in the proxy statement for our 20212022 annual meeting of stockholders described above) must be received at our principal executive offices, 1000 Abernathy Road, Suite 260, Atlanta, Georgia 30328, no earlier than July 23, 2020__, 2022 and no later than August 22, 2020.__, 2022. Any such notice must also meet the other requirements of our by-laws relating to stockholder proposals.
OTHER
INFORMATION
Management does not know of any items, other than those referred to in this Proxy Statement, which may properly come before the meeting or other matters incident to the conduct of the meeting.
As to any other item or proposal that may properly come before the meeting, including voting on a proposal omitted from this Proxy Statement pursuant to the rules of the SEC or any proposal to adjourn or postpone the meeting, it is intended that proxies will be voted in accordance with the discretion of the proxy holders.
By Order of the Board of Directors,
Keith L. Belknap
Corporate Secretary
Dated: December 20, 2019__, 2021
APPENDIX I
PROTECTIVE AMENDMENT EXTENSION
CERTIFICATE OF AMENDMENT
TO THE
AMENDED AND RESTATED 2014 LONG-TERM INCENTIVE PLANCERTIFICATE OF INCORPORATION
OF
BEAZER HOMES USA, INC.
Beazer Homes USA, Inc., a corporation organized and existing under the laws of the State of Delaware (the “Corporation”), pursuant to the General Corporation Law of the State of Delaware (the “DGCL”), DOES HEREBY CERTIFY as follows:
Article EIGHT of the Amended and Restated Certificate of Incorporation of the Corporation, as amended (the “Amended and Restated Certificate of Incorporation”), is hereby amended by replacing paragraph (i) of the existing Article EIGHT in its entirety with the following:
“Expiration Date” means the earliest of (1) the repeal of Section 382 of the Code or any successor statute if the Board of Directors determines that this Article EIGHT is no longer necessary or desirable for the preservation of Tax Benefits, (2) the close of business on the first day of a taxable year of the Corporation as to which the Board of Directors determines that no Tax Benefits may be carried forward, (3) such date as the Board of Directors shall fix in accordance with Part XII of this Article EIGHT and (4) November 12, 2025.”
In accordance with the provisions of Section 242 of the DGCL, the Board of Directors of the Corporation duly adopted the above amendment to the Amended and Restated Certificate of Incorporation (the “Amendment”), deemed the Amendment advisable and directed that the Amendment be considered by the Corporation’s stockholders. Notice of the Amendment was duly given to the stockholders of the Corporation in accordance with Section 222 of the DGCL. The Amendment was adopted by the Corporation’s stockholders on February 2, 2022 in accordance with Section 242 of the DGCL.
Pursuant to Sections 103 and 242 of the DGCL, the Amendment shall become effective at 12:00 a.m., New York City time, on Saturday,November 12, 2022.
IN WITNESS WHEREOF, the Corporation has caused its duly authorized officer to execute this Certificate of Amendment on this day of November, 2022.
Beazer Homes USA, Inc.
By:
Name: David I. Goldberg
Title: Senior Vice President and Chief Financial Officer
Attest:
By:
Name: Keith L. Belknap
Title: Executive Vice President and General Counsel
APPENDIX II
NEW SECTION 382 RIGHTS AGREEMENT
BEAZER HOMES USA, INC.
and
AMENDED AND RESTATED 2014 LONG-TERM INCENTIVE PLANAMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
as
Rights Agent
Section 382 Rights Agreement
Dated as of December 7, 2021
Effective as of November 14, 2022
Table of ContentsTABLE OF
CONTENTS
SECTION 382
RIGHTS AGREEMENT
| | | | | | | | | | | | | | |
| Article 1 - | General Provisions | | 1 | |
| 1.1 | Establishment of Plan | | 1 | |
| 1.2 | Purpose of Plan | | 1 | |
| 1.3 | Types of Awards | | 1 | |
| 1.4 | Effective Date | | 1 | |
| 1.5 | Termination of Plan | | 1 | |
| Article 2 - | Definitions | | 1 | |
| Article 3 - | Administration | | 6 | |
| 3.1 | General | | 6 | |
| 3.2 | Authority of the Committee | | 6 | |
| 3.3 | Rules for Foreign Jurisdictions | | 7 | |
| 3.4 | Delegation of Authority | | 7 | |
| 3.5 | Agreements | | 7 | |
| 3.6 | Indemnification | | | 8 |
| Article 4 - | Shares Subject to the Plan | | 8 | |
| 4.1 | Number of Shares | | | 8 |
| 4.2 | Individual Limits | | | 9 |
| 4.3 | Adjustment of Shares | | | 10 |
| Article 5 - | Stock Options | | | 10 |
| 5.1 | Grant of Options | | | 10 |
| 5.2 | Option Price | | | 11 |
| 5.3 | Duration of Options | | | 11 |
| 5.4 | Exercise of Options | | | 11 |
| 5.5 | Payment | | | 11 |
| 5.6 | Nontransferability of Options | | | 11 |
| 5.7 | Special Rules for ISOs | | | 11 |
| 5.8 | Dividends and Other Distributions | | | 12 |
| Article 6 - | Stock Appreciation Rights | | | 12 |
| 6.1 | Grant of SARs | | | 12 |
| 6.2 | Tandem SARs | | | 12 |
| 6.3 | Payment | | | 12 |
| 6.4 | SAR Price | | | 12 |
| 6.5 | Duration of SARs | | | 12 |
| 6.6 | Exercise of SARs | | | 13 |
| 6.7 | Nontransferability of SARs | | | 13 |
| 6.8 | Dividends and Other Distributions | | | 13 |
| Article 7 - | Restricted Stock and Restricted Stock Units | | | 13 |
| 7.1 | Grant of Restricted Stock/Unit | | | 13 |
| 7.2 | Nontransferability | | | 13 |
| 7.3 | Certificates | | | 13 |
WITNESSETH:
WHEREAS, the Company has generated NOLs (as defined in Section 1 hereof) for United States federal income tax purposes; and such NOLs may potentially provide valuable tax benefits to the Company; the Company desires to avoid an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”) and the Treasury Regulations promulgated thereunder, and thereby preserve the ability to utilize fully such NOLs and certain other tax benefits; and, in furtherance of such objective, the Company desires to enter into this Agreement; and
WHEREAS, on November 3, 2021 (the “Rights Dividend Declaration Date”), the Board of Directors of the Company authorized and declared a dividend distribution of one preferred share purchase right (a “Right”) for each share of common stock, par value $0.001 per share, of the Company (the “Common Stock”) outstanding at the close of business on November 14, 2022 (the “Record Date”), and has authorized the issuance of one Right (as such number may hereinafter be adjusted pursuant to the provisions of Section 11(p) hereof) for each share of Common Stock issued between the Record Date (whether originally issued or delivered from the Company’s treasury) and the earlier of the close of business on the Distribution Date (as defined in Section 3 hereof) and the Expiration Date (as defined in Section 7(a) hereof), each Right initially representing the right to purchase one one-thousandth of a share (a “Unit”) of Series A Junior Participating Preferred Stock (the “Preferred Stock”) of the Company having the rights, powers and preferences set forth in the form of Designations, Preferences and Rights attached hereto as Exhibit A, upon the terms and subject to the conditions hereinafter set forth.
WHEREAS, on February 2, 2022, the stockholders of the Company approved the adoption of this Agreement by the Company.
NOW, THEREFORE, in consideration of the premises and the mutual agreements herein set forth, the parties hereby agree as follows:
Section 1.CERTAIN DEFINITIONS
For purposes of this Agreement, the following terms have the meanings indicated:
“Acquiring Person” shall mean any Person who or which, together with all Affiliates and Associates of such Person, shall be the Beneficial Owner of 4.95% or more of the shares of Common Stock then outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the Company, (iii) any employee benefit plan of the Company, or of any Subsidiary of the Company, or any Person or entity organized, appointed or established by the Company for or pursuant to the terms of any such plan, (iv) any Exempted Person or (v) any Person that beneficially owns at least a majority of the Common Stock following consummation of a Qualified Offer. Notwithstanding the foregoing, no Person shall become an “Acquiring Person” solely as a result of an Exempted Transaction.
“Affiliate” and “Associate” shall mean, with respect to any Person, any other Person whose Common Stock would be deemed constructively owned by such first Person for purposes of Section 382 of the Code, would be deemed owned by a single “entity” as defined in Treasury Regulation § 1.382-3(a)(1) in which both such Persons are included, or otherwise would be deemed aggregated with Common Stock owned by such first Person pursuant to the provisions of Section 382 of the Code and the Treasury
| | | | | | | | | | | | | | |
| 7.4 | Dividends and Other Distributions | | | 14 |
| 7.5 | Short-Term Deferral | | | 14 |
| Article 8 - | Performance Shares and Units | | | 14 |
| 8.1 | Grant of Performance Shares/Units | | | 14 |
| 8.2 | Value of Performance Shares/Units | | | 14 |
| 8.3 | Earning of Performance Shares/Units | | | 14 |
| 8.4 | Form and Timing of Payment of Performance Shares/Units | | | 14 |
| 8.5 | Dividends and Other Distributions | | | 15 |
| 8.6 | Nontransferability | | | 15 |
| Article 9 - | Other Stock-Based Awards | | | 15 |
| Article 10 - | Long-Term Incentive Compensation Awards | | | 15 |
| Article 11 - | Performance Measures | | | 15 |
| 11.1 | In General | | | 15 |
| 11.2 | Performance Measures | | | 15 |
| 11.3 | Committee Determination of Achievement of Performance Goals; Adjustments 16 | | | |
| Article 12 - | Beneficiary Designation | | | 16 |
| Article 13 - | Deferrals | | | 16 |
| Article 14 - | Withholding | | | 17 |
| 14.1 | Tax Withholding | | | 17 |
| 14.2 | Share Withholding | | | 17 |
| Article 15 - | Amendment and Termination | | | 17 |
| 15.1 | Amendment or Termination of Plan | | | 17 |
| 15.2 | Amendment of Agreement | | | 17 |
| 15.3 | Recoupment of Compensation or Cancellation of Awards | | | 17 |
| Article 16 - | Change in Control | | | 18 |
| Article 17 - | Miscellaneous Provisions | | | 18 |
| 17.1 | Restrictions on Shares | | | 18 |
| 17.2 | Rights of Stockholder | | | 19 |
| 17.3 | No Implied Rights | | | 19 |
| 17.4 | Compliance with Code Section 409A | | | 19 |
| 17.5 | Successors | | | 19 |
| 17.6 | Tax Elections | | | 19 |
| 17.7 | Right of Setoff | | | 19 |
| 17.8 | No Fractional Shares | | | 19 |
| 17.9 | Uncertificated Shares | | | 19 |
| 17.10 | Legal Construction | | | 20 |
| 17.11 | Data Privacy; Transfer of Data | | | 20 |
| | | | |
A Person shall be deemed a “Beneficial Owner” of, shall be deemed to have “Beneficial Ownership” and shall be deemed to “beneficially own” any securities which such Person directly owns, or would be deemed to constructively own, pursuant to Section 382 of the Code and the Treasury Regulations promulgated thereunder.
“Business Day” shall mean any day other than a Saturday, Sunday or a day on which banking institutions in the State of New York are authorized or obligated by law or executive order to close.
“Close of Business” on any given date shall mean 5:00 P.M., New York City time, on such date provided; however, that if such date is not a Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding Business Day.
“Code” shall have the meaning set forth in the recitals to this Agreement.
“Common Stock” shall have the meaning set forth in the recitals to this Agreement, except that “Common Stock” when used with reference to any Person other than the Company shall mean the capital stock of such Person with the greatest voting power, or the equity securities or other equity interest having power to control or direct the management, of such Person (or, if such Person is a Subsidiary of another Person, the Person or Persons that ultimately control such first mentioned Person).
“Common Stock Equivalents” shall have the meaning set forth in Section 11(a)(iii) hereof.
“Current Market Price” shall have the meaning set forth in Sections 11(d)(i) and 11(d)(ii) hereof.
“Current Value” shall have the meaning set forth in Section 11(a)(iii) hereof.
“Distribution Date” shall have the meaning set forth in Section 3(a) hereof.
“Equivalent Preferred Stock” shall have the meaning set forth in Section 11(b) hereof.
“Exempted Person” shall mean any Person who, together with all Affiliates and Associates of such Person,
is the Beneficial Owner of securities (as disclosed in public filings with the Securities and Exchange Commission on the Rights Dividend Declaration Date), representing 4.95% or more of the shares of Common Stock outstanding on the Rights Dividend Declaration Date provided; however, that any such Person described in this clause (i) shall no longer be deemed to be an Exempted Person and shall be deemed an Acquiring Person if such Person, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Beneficial Ownership of Common Stock that such Person had at any time since the Rights Dividend Declaration Date, except solely (x) pursuant to equity compensation awards granted to such Person by the Company or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (y) as a result of a redemption of shares of Common Stock by the Company; or
becomes the Beneficial Owner of securities representing 4.95% or more of the shares of Common Stock then outstanding because of a reduction in the number of outstanding shares of Common Stock then outstanding as a result of the purchase by the Company or a Subsidiary of the Company of shares of Common Stock provided; however, that any such Person described in this clause (ii) shall no longer be deemed to be an Exempted Person and shall be deemed an Acquiring Person if such Person, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner, at any time after the date such Person became the Beneficial Owner of 4.95% or more of the then outstanding shares of Common Stock, of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Beneficial Ownership of Common Stock that such Person had at
BEAZER HOMES USA, INC. AMENDED AND RESTATED
2014 LONG-TERM INCENTIVE PLAN
Article 1 - General Provisions
1.1Establishmentany time since the date such Person first became the Beneficial Owner of Plan. Beazer Homes USA, Inc.,4.95% or more of the then outstanding shares of Common Stock, except solely (x) pursuant to equity compensation awards granted to such Person by the Company or as a Delaware corporation (the “Company”), previously establishedresult of an incentive compensation plan known as the “Beazer Homes USA, Inc. 2014 Long-Term Incentive Plan” (the “Incentive Plan”). Effective as of ________and subjectadjustment to the approvalnumber of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (y) as a result of a redemption of shares of Common Stock by the Company; or
who is a Beneficial Owner of 4.95% or more of the Company’s stockholders,shares of Common Stock outstanding and whose beneficial ownership, as determined by the Board of Directors in its sole discretion, (x) would not jeopardize or endanger the availability to the Company of its NOLs or other Tax Benefits or (y) is otherwise in the best interests of the Company provided; however, that if a Person is an Exempted Person solely by reason of this clause (iii), then such Person shall cease to be an Exempted Person if (A) such Person ceases to beneficially own 4.95% or more of the shares of the then outstanding Common Stock, (B) after the date of such determination by the Board of Directors, such Person, together with all Affiliates and Associates of such Person, becomes the Beneficial Owner of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Beneficial Ownership of Common Stock that such Person had at any time since the date such Person first became the Beneficial Owner of 4.95% or more of the then outstanding shares of Common Stock, except solely (I) pursuant to equity compensation awards granted to such Person by the Company or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (II) as a result of a redemption of shares of Common Stock by the Company, or (C) the Board of Directors of the Company, amendedin its sole discretion, makes a contrary determination with respect to the effect of such Person’s beneficial ownership (together with all Affiliates and restatedAssociates of such Person) with respect to the Incentive Planavailability to the Company of its NOLs or other Tax Benefits.
A purchaser, assignee or transferee of the shares of Common Stock (or warrants or options exercisable for Common Stock) from an Exempted Person shall not thereby become an Exempted Person, except that a transferee from the estate of an Exempted Person who receives Common Stock as a bequest or inheritance from an Exempted Person shall be an Exempted Person so long as such Person continues to be knownthe Beneficial Owner of 4.95% or more of the then outstanding shares of Common Stock.
“Exempted Transaction” shall mean any transaction that the Board of Directors determines, in its sole discretion, is exempt from this Agreement, which determination shall be made in the sole and absolute discretion of the Board of Directors prior to the date of such transaction, including, without limitation, if the Board of Directors determines that (i) neither the Beneficial Ownership of shares of Common Stock by any Person, directly or indirectly, as a result of such transaction nor any other aspect of such transaction would jeopardize or endanger the availability to the Company of the Tax Benefits or (ii) such transaction is otherwise in the best interests of the Company. In granting an exemption under this definition, the Board of Directors may require any Person who would otherwise be an Acquiring Person to make certain representations or undertakings or to agree that any violation or attempted violation of such representations or undertakings will result in such consequences and subject to such conditions as the “Beazer Homes USA, Inc. Amended and Restated 2014 Long-Term Incentive Plan” (the “Plan”), asBoard of Directors may determine in its sole discretion, including that any such violation shall result in such Person becoming an Acquiring Person.
“Expiration Date” shall have the meaning set forth in this document.Section 7(a) hereof.
1.2“PurposeFinal Expiration Date” shall have the meaning set forth in Section 7(a) hereof.
“NOLs” shall mean the Company’s net operating loss carryforwards.
“Person” shall mean any individual, firm, corporation, limited liability company, partnership or other entity, or a group of Plan. The objectivesPersons making a “coordinated acquisition” of shares or otherwise treated as an entity within the meaning of Section 1.382-3(a)(1) of the Plan are to (i) attractTreasury Regulations, and retain employees, directors, and other persons who perform services for the Company and its affiliates by providing compensation opportunities that are competitive with other companies; (ii) provide incentives to those individuals who contribute significantly to the long-term performance and growthshall include any successor (by merger or otherwise) of such individual or entity, but shall not include a Public Group (as such term is defined in Section 1.382-2T(f)(13) of the Company and its affiliates; and (iii) align the long-term financial interests of employees and other Eligible Participants with those of the Company’s stockholders.
1.3Types of Awards. Awards under the Plan may be made to Eligible Participants in the form of (i) Incentive Stock Options, (ii) Nonqualified Stock Options, (iii) Stock Appreciation Rights, (iv) Restricted Stock, (v) Restricted Stock Units, (vi) Performance Shares, (vii) Performance Units, (viii) Other Stock-Based Awards, (ix) Long-Term Incentive Compensation Awards or any combination thereof.
1.4Effective Date. The Plan will become effective on the date on which the Company’s stockholders approve the Plan (the “Effective Date”)Treasury Regulations).
1.5Termination of Plan. No Awards shall be granted under the Plan after the tenth anniversary of the Effective Date. However, Awards granted under the Plan on or prior to the tenth anniversary of the Effective Date shall remain outstanding beyond that date in accordance with the terms and conditions of the Plan and the Agreements corresponding to such Awards.
Article 2 - Definitions
Except where the context otherwise indicates, the following definitions apply:
2.1“Act” means the Securities Exchange Act of 1934, as now in effect or as hereafter amended. All citations to sections of the Act or rules thereunder are to such sections or rules as they may from time to time be amended or renumbered.
2.2“Agreement” means the written agreement evidencing an Award granted under the Plan that specifies the size, form, terms, conditions and duration of each Award. As determined by the Committee, each Agreement shall consist of either (i) a written agreement in a form approved by the Committee and executed on behalf of the Company by an officer duly authorized to act on its behalf, or (ii) an electronic notice of Award grant in a form approved by the Committee and recorded by the Company (or its designee) in an electronic recordkeeping system used for the purpose of tracking Award grants under the Plan, and if required by the Committee, executed or otherwise electronically accepted by the recipient of the Award in such form and manner as the Committee may require.The Committee may authorize any officer of the Company (other than the particular Award recipient) to execute any or all Agreements on behalf the Company.
2.3““Award” means an Option,Preferred Stock” shall mean shares of Series A Junior Participating Preferred Stock, par value $0.01 per share, of the Company, and, to the extent that there are not a sufficient number of shares of Series A Junior Participating Preferred Stock Appreciation Right, Restrictedauthorized to permit the full exercise of the Rights, any other series of Preferred Stock, a Restricted Stock Unit, a Performance Share, a Performance Unit, an Other Stock-Based Award, a Long-Term Incentive Compensation Award or a combination thereof.par value $0.01 per share, of the Company designated for such purpose containing terms substantially similar to the terms of the Series A Junior Participating Preferred Stock.
2.4““Award Pool”Principal Party” shall have the meaning ascribed to such termset forth in Section 4.1.13(b) hereof.
2.5“Purchase Price” shall have the meaning set forth in Section 4(a) hereof.
“Board” meansQualified Offer” shall mean an offer, determined by a majority of the members of the Board of Directors of the Company as constituted from time to time.
2.6“Cause” means, “Cause” as defined under any written employment or service agreement applicable to the Participant at the timethat are independent of the Participant’s termination or if no such employment or service agreement exists or if such employment or service agreement does not contain any such definition, “Cause” means (a) the Participant’s act or failurerelevant offeror, to act amounting to gross negligence or willful misconduct to the detriment of the Company or any affiliate; (b) the Participant’s dishonesty, fraud, theft or embezzlement of funds or properties in the course of Participant’s employment or service; (c) the Participant’s commission of or pleading guilty to or confessing to any felony; or (d) the Participant’s breach of any restrictive covenant agreement with the Company or any affiliate, including, but not limited to, covenants not to compete, non-solicitation covenants and non-disclosure covenants. “Cause” shall also include a material violation of the Company’s Code of Business Conduct & Ethics or any successor or similar Company policy governing ethical behavior. The existence of “Cause” under this Section 2.6 shall be determined in good faith by the Committee.
2.7“Change in Control” means, except as otherwise expressly provided in an Agreement, the occurrence of anyhave each of the following events:characteristics with respect to the Common Stock: (i) a tender or exchange offer for all of the outstanding shares of Common Stock at the same per-share consideration; (ii) an offer that has commenced within the meaning of Rule 14d-2(a) under the Securities Exchange Act of 1934, as amended and in effect on the date of this Agreement (the “Exchange Act”); (iii) an offer that is conditioned on a minimum of at least a majority of the outstanding shares of the Common Stock being tendered and not withdrawn as of the offer’s expiration date, which condition shall not be waivable; (iv) an offer pursuant to which the offeror has announced that it intends, as promptly as practicable upon successful completion of the offer, to consummate a second step transaction whereby all shares of the Common Stock not tendered into the offer will be acquired using the same form and amount of consideration per share actually paid pursuant to the offer, subject to stockholders’ statutory appraisal rights, if any; (v) an offer pursuant to which the Company and its stockholders have received an irrevocable written commitment of the offeror that the offer will remain open for not less than 60 days; and (vi) an offer at a per-share consideration, and on such other terms and conditions, that in each case are adequate and fair. An offer shall constitute a Qualified Offer if and only for so long as each of the foregoing requirements in clauses (i) through (vi) remain satisfied, and if any such requirement shall at any time thereafter fail to be satisfied such offer shall no longer constitute a Qualified Offer.
(a)“The accumulationRecord Date” shall have the meaning set forth in the recitals of this Agreement.
“Right” shall have the meaning set forth in the recitals of this Agreement.
“Rights Agent” shall have the meaning set forth in the recitals of this Agreement.
“Rights Certificate” shall have the meaning set forth in Section 3(a) hereof.
“Rights Dividend Declaration Date” shall have the meaning set forth in the recitals of this Agreement.
“Section 11(a)(ii) Event” shall mean any numberevent described in Section 11(a)(ii) hereof.
“Section 13 Event” shall mean any event described in clause (x), (y) or (z) of related or unrelated transactions by any PersonSection 13(a) hereof.
“Stock Acquisition Date” shall mean the first date of Beneficial Ownership of twenty-five percent (25%) or more of the combined voting power of the Company’s voting stock; provided thatpublic announcement (which, for purposes of this subsection (a),definition, shall include, without limitation, a Change in Control will not be deemedreport filed pursuant to have occurred ifSection 13(d) under the accumulation of twenty-five percent (25%) or more of the Beneficial Ownership of the combined voting power of the Company’s voting stock resulted from (i) any acquisition of voting stockExchange Act) by the Company or byan Acquiring Person that an Acquiring Person has become such.
“Subsidiary” shall mean, with reference to any employee benefit plan (or related trust) sponsored or maintained by the Company orPerson, any affiliate or (ii) any acquisitionPerson of voting stock directly from the Company provided the Person’s Beneficial Ownershipwhich a majority of the combined voting power of voting equity securities or equity interests is beneficially owned, directly or indirectly, by such Person or otherwise controlled by such Person.
“Substitution Period” shall have the Company’s voting stock at no time thereafter equals thirty-five percent (35%) or moremeaning set forth in Section 11(a)(iii) hereof.
“Summary of Rights” shall have the combined voting power ofmeaning set forth in Section 3(b) hereof.
“Trading Day” shall have the Company’s voting stock; ormeaning set forth in Section 11(d)(i) hereof.
(b)“ConsummationTax Benefits” shall mean the net operating loss carryovers, capital loss carryovers, general business credit carryovers, alternative minimum tax credit carryovers, foreign tax credit carryovers, any loss or deduction attributable to a “net unrealized built-in loss” within the meaning of a merger, consolidation, reorganization or similar transaction (a “Business Combination”), unless, immediately following that Business Combination, (i) all or substantially allSection 382 of the Persons who had Beneficial Ownership ofCode, and the voting stockTreasury Regulations promulgated thereunder, of the Company immediatelyor any of its Subsidiaries.
“Treasury Regulations” shall mean final, temporary and proposed income tax regulations promulgated under the Code, as amended.
“Triggering Event” shall mean any Section 11(a)(ii) Event or any Section 13 Event.
Section 2.APPOINTMENT OF RIGHTS AGENT
The Company hereby appoints the Rights Agent to act as agent for the Company and the holders of the Rights (who, in accordance with Section 3 hereof, shall prior to that Business Combination have Beneficial Ownership, directly or indirectly, of more than fifty percent (50%)the Distribution Date also be the holders of the combined voting power ofCommon Stock) in accordance with the Company’sterms and conditions hereof, and the Rights Agent hereby accepts such appointment. The Company may from time to time appoint such co-rights agents as it may deem necessary or the surviving entity’s voting stock resulting from that Business Combination (including, without limitation, an entity that as a result of that transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), in substantially the same proportions relative to each other as their Beneficial Ownership, immediately prior to that Business Combination, of the voting stock of the Company, (ii) no Person acquires Beneficial Ownership of twenty five percent (25%) or more of the combined voting power of the Company’s or the surviving entity’s voting stock resulting from that Business Combination (including, without limitation, an entity that as a result of that transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries), and (iii) the Business Combination does not result in a Change in Control under subsection (c) below; provided that for purposes of this subsection (b), a Change in Control will not be deemed to have occurred as the result of any Person’s accumulation of Beneficial Ownership of twenty-five percent (25%) or more, but less than thirty-five percent (35%), of the combined voting power of the Company’s or the surviving entity’s voting stock resulting from that Business Combination so long as the Board approved the Business Combination; ordesirable.
Section 3.ISSUE OF RIGHTS CERTIFICATES
(c)Less than a majorityUntil the earlier of (i) the membersclose of business on the tenth day after the Stock Acquisition Date (or, if the tenth day after the Stock Acquisition Date occurs before the Record Date, the close of business on the Record Date), or (ii) the close of business on the tenth Business Day (or such later date as the Board of Directors of the Company shall determine prior to such time as any Person becomes an Acquiring Person) after the date that a tender or exchange offer by any entity resulting from a Business Combination are Incumbent Board Members; or
(d)Consummation of a sale or other disposition of all or substantially all ofPerson (other than any Exempted Person, the assetsCompany, any Subsidiary of the Company, except pursuant to a Business Combination that would not cause a Change in Control under subsection (b) above; or
(e)Approval by the shareholdersany employee benefit plan of the Company or of a complete liquidation or dissolutionany Subsidiary of the Company, exceptor any Person or entity organized, appointed or established by the Company for or pursuant to a Business Combination that would not cause a Change in Control under subsection (b) above
For purposesthe terms of this Section 2.7, the meaning of (i) “Person” shall be based on the definition of person in Section 3(a)(9) of the Act, as modified and used in Sections 13(d) and 14(d) of the Act, and (ii) “Beneficial Ownership” shall be asany such termplan) is used in Rule 13d-3 under the Act.
Incumbent Board Member means an individual who either is (a) a member of the Company’s Board as of the effective date of the adoption of this Planfirst published or (b) a member who becomes a member of the Company’s Board subsequent to the date of the adoption of this Plan whose election,sent or nomination for election by the Company’s shareholders, was approved by a vote of a majority of the then Incumbent Board Members (either by a specific vote or by approval of the proxy statement of the Company in which that Person is named as a nominee for director, without objection to that nomination), but excluding, for that purpose, any individual whose initial assumption of office occurs as a result of an actual or threatened election contest (within the meaning of Rule 14a-11 of the Act) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors.
Notwithstanding anything in this Plan or any Agreement to the contrary, to the extent any provision of this Plan or an Agreement would cause a payment of a 409A Award to be made because of the occurrence of a Change in Control, then such payment shall not be made unless such Change in Control also constitutes a “change in ownership”, “change in effective control” or “change in ownership of a substantial portion of the Company’s assets” within the meaning of Code section 409A. Other Participant rights that are tied to a Change in Control, such as vesting, shall not be affected by this paragraph.
2.8“Code” means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered and shall include all related regulations.
2.9“Committee” means the Compensation Committee of the Board, or the Board itself if no Compensation Committee exists. If such Compensation Committee exists, if and to the extent deemed necessary by the Board, such Compensation Committee shall consist of two or more directors, all of whom are (i) “non-employee directors”given within the meaning of Rule 16b-314d-2(a) of the General Rules and Regulations under the Exchange Act, if upon consummation thereof, such Person would become an Acquiring Person (the earlier of (i) and (ii) independent directors underbeing herein referred to as the rules“Distribution Date”), (x) the Rights will be evidenced (subject to the provisions of paragraph (b) of this Section 3) by the certificates for the Common Stock registered in the names of the holders of the Common Stock (which certificates for Common Stock shall be deemed also to be certificates for Rights) and not by separate certificates, and (y) the Rights will be transferable only in connection with the transfer of the underlying shares of Common Stock (including a transfer to the Company). As soon as practicable after the Distribution Date, the Company will prepare and execute, the Rights Agent will countersign and the Rights Agent will send by first-class, insured, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Distribution Date, at the address of such holder shown on the records of the Company, one or more rights certificates, in substantially the form of Exhibit B hereto (the “Rights Certificates”), evidencing one Right for each share of Common Stock so held, subject to adjustment as provided herein. In the event that an adjustment in the number of Rights per share of Common Stock has been made pursuant to Section 11(p) hereof, at the time of distribution of the Rights Certificates, the Company shall make the necessary and appropriate rounding adjustments (in accordance with Section 14(a) hereof) so that Rights Certificates representing only whole numbers of Rights are distributed and cash is paid in lieu of any stock exchange on whichfractional Rights. As of and after the Company’s securities are traded.Distribution Date, the Rights will be evidenced solely by such Rights Certificates.
2.10As promptly as practicable following the Record Date, the Company shall send a copy of a Summary of Rights, in substantially the form attached hereto as Exhibit C (the ““Company” means Beazer Homes USA, Inc.Summary of Rights”), a Delaware corporation,by first-class, postage prepaid mail, to each record holder of the Common Stock as of the close of business on the Record Date, at the address of such holder shown on the records of the Company. With respect to certificates for the Common Stock outstanding as of the Record Date, or issued subsequent to the Record Date, unless and its successorsuntil the Distribution Date shall occur, the Rights will be evidenced by such certificates for the Common Stock and assigns.the registered holders of the Common Stock shall also be the registered holders of the associated Rights. Until the earliest of the Distribution Date, the Expiration Date (as such
term is defined in Section 7 hereof) or the redemption of the Rights pursuant to Section 23 hereof, the transfer of any certificates representing shares of Common Stock in respect of which Rights have been issued shall also constitute the transfer of the Rights associated with such shares of Common Stock.
Rights shall be issued in respect of all shares of Common Stock which are issued (whether originally issued or from the Company’s treasury) after the Record Date but prior to the earliest of the Distribution Date, the Expiration Date or the redemption of the Rights pursuant to Section 23 hereof. Certificates representing such shares of Common Stock shall also be deemed to be certificates for Rights, and shall bear a legend substantially in the following form : “This certificate also evidences and entitles the holder hereof to certain Rights as set forth in the Rights Agreement between Beazer Homes USA, Inc. (the “Company”) and American Stock Transfer & Trust Company, LLC (the “Rights Agent”), dated as of November 14, 2022 (the “Rights Agreement”), the terms of which are hereby incorporated herein by reference and a copy of which is on file at the principal offices of the Rights Agent. Under certain circumstances, as set forth in the Rights Agreement, such Rights will be evidenced by separate certificates and will no longer be evidenced by this certificate. The Rights Agent will mail to the holder of this certificate a copy of the Rights Agreement, as in effect on the date of mailing, without charge promptly after receipt of a written request therefor. Under certain circumstances set forth in the Rights Agreement, Rights issued to, or held by, any Person who is, was or becomes an Acquiring Person or any Affiliate or Associate thereof (as such terms are defined in the Rights Agreement), whether currently held by or on behalf of such Person or by any subsequent holder, may become null and void.” With respect to such certificates containing the foregoing legend, until the earlier of the (i) Distribution Date or (ii) the Expiration Date, the Rights associated with the Common Stock represented by such certificates shall be evidenced by such certificates alone and registered holders of Common Stock shall also be the registered holders of the associated Rights, and the transfer of any of such certificates shall also constitute the transfer of the Rights associated with the Common Stock represented by such certificates.
Section 4.FORM OF RIGHTS CERTIFICATES
The Rights Certificates (and the forms of election to purchase and of assignment to be printed on the reverse thereof) shall each be substantially in the form set forth in Exhibit B hereto and may have such marks of identification or designation and such legends, summaries or endorsements printed thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any applicable law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Rights may from time to time be listed, or to conform to usage. Subject to the provisions of Section 11 and Section 22 hereof, the Rights Certificates, whenever distributed, shall be dated as of the Record Date or, in the case of Rights with respect to Common Stock issued or becoming outstanding after the Record Date, the same date as the date of the share certificate evidencing such shares, and on their face shall entitle the holders thereof to purchase such number of one one-thousandths of a share of Preferred Stock as shall be set forth therein at the price set forth therein (such exercise price per one one-thousandth of a share, the “Purchase Price”), but the amount and type of securities purchasable upon the exercise of each Right and the Purchase Price thereof shall be subject to adjustment as provided herein.
Any Rights Certificate issued pursuant to Section 3(a), Section 11(i) or Section 22 hereof that represents Rights beneficially owned by any Person known to be: (i) an Acquiring Person or any Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom such Acquiring Person has any continuing plan, agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, agreement, arrangement or understanding which has as a primary purpose or effect avoidance of Section 7(e) hereof, or (iv) subsequent transferees of such Persons described in clause (i), (ii) or (iii) of this sentence, and any Rights Certificate issued pursuant to
Section 6 or Section 11 hereof upon transfer, exchange, replacement or adjustment of any other Rights Certificate referred to in this sentence, shall contain (to the extent feasible) a legend substantially in the following form: “The Rights represented by this Rights Certificate are or were beneficially owned by a Person who was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person (as such terms are defined in the Rights Agreement). Accordingly, this Rights Certificate and the Rights represented hereby may become null and void in the circumstances specified in Section 7(e) of such Agreement.” The absence of the foregoing legend on any Rights Certificate shall in no way affect any of the other provisions of this Agreement, including, without limitation, the provisions of Section 7(e).
Section 5.COUNTERSIGNATURE AND REGISTRATION
The Rights Certificates shall be executed on behalf of the Company by its Chairman of the Board, its Chief Executive Officer, its President or any Executive Vice President or Senior Vice President, either manually or by facsimile signature, and shall have affixed thereto the Company’s seal or a facsimile thereof which shall be attested by the Secretary or an Assistant Secretary of the Company, either manually or by facsimile signature. The Rights Certificates shall be countersigned by the Rights Agent, either manually or by facsimile signature, and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Rights Certificates shall cease to be such officer of the Company before countersignature by the Rights Agent and issuance and delivery by the Company, such Rights Certificates, nevertheless, may be countersigned by the Rights Agent and issued and delivered by the Company with the same force and effect as though the person who signed such Rights Certificates had not ceased to be such officer of the Company; and any Rights Certificates may be signed on behalf of the Company by any person who, at the actual date of the execution of such Rights Certificate, shall be a proper officer of the Company to sign such Rights Certificate, although at the date of the execution of this Rights Agreement any such person was not such an officer.
Following the Distribution Date, the Rights Agent shall keep, or cause to be kept, at its principal office or offices designated as the appropriate place for surrender of Rights Certificates upon exercise or transfer, books for registration and transfer of the Rights Certificates issued hereunder. Such books shall show the names and addresses of the respective holders of the Rights Certificates, the number of Rights evidenced on its face by each of the Rights Certificates and the date of each of the Rights Certificates.
Section 6.TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHTS CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHTS CERTIFICATES
Subject to the provisions of Section 4(b), Section 7(e), Section 14 and Section 27 hereof, at any time after the close of business on the Distribution Date, and at or prior to the close of business on the Expiration Date or the redemption of the rights pursuant to Section 23 hereof, any Rights Certificate or Certificates may be transferred, split up, combined or exchanged for another Rights Certificate or Certificates, entitling the registered holder to purchase a like number of one one-thousandths of a share of Preferred Stock (or, following a Triggering Event, Common Stock, other securities, cash or other assets, as the case may be) as the Rights Certificate or Certificates surrendered then entitles such holder (or former holder in the case of a transfer) to purchase. Any registered holder desiring to transfer, split up, combine or exchange any Rights Certificate or Certificates shall make such request in writing delivered to the Rights Agent, and shall surrender the Rights Certificate or Certificates to be transferred, split up, combined or exchanged at the principal office or offices of the Rights Agent designated for such purpose. Neither the Rights Agent nor the Company shall be obligated to take any action whatsoever with respect to the transfer of any such surrendered Rights Certificate until the registered holder shall have completed and signed the certificate contained in the form of assignment on the reverse side of such Rights Certificate and shall have provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request. Thereupon the Rights Agent shall, subject to Section 4(b), Section 7(e), Section 14 and Section 27 hereof, countersign and deliver to the Person entitled thereto a Rights Certificate or Rights Certificates, as the case may be, as so requested. The Company may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer, split up, combination or exchange of Rights
Certificates. The Rights Agent shall promptly forward any such sum collected by it to the Company or to such Persons as the Company shall specify by written notice.
Upon receipt by the Company and the Rights Agent of evidence reasonably satisfactory to them of the loss, theft, destruction or mutilation of a Rights Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to them, and, at the Company’s request, reimbursement to the Company and the Rights Agent of all reasonable expenses incidental thereto, and upon surrender to the Rights Agent and cancellation of the Rights Certificate if mutilated, the Company will execute and deliver a new Rights Certificate of like tenor to the Rights Agent for countersignature and delivery to the registered owner in lieu of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7.EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS
Subject to Section 7(e) and Section 27 hereof, the registered holder of any Rights Certificate may exercise the Rights evidenced thereby (except as otherwise provided herein including, without limitation, the restrictions on exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a) hereof) in whole or in part at any time after the Distribution Date upon surrender of the Rights Certificate, with the form of election to purchase and the certificate on the reverse side thereof duly executed, to the Rights Agent at the principal office or offices of the Rights Agent designated for such purpose, together with payment of the aggregate Purchase Price with respect to the total number of one one-thousandth of a share of Preferred Stock (or other securities, cash or other assets, as the case may be) as to which such surrendered Rights are then exercisable, at or prior to the earliest of (i) the close of business on November 14, 2025 (the “Final Expiration Date”), (ii) the time at which the Rights are redeemed as provided in Section 23 hereof, (iii) the time at which all of the Rights (other than Rights that have become void pursuant to the provisions of Section 7(e) hereof) are exchanged for Common Stock or other assets or securities as provided in Section 27 hereof, (iv) the close of business on the effective date of the repeal of Section 382 or any successor statute if the Board of Directors of the Company determines that this Agreement is no longer necessary or desirable for the preservation of Tax Benefits, or (v) the close of business on the first day of a taxable year of the Company to which the Board of Directors of the Company determines that no Tax Benefits may be carried forward (the earliest of (i) and (ii) and (iii) and (iv) and (v) being herein referred to as the “Expiration Date”).
The Purchase Price for each one one-thousandth of a share of Preferred Stock pursuant to the exercise of a Right shall initially be $50.00, and shall be subject to adjustment from time to time as provided in Sections 11 and 13(a) hereof and shall be payable in accordance with paragraph (c) below.
Upon receipt of a Rights Certificate representing exercisable Rights, with the form of election to purchase and the certificate duly executed, accompanied by payment, with respect to each Right so exercised, of the Purchase Price per one one-thousandth of a share of Preferred Stock (or other shares, securities, cash or other assets, as the case may be) to be purchased as set forth below and an amount equal to any applicable transfer tax, the Rights Agent shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition from any transfer agent of the shares of Preferred Stock (or make available, if the Rights Agent is the transfer agent for such shares) certificates for the total number of one one-thousandths of a share of Preferred Stock to be purchased and the Company hereby irrevocably authorizes its transfer agent to comply with all such requests, or (B) if the Company shall have elected to deposit the total number of shares of Preferred Stock issuable upon exercise of the Rights hereunder with a depositary agent, requisition from the depositary agent depositary receipts representing such number of one one-thousandths of a share of Preferred Stock as are to be purchased (in which case certificates for the shares of Preferred Stock represented by such receipts shall be deposited by the transfer agent with the depositary agent) and the Company shall direct the depositary agent to comply with such request, (ii) requisition from the Company the amount of cash, if any, to be paid in lieu of fractional shares in accordance with Section 14 hereof, (iii) after receipt of such certificates or depositary receipts, cause the same to be delivered to, or upon the order of the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, and (iv) after receipt thereof, deliver such cash described in clause (ii) hereof, if any, to or upon the order of the registered holder of such Rights
Certificate. The payment of the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii) hereof) shall be made in cash or by certified bank check or bank draft payable to the order of the Company. In the event that the Company is obligated to issue other securities (including Common Stock) of the Company, pay cash and/or distribute other property pursuant to Section 11(a) hereof, the Company will make all arrangements necessary so that such other securities, cash and/or other property are available for distribution by the Rights Agent, if and when appropriate. The Company reserves the right to require prior to the occurrence of a Triggering Event that, upon any exercise of Rights, a number of Rights be exercised so that only whole shares of Preferred Stock would be issued.
In case the registered holder of any Rights Certificate shall exercise less than all the Rights evidenced thereby, a new Rights Certificate evidencing Rights equivalent to the Rights remaining unexercised shall be issued by the Rights Agent and delivered to, or upon the order of, the registered holder of such Rights Certificate, registered in such name or names as may be designated by such holder, subject to the provisions of Section 14 hereof.
Notwithstanding anything in this Agreement to the contrary, from and after the first occurrence of a Section 11(a)(ii) Event, any Rights beneficially owned by any Person known to be (i) an Acquiring Person or an Associate or Affiliate of an Acquiring Person, (ii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee after the Acquiring Person becomes such, (iii) a transferee of an Acquiring Person (or of any such Associate or Affiliate) who becomes a transferee prior to or concurrently with the Acquiring Person becoming such and receives such Rights pursuant to either (A) a transfer (whether or not for consideration) from the Acquiring Person to holders of equity interests in such Acquiring Person or to any Person with whom the Acquiring Person has any continuing plan, agreement, arrangement or understanding regarding the transferred Rights or (B) a transfer which the Board of Directors of the Company has determined is part of a plan, agreement, arrangement or understanding which has as a primary purpose or effect the avoidance of this Section 7(e), or (iv) subsequent transferees of such Persons described in clause (i), (ii) or (iii) of this sentence, shall become null and void without any further action and no holder of such Rights shall have any rights whatsoever with respect to such Rights, whether under any provision of this Agreement or otherwise. The Company shall use all reasonable efforts to insure that the provisions of this Section 7(e) and Section 4(b) hereof are complied with, but shall have no liability to any holder of Rights Certificates or other Person as a result of its failure to make any determinations with respect to an Acquiring Person or any of its Affiliates, Associates or transferees hereunder.
Notwithstanding anything in this Agreement to the contrary, neither the Rights Agent nor the Company shall be obligated to undertake any action with respect to a registered holder upon the occurrence of any purported exercise as set forth in this Section 7 unless such registered holder shall have (i) properly completed and signed the certificate contained in the form of election to purchase set forth on the reverse side of the Rights Certificate surrendered for such exercise, and (ii) provided such additional evidence of the identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the Company shall reasonably request.
Section 8.CANCELLATION AND DESTRUCTION OF RIGHTS CERTIFICATES
All Rights Certificates surrendered for the purpose of exercise, transfer, split up, combination or exchange shall, if surrendered to the Company or any of its agents, be delivered to the Rights Agent for cancellation or in canceled form, or, if surrendered to the Rights Agent, shall be canceled by it, and no Rights Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Agreement. The Company shall deliver to the Rights Agent for cancellation and retirement, and the Rights Agent shall so cancel and retire, any other Rights Certificate purchased or acquired by the Company otherwise than upon the exercise thereof. The Rights Agent shall deliver all canceled Rights Certificates to the Company, or shall, at the written request of the Company, destroy such canceled Rights Certificates, and in such case shall deliver a certificate of destruction thereof to the Company.
2.11Section 9.[Intentionally omitted]RESERVATION AND AVAILABILITY OF CAPITAL STOCK
2.12“Director” means any individual who isThe Company covenants and agrees that it will cause to be reserved and kept available out of its authorized and unissued shares of Preferred Stock (and, following the occurrence of a memberTriggering Event, out of its authorized and unissued shares of Common Stock and/or other securities or out of its authorized and issued shares held in its treasury), the number of shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/or other securities) that, as provided in this Agreement, including Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of all outstanding Rights.
So long as the shares of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/ or other securities) issuable and deliverable upon the exercise of the Board; provided, however, thatRights may be listed on any individual who is bothnational securities exchange, the Company shall use its best efforts to cause, from and after such time as the Rights become exercisable, all shares reserved for such issuance to be listed on such exchange upon official notice of issuance upon such exercise.
The Company shall use its best efforts to (i) file, as soon as practicable following the earliest date after the first occurrence of a member ofSection 11(a)(ii) Event on which the Board and employedconsideration to be delivered by the Company or any other entity constituting the Employer shall not be considered a Director for purposesupon exercise of the Plan.
2.13Rights has been determined in accordance with Section 11(a)(iii) hereof, a registration statement under the Securities Act of 1933 (the ““Disability” means,Act”) with respect to the securities purchasable upon exercise of the Rights on an appropriate form, (ii) cause such registration statement to become effective as soon as practicable after such filing, and (iii) cause such registration statement to remain effective (with a prospectus at all times meeting the requirements of the Act) until the earlier of (A) the date as of which the Rights are no longer exercisable for such securities, and (B) the date of the expiration of the Rights. The Company will also take such action as may be appropriate under, or to ensure compliance with, the securities or “blue sky” laws of the various states in connection with the exercisability of the Rights. The Company may temporarily suspend, for a period of time not to exceed ninety (90) days after the date set forth in clause (i) of the first sentence of this Section 9(c), the exercisability of the Rights in order to prepare and file such registration statement and permit it to become effective. Upon any Incentive Stock Option,such suspension, the Company shall issue a disabilitypublic announcement stating that the exercisability of the Rights has been temporarily suspended, as determined under Code section 22(e)(3), and with respect to any other Award,well as a disabilitypublic announcement at such time as determined under procedures established by the Committee or in any Agreement; providedsuspension has been rescinded. In addition, if the Company shall determine that toa registration statement is required following the extentDistribution Date, the Company may temporarily suspend the exercisability of the Rights until such time as a registration statement has been declared effective. Notwithstanding any provision of this Plan or an Agreement would cause a payment of a 409A Award to be made because of the Participant’s Disability, then therecontrary, the Rights shall not be a Disability that triggers payment untilexercisable in any jurisdiction if the date (if any) thatrequisite qualification in such jurisdiction shall not have been obtained, the Participant is disabled within the meaning of Code section 409A(a)(2)(C).
2.14“Effective Date”exercise thereof shall have the meaning ascribed to such term in Section 1.4 above.
2.15“Eligible Participant” means an employee of an Employer as well as any other natural person, including a Directornot be permitted under applicable law or a person who provides bona fide services to an Employer, subject to any limitations asregistration statement shall be determined by the Committee.not have been declared effective.
2.16“Employer” means theThe Company covenants and any entity during any periodagrees that it iswill take all such action as may be necessary to ensure that all one one-thousandths of a “parent corporation”share of Preferred Stock (and, following the occurrence of a Triggering Event, Common Stock and/ or a “subsidiary corporation” with respect toother securities) delivered upon exercise of Rights shall, at the Company within the meaningtime of Code sections 424(e) and 424(f). With respect to all purposesdelivery of the Plan, including but not limitedcertificates for such shares (or Units) (subject to the establishment, amendment, termination, operation and administrationpayment of the Plan,Purchase Price), be duly and validly authorized and issued and fully paid and non-assessable.
The Company further covenants and agrees that it will pay when due and payable any and all federal and state transfer taxes and charges which may be payable in respect of the issuance or delivery of the Rights Certificates and of any certificates for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/ or other securities, as the case may be) upon the exercise of Rights. The Company shall not, however, be authorizedrequired to act on behalfpay any transfer tax which may be payable in respect of allany transfer or delivery of Rights Certificates to a Person other entities included withinthan, or the definitionissuance or delivery of “Employer.”
2.17“Fair Market Value” means, ona number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) in respect of a name other than that of, the registered holder of the Rights Certificates evidencing Rights surrendered for exercise or to issue or deliver any given date:
(a)if the Shares are listed on the NYSE on the given date, Fair Market Value on such date shall be the closing pricecertificates for a Share on the NYSE on such date, or if no sale was reported on such date, on the last preceding day on which a sale was reported on the NYSE;
(b)if the Shares are listed on a national or regional securities exchange other than the NYSE on the given date, Fair Market Value on such date shall be the closing price for a Share on the securities exchange on such date or, if no sale was reported on such date, on the last preceding day on which a sale was reported on such exchange; or
(c)if neither (a) nor (b) applies on the given date, the fair market valuenumber of one one-thousandths of a Share on that date shall be determined in good faith by the Committee.
For purposesshare of subsection (b) above, if Shares are not traded on the NYSE but they are traded on more than onePreferred Stock (or Common Stock and/or other securities, exchange on the given date, then the following exchange shall be referenced to determine Fair Market Value: (i) the NASDAQ, or (ii) if shares are not traded on the NASDAQ, the largest exchange on which Shares are traded.
Notwithstanding the foregoing, (i) inas the case of an Option or SAR, Fair Market Value shall be determined in accordance with a definition of fair market value that permits the Award to be exempt from Code section 409A; and (ii) in the case of an Option that is intended to qualify as an ISO under Code section 422, Fair Market Value shall be determined by the Committee in accordance with the requirements of Code section 422.
2.18“409A Award” means each Award that is not exempt from Code section 409A.may
be) in a name other than that of the registered holder upon the exercise of any Rights until such tax shall have been paid (any such tax being payable by the holder of such Rights Certificate at the time of surrender) or until it has been established to the Company’s satisfaction that no such tax is due.
Section 10.PREFERRED STOCK RECORD DATE
Each Person in whose name any certificate for a number of one one-thousandths of a share of Preferred Stock (or Common Stock and/or other securities, as the case may be) is issued upon the exercise of Rights shall for all purposes be deemed to have become the holder of record of such fractional shares of Preferred Stock (or Common Stock and/or other securities, as the case may be) represented thereby on, and such certificate shall be dated, the date upon which the Rights Certificate evidencing such Rights was duly surrendered and payment of the Purchase Price (and all applicable transfer taxes) was made provided; however, that if the date of such surrender and payment is a date upon which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are closed, such Person shall be deemed to have become the record holder of such shares (fractional or otherwise) on, and such certificate shall be dated, the next succeeding Business Day on which the Preferred Stock (or Common Stock and/or other securities, as the case may be) transfer books of the Company are open. Prior to the exercise of the Rights evidenced thereby, the holder of a Rights Certificate shall not be entitled to any rights of a stockholder of the Company with respect to shares for which the Rights shall be exercisable, including, without limitation, the right to vote, to receive dividends or other distributions or to exercise any preemptive rights, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided herein.
Section 11.ADJUSTMENT OF PURCHASE PRICE, NUMBER AND KIND OF SHARES OR NUMBER OF RIGHTS
The Purchase Price, the number and kind of shares covered by each Right and the number of Rights outstanding are subject to adjustment from time to time as provided in this Section 11.
(i) In the event the Company shall at any time after the date of this Agreement (A) declare a dividend on the Preferred Stock payable in shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C) combine the outstanding Preferred Stock into a smaller number of shares, or (D) issue any shares of its capital stock in a reclassification of the Preferred Stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing or surviving corporation), except as otherwise provided in this Section 11(a) and Section 7(e) hereof, the Purchase Price in effect at the time of the record date for such dividend or of the effective date of such subdivision, combination or reclassification, and the number and kind of shares of Preferred Stock or capital stock, as the case may be, issuable on such date, shall be proportionately adjusted so that the holder of any Right exercised after such time shall be entitled to receive, upon payment of the Purchase Price then in effect, the aggregate number and kind of shares of Preferred Stock or capital stock, as the case may be, which, if such Right had been exercised immediately prior to such date and at a time when the Preferred Stock transfer books of the Company were open, such holder would have owned upon such exercise and been entitled to receive by virtue of such dividend, subdivision, combination or reclassification provided; however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of Preferred Stock or capital stock, as the case may be, issuable upon exercise of one Right. If an event occurs which would require an adjustment under both this Section 11(a)(i) and Section 11(a)(ii) hereof, the adjustment provided for in this Section 11(a)(i) shall be in addition to, and shall be made prior to, any adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event any Person shall become an Acquiring Person, then, promptly following the occurrence of such event, proper provision shall be made so that each holder of a Right (except as provided below and in Section 7(e) hereof) shall thereafter have the right to receive, upon exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement, in lieu of a number of one one-thousandths of a share of Preferred Stock, such number of shares of Common Stock
2.19“Good Reason” means, “Good Reason”of the Company as defined under any written employment or service agreement applicableshall equal the result obtained by (x) multiplying the then current Purchase Price by the then number of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to the Participant atfirst occurrence of a Section 11(a)(ii) Event, and (y) dividing that product (which, following such first occurrence, shall thereafter be referred to as the time“Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the Participant’s termination or if no such employment or service agreement exists or if such employment or service agreement does not contain any such definition, “Good Reason” means the occurrenceCurrent Market Price (determined pursuant to Section 11(d) hereof) per share of any of the following conditions without the Participant’s consent:
(a)a material diminution in the Participant’s authority, duties or responsibilities from those that existedCommon Stock on the date immediately precedingof such first occurrence (such number of shares, the Change in Control; or“Adjustment Shares”).
(b)relocation(iii) In the event that the number of shares of Common Stock which are authorized by the Company’s Certificate of Incorporation but not outstanding, subscribed for or reserved for issuance for purposes other than upon exercise of the Participant’s primary officeRights are not sufficient to permit the exercise in full of the Rights in accordance with the foregoing subparagraph (ii) of this Section 11(a), the Company shall (A) determine the value of the Adjustment Shares issuable upon the exercise of a locationRight (the “Current Value”), and (B) with respect to each Right (subject to Section 7(e) hereof), make adequate provision to substitute for the Adjustment Shares, upon the exercise of a Right and payment of the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase Price, (3) Common Stock or other equity securities of the Company (including, without limitation, shares, or units of shares, of preferred stock, such as the Preferred Stock, which the Board of Directors of the Company has deemed to have essentially the same value or economic rights as shares of Common Stock (such shares of preferred stock being referred to as “Common Stock Equivalents”)), (4) debt securities of the Company, (5) other assets, or (6) any combination of the foregoing, having an aggregate value equal to the Current Value (less the amount of any reduction in the Purchase Price), where such aggregate value has been determined by the Board based upon the advice of a nationally recognized investment banking firm selected by the Board provided; however, that if the Company shall not have made adequate provision to deliver value pursuant to clause (B) above within thirty (30) days following the later of (x) the first occurrence of a Section 11(a)(ii) Event and (y) the date on which the Company’s right of redemption pursuant to Section 23(a) expires (the later of (x) and (y) being referred to herein as the “Section 11(a)(ii) Trigger Date”), then the Company shall be obligated to deliver, upon the surrender for exercise of a Right and without requiring payment of the Purchase Price, shares of Common Stock (to the extent available) and then, if necessary, cash, which shares and/or cash have an aggregate value equal to the Spread. For purposes of the preceding sentence, the term “Spread” shall mean the excess of (i) the Current Value over (ii) the Purchase Price. If the Board of Directors of the Company determines in good faith that it is likely that sufficient additional shares of Common Stock could be authorized for issuance upon exercise in full of the Rights, the thirty (30) day period set forth above may be extended to the extent necessary, but not more than thirty-five (35) miles from the location of the Participant’s primary office on the date immediately preceding the Change in Control.
Notwithstanding the foregoing, the occurrence of any of the events described above will not constitute Good Reason unless (i) the Participant gives the Company written notice within fifteen (15)ninety (90) days after the initial occurrence of an eventSection 11(a)(ii) Trigger Date, in order that the Participant believes constitutes Good Reason and describesCompany may seek stockholder approval for the authorization of such event inadditional shares (such thirty (30) day period, as it may be extended, is herein called the notice; (ii)“Substitution Period”). To the extent that the Company thereafter failsdetermines that action should be taken pursuant to curethe first and/or third sentences of this Section 11(a)(iii), the Company (1) shall provide, subject to Section 7(e) hereof, that such action shall apply uniformly to all outstanding Rights, and (2) may suspend the exercisability of the Rights until the expiration of the Substitution Period in order to seek such stockholder approval for such authorization of additional shares and/or to decide the appropriate form of distribution to be made pursuant to such first sentence and to determine the value thereof. In the event of any such eventsuspension, the Company shall issue a public announcement stating that the exercisability of the Rights has been temporarily suspended, as well as a public announcement at such time as the suspension is no longer in effect. For purposes of this Section 11(a) (iii), the value of each Adjustment Share shall be the Current Market Price per share of the Common Stock on the Section 11(a) (ii) Trigger Date and the per share or per unit value of any Common Stock Equivalent shall be deemed to equal the Current Market Price per share of the Common Stock on such date.
In case the Company shall fix a record date for the issuance of rights, options or warrants to all holders of Preferred Stock entitling them to subscribe for or purchase (for a period expiring within fifteen (15)forty-five (45) calendar days after receiptsuch record date) Preferred Stock (or shares having the same rights, privileges and preferences as the shares of such notice; and (iii) the Participant’s termination as a result of such event occurs at least 31 days after the Company’s receipt of the notice referred to in clause (ii), but no more than 60 days after the initial occurrence of such event. The existence of “Good Reason” under this Section 2.19 shall be determined in good faith by the Committee.
2.20Preferred Stock (““IncentiveEquivalent Preferred Stock Option””)) or “ISO” means an Option granted to an Eligible Participant under Article 5 of the Plan which is designated as an Incentive Stock Option and intended to meet the requirements of Code section 422.
2.21“Insider” shall mean an individual who is, on the relevant date, subject to the reporting requirements of Section 16(a) of the Act.
2.22“Long-Term Incentive Compensation Award” means an Award that is granted pursuant to Article 10 of the Plan.
2.23“Nonqualified Stock Option” or “NQSO” means an Option granted to an Eligible Participant under Article 5 of the Plan which is not intended to meet the requirements of Code section 422 or that otherwise does not meet such requirements.
2.24“NYSE” means the New York Stock Exchange.
2.25“Option” means an Incentive Stock Option or a Nonqualified Stock Option. An Option shall be designated as either an Incentive Stock Option or a Nonqualified Stock Option, and in the absence of such designation shall be a Nonqualified Stock Option.
2.26“Option Price” means the price at which a Share may be purchased by exercise of an Option.
2.27“Other Stock-Based Award” means any form of equity-based or equity-related award, other than an Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, Performancesecurities convertible into Preferred Stock or Performance Unit, that is granted pursuant to Article 9Equivalent Preferred Stock at a price per share of the Plan.
2.28“Participant” means an Eligible Participant to whom an Award has been granted.
2.29“Payment Date” shall have the meaning set forth in Section 5.5Preferred Stock or per share of the Plan.
2.30“Performance Share” means an Award under Article 8Equivalent Preferred Stock (or having a conversion price per share, if a security convertible into Preferred Stock or Equivalent Preferred Stock) less than the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of shares of Preferred Stock which the aggregate offering price of the Plantotal number of shares of Preferred Stock and/or Equivalent Preferred Stock so to be offered (and/or the aggregate initial conversion price of the convertible securities so to be offered) would purchase at such Current Market Price, and the denominator of which shall be the number of shares of Preferred Stock outstanding on such record date, plus the number of additional shares of Preferred Stock and/or Equivalent Preferred Stock to be offered for subscription or purchase (or into which the convertible securities so to be offered are initially convertible) provided; however, that is valued by referencein no event shall the consideration to a Share, whichbe paid upon the exercise of one Right be less than the aggregate par value of the shares of Preferred Stock or capital stock, as the case may be, issuable upon exercise of one Right. In case such subscription price may be paid to the Participant by delivery of consideration part or all of which may be in a form other than cash, or Shares, or any combination thereof,the value of such consideration shall be as determined in good faith by the Committee, upon achievementBoard of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be binding on the Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by or held for the account of the Company shall not be deemed outstanding for the purpose of any such computation. Such adjustment shall be made successively whenever such a record date is fixed, and in the event that such rights or warrants are not so issued, the Purchase Price shall be adjusted to be the Purchase Price which would then be in effect if such record date had not been fixed.
In case the Company shall fix a record date for a distribution to all holders of Preferred Stock (including any such distribution made in connection with a consolidation or merger in which the Company is the continuing corporation) of cash (other than a regular quarterly cash dividend out of the earnings or retained earnings of the Company), assets (other than a dividend payable in Preferred Stock, but including any dividend payable in stock other than Preferred Stock) or evidences of indebtedness, or of subscription rights or warrants (excluding those referred to in Section 11(b) hereof), the Purchase Price to be in effect after such record date shall be determined by multiplying the Purchase Price in effect immediately prior to such record date by a fraction, the numerator of which shall be the Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock on such record date, less the fair market value (as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent) of the portion of the cash, assets or evidences of indebtedness so to be distributed or of such performance objectives duringsubscription rights or warrants applicable to a share of Preferred Stock and the relevant performance perioddenominator of which shall be such Current Market Price (as determined pursuant to Section 11(d) hereof) per share of Preferred Stock provided; however, that in no event shall the consideration to be paid upon the exercise of one Right be less than the aggregate par value of the shares of Preferred Stock or capital stock, as the Committee shall establish at the time of such Award or thereafter.
2.31“Performance Unit” means an Award under Article 8 of the Plan that has a value set by the Committee (or that is determined by reference to a valuation formula specified by the Committee), which valuecase may be, paid to the Participant by delivery of cash or Shares, or any combination thereof, as determined by the Committee, upon achievement of such performance objectives during the relevant performance period as the Committee shall establish at the time of such Award or thereafter.
2.32“Plan” means the Beazer Homes USA, Inc. Amended and Restated 2014 Long-Term Incentive Plan, as set forth in this document and as it may be amended from time to time.
2.33“Restricted Stock” means an Award of Shares under Article 7 of the Plan, which Shares are issued with such restriction(s) as the Committee, in its sole discretion, may impose.
2.34“Restricted Stock Unit” means an Award under Article 7 of the Plan that is valued by reference to a Share, which value may be paid to the Participant by delivery of such property as the Committee shall determine, including without limitation, cash or Shares, or any combination thereof, and that has such restriction(s) as the Committee, in its sole discretion, may impose.
2.35“Restriction Period” means the period during which Restricted Stock or Restricted Stock Units are subject to one or more restrictions that will lapse based on the passage of time, the achievement of performance goals, or the occurrence of another event or events, as determined by the Committee and specified in the applicable Agreement.
2.36“SAR Price” means the amount that is subtracted from the Fair Market Value of a Share at the time of exercise of a SAR to determine the amount payable, if any,issuable upon exercise of one Right. Such adjustments shall be made successively whenever such a record date is fixed, and in the SAR.event that such distribution is not so made, the Purchase Price shall be adjusted to be the Purchase Price which would have been in effect if such record date had not been fixed.
2.37“Share” means one(i) For the purpose of any computation hereunder, other than computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of common stock, par value $.001Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the thirty (30) consecutive Trading Days immediately prior to such date, and for purposes of computations made pursuant to Section 11(a)(iii) hereof, the Current Market Price per share of Common Stock on any date shall be deemed to be the average of the daily closing prices per share of such Common Stock for the ten (10) consecutive Trading Days immediately following such date provided; however, that in the event that the Current Market Price per share of the Company, as may be adjusted pursuant toCommon Stock is determined during a period following the provisionsannouncement by the issuer of Section 4.3such Common Stock of the Plan.
2.38“Stock Appreciation Right”(A) a dividend or “SAR” means an Award granted under Article 6 which provides for an amountdistribution on such Common Stock payable in Shares and/shares of such Common Stock or cash, as determined bysecurities convertible into shares of such Common Stock (other than the Committee, equal to the excessRights), or (B) any subdivision, combination or reclassification of the Fair Market Value of a Share on the day the Stock Appreciation Right is exercised over the SAR Price.
Article 3 - Administration
3.1General. This Plan shall be administered by the Committee.
3.2Authority of the Committee.such Common
(a)The CommitteeStock, and the ex-dividend date for such dividend or distribution, or the record date for such subdivision, combination or reclassification shall not have occurred prior to the full and exclusive discretionary authority to (i) interpret, construe and administer the terms and intentcommencement of the Planrequisite thirty (30) Trading Day or ten (10) Trading Day period, as set forth above, then, and in each such case, the Current Market Price shall be properly adjusted to take into account ex-dividend trading. The closing price for each day shall be the last sale price, regular way, or, in case no such sale takes place on such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the shares of Common Stock are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading or, if the shares of Common Stock are not listed or admitted to trading on any Agreementnational securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market or such other system then in use, or, if on any such date the shares of Common Stock are not so quoted, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Common Stock selected by the Board of Directors of the Company. If on any such date no market maker is making a market in the Common Stock, the fair value of such shares on such date as determined in good faith by the Board shall be used. The term “Trading Day” shall mean a day on which the principal national securities exchange on which the shares of Common Stock are listed or admitted to trading is open for the transaction of business or, if the shares of Common Stock are not listed or admitted to trading on any national securities exchange, a Business Day. If the Common Stock is not publicly held or not so listed or traded, Current Market Price per share shall mean the fair value per share as determined in good faith by the Board, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the Current Market Price per share of Preferred Stock shall be determined in the same manner as set forth above for the Common Stock in clause (i) of this Section 11(d) (other than the last sentence thereof). If the Current Market Price per share of Preferred Stock cannot be determined in the manner provided above or if the Preferred Stock is not publicly held or listed or traded in a manner described in clause (i) of this Section 11(d), the Current Market Price per share of Preferred Stock shall be conclusively deemed to be an amount equal to 1,000 (as wellsuch number may be appropriately adjusted for such events as any other agreement or document relatedstock splits, stock dividends and recapitalizations with respect to the PlanCommon Stock occurring after the date of this Agreement) multiplied by the Current Market Price per share of the Common Stock. If neither the Common Stock nor the Preferred Stock is publicly held or so listed or traded, Current Market Price per share of the Preferred Stock shall mean the fair value per share as determined in good faith by the Board of Directors of the Company, whose determination shall be described in a statement filed with the Rights Agent and shall be conclusive for all purposes. For all purposes of this Agreement, the Current Market Price of a Unit shall be equal to the Current Market Price of one share of Preferred Stock divided by 1,000.
Anything herein to the contrary notwithstanding, no adjustment in the Purchase Price shall be required unless such adjustment would require an Award)increase or decrease of at least 1% in the Purchase Price provided; however, that any adjustments which by reason of this Section 11(e) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 11 shall be made to the nearest cent or to the nearest one-thousandth of a share of Common Stock or other share of capital stock or one-ten millionth of a share of Preferred Stock, as the case may be. Notwithstanding the first sentence of this Section 11(e), any adjustment required by this Section 11 shall be made no later than the earlier of (i) three (3) years from the date of the transaction which mandates such adjustment, or (ii) select the persons who are eligibleExpiration Date.
If as a result of an adjustment made pursuant to Section 11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised shall become entitled to receive an Award, (iii) actany shares of capital stock other than Preferred Stock, thereafter the number of such other shares so receivable upon exercise of any Right and the Purchase Price thereof shall be subject to adjustment from time to time in all matters pertaininga manner and on terms as
nearly equivalent as practicable to the granting of an Awardprovisions with respect to the Preferred Stock contained in Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and the contents of the Agreement evidencing the Award, including the determination of the size, form, terms, conditions(m), and duration of each Award, and (iv) make any amendment to an Award or Agreement consistent with the provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Plan. Preferred Stock shall apply on like terms to any such other shares.
All Rights originally issued by the Company subsequent to any adjustment made to the Purchase Price hereunder shall evidence the right to purchase, at the adjusted Purchase Price, the number of one one-thousandths of a share of Preferred Stock purchasable from time to time hereunder upon exercise of the Rights, all subject to further adjustment as provided herein.
Unless the Company shall have exercised its election as provided in Section 11(i), upon each adjustment of the Purchase Price as a result of the calculations made in Sections 11(b) and (c), each Right outstanding immediately prior to the making of such adjustment shall thereafter evidence the right to purchase, at the adjusted Purchase Price, that number of one one-thousandths of a share of Preferred Stock (calculated to the nearest one-ten millionth of a share of Preferred Stock) obtained by:
multiplying (x) the number of one one-thousandths of a share covered by a Right immediately prior to this adjustment, by (y) the Purchase Price in effect immediately prior to such adjustment of the Purchase Price, and
dividing the product so obtained by the Purchase Price in effect immediately after such adjustment of the Purchase Price.
The CommitteeCompany may adopt such rules, regulations and procedureselect on or after the date of general applicationany adjustment of the Purchase Price to adjust the number of Rights, in lieu of any adjustment in the number of one one-thousandths of a share of Preferred Stock purchasable upon the exercise of a Right. Each of the Rights outstanding after the adjustment in the number of Rights shall be exercisable for the administrationnumber of one one-thousandths of a share of Preferred Stock for which a Right was exercisable immediately prior to such adjustment. Each Right held of record prior to such adjustment of the number of Rights shall become that number of Rights (calculated to the nearest one one-thousandth) obtained by dividing the Purchase Price in effect immediately prior to adjustment of the Purchase Price by the Purchase Price in effect immediately after adjustment of the Purchase Price. The Company shall make a public announcement of its election to adjust the number of Rights, indicating the record date for the adjustment, and, if known at the time, the amount of the adjustment to be made. This record date may be the date on which the Purchase Price is adjusted or any day thereafter, but, if the Rights Certificates have been issued, shall be at least ten (10) days later than the date of the public announcement. If Rights Certificates have been issued, upon each adjustment of the number of Rights pursuant to this Plan,Section 11(i), the Company shall, as it deems appropriate. Forpromptly as practicable, cause to be distributed to holders of record of Rights Certificates on such record date Rights Certificates evidencing, subject to Section 14 hereof, the avoidanceadditional Rights to which such holders shall be entitled as a result of doubt,such adjustment, or, at the Committeeoption of the Company, shall have no authoritycause to grant or amend any Awardbe distributed to such holders of record in a manner that contravenessubstitution and replacement for the minimum vesting requirement set forth in Section 3.5 hereof.
(b)The Committee may correct any defect, supply any omission or reconcile any inconsistencyRights Certificates held by such holders prior to the date of adjustment, and upon surrender thereof, if required by the Company, new Rights Certificates evidencing all the Rights to which such holders shall be entitled after such adjustment. Rights Certificates so to be distributed shall be issued, executed and countersigned in the Plan or any Agreementmanner provided for herein (and may bear, at the option of the Company, the adjusted Purchase Price) and shall be registered in the mannernames of the holders of record of Rights Certificates on the record date specified in the public announcement.
Irrespective of any adjustment or change in the Purchase Price or the number of one one-thousandths of a share of Preferred Stock issuable upon the exercise of the Rights, the Rights Certificates theretofore and thereafter issued may continue to express the Purchase Price per one one-thousandth of a share and the number of one one-thousandths of a share which were expressed in the initial Rights Certificates issued hereunder.
Before taking any action that would cause an adjustment reducing the Purchase Price below the then par value, if any, of the number of one one-thousandths of a share of Preferred Stock issuable upon exercise
of the Rights, the Company shall take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and non-assessable such number of one one-thousandths of a share of Preferred Stock at such adjusted Purchase Price.
In any case in which this Section 11 shall require that an adjustment in the Purchase Price be made effective as of a record date for a specified event, the Company may elect to defer until the occurrence of such event the issuance to the holder of any Right exercised after such record date the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise over and above the number of one one-thousandths of a share of Preferred Stock and other capital stock or securities of the Company, if any, issuable upon such exercise on the basis of the Purchase Price in effect prior to such adjustment provided; however, that the Company shall deliver to such holder a due bill or other appropriate instrument evidencing such holder’s right to receive such additional shares (fractional or otherwise) or securities upon the occurrence of the event requiring such adjustment.
Anything in this Section 11 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Purchase Price, in addition to those adjustments expressly required by this Section 11, as and to the extent that in their good faith judgment the Board of Directors of the Company shall determine to be advisable in order that any (i) consolidation or subdivision of the Preferred Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less than the Current Market Price, (iii) issuance wholly for cash of shares of Preferred Stock or securities which by their terms are convertible into or exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance of rights, options or warrants referred to in this Section 11, hereafter made by the Company to holders of its Preferred Stock shall not be taxable to such stockholders.
The Company covenants and agrees that it shall deem desirablenot, at any time after the Distribution Date, (i) consolidate with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), (ii) merge with or into any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to addresssell or transfer), in one transaction, or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the matter.assets or earning power of the Company and its Subsidiaries (taken as a whole) to any other Person or Persons (other than the Company and/or any of its Subsidiaries in one or more transactions each of which complies with Section 11(o) hereof), if (x) at the time of or immediately after such consolidation, merger or sale there are any rights, warrants or other instruments or securities outstanding or agreements in effect which would substantially diminish or otherwise eliminate the benefits intended to be afforded by the Rights or (y) prior to, simultaneously with or immediately after such consolidation, merger or sale, the stockholders of the Person who constitutes, or would constitute, the “Principal Party” for purposes of Section 13(a) hereof shall have received a distribution of Rights previously owned by such Person or any of its Affiliates and Associates.
The Company covenants and agrees that, after the Distribution Date, it will not, except as permitted by Section 23 or Section 26 hereof, take (or permit any Subsidiary to take) any action if at the time such action is taken it is reasonably foreseeable that such action will diminish substantially or otherwise eliminate the benefits intended to be afforded by the Rights.
Anything in this Agreement to the contrary notwithstanding, in the event that the Company shall at any time after the Rights Dividend Declaration Date and prior to the Distribution Date (i) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding shares of Common Stock, or (iii) combine or consolidate the outstanding shares of Common Stock into a smaller number of shares, the number of Rights associated with each share of Common Stock then outstanding, or issued or delivered thereafter but prior to the Distribution Date, shall be proportionately adjusted so that the number of Rights thereafter associated with each share of Common Stock following any such event shall equal the result obtained by multiplying the number of Rights associated with each share of Common Stock immediately prior to such event by a fraction the numerator which shall be the total number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total number of shares of Common Stock outstanding immediately following the occurrence of such event.
Section 12.CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF SHARES
Whenever an adjustment is made as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly prepare a certificate setting forth such adjustment and a brief statement of the facts accounting for such adjustment, (b) promptly file with the Rights Agent, and with each transfer agent for the Preferred Stock and the Common Stock, a copy of such certificate, and (c) mail a brief summary thereof to each holder of a Rights Certificate (or, if prior to the Distribution Date, to each holder of a certificate representing shares of Common Stock) in accordance with Section 25 hereof. The Rights Agent shall be fully protected in relying on any such certificate and on any adjustment therein contained.
(c)Section 13.CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS, CASH FLOW OR EARNING POWER
In the event that, following the Stock Acquisition Date, directly or indirectly, (x) the Company shall assumeconsolidate with, or merge with and into, any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), and the Company shall not be the continuing or surviving corporation of such consolidation or merger, (y) any Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof) shall consolidate with, or merge with or into, the Company, and the Company shall be the continuing or surviving corporation of such consolidation or merger and, in connection with such consolidation or merger, all or part of the outstanding employee benefit awardsshares of Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, or (z) the Company shall sell or otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise transfer), in one transaction or a series of related transactions, assets, cash flow or earning power aggregating more than 50% of the assets, cash flow or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons (other than the Company or any Subsidiary of the Company in one or more transactions each of which complies with Section 11(o) hereof), then, and in each such case, proper provision shall be made so that: (i) each holder of a Right, except as provided in Section 7(e) hereof, shall thereafter have the right to receive, upon the exercise thereof at the then current Purchase Price in accordance with the terms of this Agreement and in lieu of shares of Preferred Stock, such number of validly authorized and issued, fully paid, non-assessable and freely tradeable shares of Common Stock of the Principal Party (as such term is hereinafter defined), not subject to any liens, encumbrances, rights of first refusal or obligationother adverse claims, as shall be equal to make futurethe result obtained by (1) multiplying the then current Purchase Price by the number of one one-thousandths of a share of Preferred Stock for which a Right is exercisable immediately prior to the first occurrence of a Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the first occurrence of a Section 13 Event, multiplying the number of such awardsone one-thousandths of a share for which a Right was exercisable immediately prior to the first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect immediately prior to such first occurrence of a Section 11(a)(ii) Event), and (2) dividing that product (which, following the first occurrence of a Section 13 Event, shall be referred to as the “Purchase Price” for each Right and for all purposes of this Agreement) by 50% of the Current Market Price (determined pursuant to Section 11(d) (i) hereof) per share of the Common Stock of such Principal Party on the date of consummation of such Section 13 Event; (ii) such Principal Party shall thereafter be liable for, and shall assume, by virtue of such Section 13 Event, all the obligations and duties of the Company pursuant to this Agreement; (iii) the term “Company” shall thereafter be deemed to refer to such Principal Party, it being specifically intended that the provisions of Section 11 hereof shall apply only to such Principal Party following the first occurrence of a Section 13 Event; (iv) such Principal Party shall take such steps (including, but not limited to, the reservation of a sufficient number of shares of its Common Stock) in connection with the acquisitionconsummation of another corporation or business entity,any such transaction as may be necessary to assure that the Committeeprovisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to its discretion, make such adjustments inshares of Common Stock thereafter deliverable upon the terms of Awards under the Plan as it shall deem appropriate.
(d)In making any determination or in taking or not taking any action under the Plan, the Committee may obtain and may rely on the advice of experts, including employeesexercise of the CompanyRights; and professional advisors.
(e)All acts, determinations and decisions(v) the provisions of Section 11(a)(ii) hereof shall be of no effect following the Committee made or taken pursuant to grants of authority under the Plan or with respect to any questions arising in connection with the administration and interpretation of the Plan, including the severabilityfirst occurrence of any and all of the provisions thereof, shall be conclusive, final and binding upon all parties, including the Company, its stockholders, any Employer, Participants, Eligible Participants and their estates, beneficiaries and successors.
3.3Rules for Foreign Jurisdictions. Notwithstanding anything in the Plan to the contrary, the Committee may, in its sole discretion, (i) amend or vary the terms of the Plan in order to conform such terms with the requirements of each non-U.S. jurisdiction where an Eligible Participant is located or where an Eligible Participant’s Award rights are otherwise regulated (including changes related to obtaining favorable tax treatment and avoiding unfavorable tax treatment) or in order to meet the goals and objectives of the Plan; (ii) establish one or more sub-plans for these purposes; and (iii) establish administrative rules and procedures to facilitate the operation of the Plan in such non-U.S. jurisdictions.
3.4Delegation of Authority. The Committee may, in its discretion, at any time and from time to time, delegate to one or more of the members of the Committee such of its powers as it deems appropriate (provided that any such delegation shall be to at least two members of the Committee with respect to Awards to Insiders). Except with respect to Awards to Insiders, the Committee may, in its discretion, at any time and from time to time, delegate to one or more persons who are not members of the Committee any or all of its authority and discretion under Section 3.2 and 3.3, to the full extent permitted by law and the rules of any exchange on which Shares are traded.
3.5Agreements. Each Award granted under the Plan shall be evidenced by an Agreement, provided that Awards granted on or after November 1, 2016 shall be subject to a vesting period of not less than one year from the date of grant, except where vesting occurs due to (i) a Participant’s death or disability or (ii) with respect to Awards which in aggregate do not exceed five percent (5%) of the total number of Shares available under the Plan. Each Agreement shall be subject to and incorporate, by reference or otherwise, the applicable terms and conditions of the Plan, and may include any other terms and conditions, not inconsistent with the Plan, as determined by the Committee, including without limitation, provisions related to the consequences of termination of employment. A copy of the Agreement evidencing an Award shall be provided to the affected Participant, and the Committee may, but need not, require that the Participant sign a copy of the Agreement.
13 Event.
3.6“Indemnification.Principal Party In addition” shall mean:
in the case of any transaction described in clause (x) or (y) of the first sentence of Section 13(a), the Person that is the issuer of any securities into which shares of Common Stock of the Company are converted in such merger or consolidation, and if no securities are so issued, the Person that is the other party to such merger or consolidation; and
in the case of any transaction described in clause (z) of the first sentence of Section 13(a), the Person that is the party receiving the greatest portion of the assets, cash flow or earning power transferred pursuant to such transaction or transactions provided; however, that in any such case, (1) if the Common Stock of such Person is not at such time and has not been continuously over the preceding twelve-month period registered under Section 12 of the Exchange Act, and such Person is a direct or indirect Subsidiary of another Person the Common Stock of which is and has been so registered, “Principal Party” shall refer to such other rightsPerson; and (2) in case such Person is a Subsidiary, directly or indirectly, of indemnification as they maymore than one Person, the Common Stocks of two or more of which are and have as membersbeen so registered, “Principal Party” shall refer to whichever of such Persons is the issuer of the BoardCommon Stock having the greatest aggregate market value.
The Company shall not consummate any such consolidation, merger, sale or as memberstransfer unless the Principal Party shall have a sufficient number of authorized shares of its Common Stock which have not been issued or reserved for issuance to permit the exercise in full of the Committee, the Company shall indemnifyRights in accordance with this Section 13 and hold harmless the members of the Committee against (i) reasonable expenses, including attorney’s fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal thereof, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any Award granted thereunder, (ii) all amounts paid by them in settlement thereof, provided such settlement is approved by independent legal counsel selected byunless prior thereto the Company and (iii) all amounts paid by themsuch Principal Party shall have executed and delivered to the Rights Agent a supplemental agreement providing for the terms set forth in satisfactionparagraphs (a) and (b) of a judgment in any such action, suit or proceeding, exceptthis Section 13 and further providing that, as to matterssoon as to whichpracticable after the Committee member has been negligent or engaged in misconduct in the performance of his duties (all amounts reimbursed hereunder are referred to as the “Reimbursement Expenses”); provided, that within 60 days after institutiondate of any such action, suitconsolidation, merger or proceeding,sale of assets mentioned in paragraph (a) of this Section 13, the Principal Party will:
prepare and file a Committee member shall in writing offerregistration statement under the Company the opportunity, at its own expense, to handle and defend the same. In the performance of its responsibilitiesAct, with respect to the Plan,Rights and the memberssecurities purchasable upon exercise of the Committee shall be entitledRights on an appropriate form, and will use its best efforts to rely upon,cause such registration statement (A) to become effective as soon as practicable after such filing and no member(B) to remain effective (with a prospectus at all times meeting the requirements of the Committee shallAct) until the Expiration Date; and
take all such other action as may be liable for any action taken ornecessary to enable the Principal Party to issue the securities purchasable upon exercise of the Rights, including but not taken in good faith reliance upon, information and/or advice furnished by the Company’s officers or employees, the Company’s accountants, or the Company’s counsel.
Article 4 - Shares Subjectlimited to the Planregistration or qualification of such securities under all requisite securities laws of jurisdictions of the various states and the listing of such securities on such exchanges and trading markets as may be necessary or appropriate; and
deliver to holders of the Rights historical financial statements for the Principal Party and each of its Affiliates which comply in all respects with the requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive mergers or consolidations or sales or other transfers. In the event that a Section 13 Event shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the Rights which have not theretofore been exercised shall thereafter become exercisable in the manner described in Section 13(a).
4.1Section 14.NumberFRACTIONAL RIGHTS AND FRACTIONAL SHARES
The Company shall not be required to issue fractions of Shares. SubjectRights, except prior to adjustmentthe Distribution Date as provided in Section 4.3,11(p) hereof, or to distribute Rights Certificates which evidence fractional Rights. In lieu of such fractional Rights, there shall be paid to the aggregate number of Shares which are available for issuance pursuant to Awards under the Plan is 5,550,000 Shares, inclusiveregistered holders of the 2,000,000 Shares initially reserved under the Incentive Plan and the 1,850,000 addedRights Certificates with regard to which such fractional Rights would otherwise be issuable, an amount in cash equal to the Incentive Plan pursuantsame fraction of the current market value of a whole Right. For purposes of this Section 14(a), the current market value of a whole Right shall be the closing price of the Rights for the Trading Day immediately prior to the amendment approved bydate on which such fractional Rights would have been otherwise issuable. The closing price of the Board on November 8, 2016 (the “Award Pool”). The Award PoolRights for any day shall be available for all types of Awards granted under the Plan; there is no maximum number of Shares per type of Award. Such Shares shall be made available from Shares authorized but unissued or Shares held (or subsequently acquired) by the Company as treasury shares, including Shares purchased in the open marketlast sale price, regular way, or, in private transactions.
The following rules shall apply for purposes of determining the number of Shares available for issuance under the Plan:
(a)Each Option shall be counted as one Share subject to an Award and deducted from the Award Pool.
(b)Each share of Restricted Stock, each Restricted Stock Unit that may be settled in Shares and each Other Stock-Based Award that may be settled in Shares shall be counted as one Share subject to an Award and deducted from the Award Pool. Restricted Stock Units and Other Stock-Based Awards that may not be settled in Shares shall not result in a deduction from the Award Pool.case no such sale takes place on
such day, the average of the closing bid and asked prices, regular way, in either case as reported in the principal consolidated transaction reporting system with respect to securities listed or admitted to trading on the New York Stock Exchange or, if the Rights are not listed or admitted to trading on the New York Stock Exchange, as reported in the principal consolidated transaction reporting system with respect to securities listed on the principal national securities exchange on which the Rights are listed or admitted to trading, or if the Rights are not listed or admitted to trading on any national securities exchange, the last quoted price or, if not so quoted, the average of the high bid and low asked prices in the over-the-counter market or such system then in use or, if on any such date the Rights are not so quoted, the average of the closing bid and asked prices as furnished by a professional market maker making a market in the Rights selected by the Board of Directors of the Company. If on any such date no such market maker is making a market in the Rights the fair value of the Rights on such date as determined in good faith by the Board of Directors of the Company shall be used.
The Company shall not be required to issue fractions of shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock) upon exercise of the Rights or to distribute certificates which evidence fractional shares of Preferred Stock (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock). In lieu of fractional shares of Preferred Stock that are not integral multiples of one one-thousandth of a share of Preferred Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one one-thousandth of a share of Preferred Stock. For purposes of this Section 14(b), the current market value of one one-thousandth of a share of Preferred Stock shall be one one-thousandth of the closing price of a share of Preferred Stock (as determined pursuant to Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of such exercise.
Following the occurrence of a Triggering Event, the Company shall not be required to issue fractions of shares of Common Stock upon exercise of the Rights or to distribute certificates which evidence fractional shares of Common Stock. In lieu of fractional shares of Common Stock, the Company may pay to the registered holders of Rights Certificates at the time such Rights are exercised as herein provided an amount in cash equal to the same fraction of the current market value of one (1) share of Common Stock. For purposes of this Section 14(c), the current market value of one (1) share of Common Stock shall be the closing price of one (1) share of Common Stock (as determined pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to the date of such exercise.
The holder of a Right by the acceptance of the Rights expressly waives his or her right to receive any fractional Rights or any fractional shares upon exercise of a Right, except as permitted by this Section 14.
Section 15.RIGHTS OF ACTION
All rights of action in respect of this Agreement, except the rights of action that are given to the Rights Agent under Section 18 hereof, are vested in the respective registered holders of the Rights Certificates (and, prior to the Distribution Date, the registered holders of the Common Stock); and any registered holder of any Rights Certificate (or, prior to the Distribution Date, of the Common Stock), without the consent of the Rights Agent or of the holder of any other Rights Certificate (or, prior to the Distribution Date, of the Common Stock), may, in such holder’s own behalf and for such holder’s own benefit, enforce, and may institute and maintain any suit, action or proceeding against the Company to enforce, or otherwise act in respect of, such holder’s right to exercise the Rights evidenced by such Rights Certificate in the manner provided in such Rights Certificate and in this Agreement. Without limiting the foregoing or any remedies available to the holders of Rights, it is specifically acknowledged that the holders of Rights would not have an adequate remedy at law for any breach of this Agreement and shall be entitled to specific performance of the obligations hereunder and injunctive relief against actual or threatened violations of the obligations hereunder of any Person subject to this Agreement.
(c)Section 16.Each Performance Share thatAGREEMENT OF RIGHTS HOLDERS
Every holder of a Right by accepting the same consents and agrees with the Company and the Rights Agent and with every other holder of a Right that:
prior to the Distribution Date, the Rights will be transferable only in connection with the transfer of Common Stock;
after the Distribution Date, the Rights Certificates are transferable only on the registry books of the Rights Agent if surrendered at the principal office or offices of the Rights Agent designated for such purposes, duly endorsed or accompanied by a proper instrument of transfer and with the appropriate forms and certificates fully executed;
subject to Section 6(a) and Section 7(f) hereof, the Company and the Rights Agent may be settleddeem and treat the Person in Shareswhose name a Rights Certificate (or, prior to the Distribution Date, the associated Common Stock certificate) is registered as the absolute owner thereof and of the Rights evidenced thereby (notwithstanding any notations of ownership or writing on the Rights Certificates or the associated Common Stock certificate made by anyone other than the Company or the Rights Agent) for all purposes whatsoever, and neither the Company nor the Rights Agent, subject to the last sentence of Section 7(e) hereof, shall be countedrequired to be affected by any notice to the contrary; and
notwithstanding anything in this Agreement to the contrary, neither the Company nor the Rights Agent shall have any liability to any holder of a Right or other Person as one Share subjecta result of its inability to an Award, based onperform any of its obligations under this Agreement by reason of any preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, or any statute, rule, regulation or executive order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining performance of such obligation provided; however, the numberCompany must use its best efforts to have any such order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17.RIGHTS CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER
No holder, as such, of Shares that would be paid under the Performance Share for achievement of target performance, and deducted from the Award Pool. Each Performance Unit that may be settled in Sharesany Rights Certificate shall be counted as a number of Shares subjectentitled to an Award, based onvote, receive dividends or be deemed for any purpose the number of Shares that would be paid under the Performance Unit for achievement of target performance, with the number determined by dividing the value of the Performance Unit at the time of grant by the Fair Market Value of a Share at the time of grant, and this number shall be deducted from the Award Pool. In both cases, in the event that the Award is later settled based on above-target performance, the number of Shares corresponding to the above-target performance, calculated pursuant to the applicable methodology specified above, shall be deducted from the Award Pool at the time of such settlement; in the event that the Award is later settled upon below-target performance, the number of Shares corresponding to the below-target performance, calculated pursuant to the applicable methodology specified above, shall be added back to the Award Pool. Performance Shares and Performance Units that may not be settled in Shares shall not result in a deduction from the Award Pool.
(d)Each Stock Appreciation Right that may be settled in Shares shall be counted as one Share subject to an Award, regardlessholder of the number of Shares actually delivered toone one-thousandths of a Participant, and deducted from the Award Pool.share of Preferred Stock Appreciation Rights that may not be settled in Shares shall not result in a deduction from the Award Pool.
(e)If an Award granted under the Plan lapses, expires, terminates, is forfeited or otherwise cancelled without issuanceany other securities of the Shares or the Award is settled in cash in lieu of Shares, such Shares shall againCompany which may at any time be available for issuance pursuant to an Award under the Plan and shall be added back to the Award Pool. However, if the tax withholding obligation, exercise price or purchase price under an Award is satisfied by the Company retaining Shares that otherwise would have been issued in settlement of the Award or by Shares tendered by the Participant (either by actual delivery or attestation), the number of Shares so retained or tendered shall not again be available for issuance pursuant to an Award under this Plan and shall not be added back to the Award Pool. In addition, any Shares that are purchased by the Company with proceeds fromissuable on the exercise of an Awardthe Rights represented thereby, nor shall notanything contained herein or in any Rights Certificate be added backconstrued to confer upon the Award Pool.
4.2Individual Limits. Subjectholder of any Rights Certificate, as such, any of the rights of a stockholder of the Company or any right to adjustmentvote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting stockholders (except as provided in Section 4.3,24 hereof), or to receive dividends or subscription rights, or otherwise, until the following rulesRight or Rights evidenced by such Rights Certificate shall applyhave been exercised in accordance with the provisions hereof.
Section 18.CONCERNING THE RIGHTS AGENT
The Company agrees to Awards underpay to the Plan. Sections 4.2(a) through (e) shall applyRights Agent reasonable compensation for all services rendered by it hereunder and, from time to Participantstime, on demand of the Rights Agent, its reasonable expenses and counsel fees and disbursements and other than Directors, and Section 4.2(f) shall apply only to Directors.
(a)Options and SARs. The maximum number of Options and Stock Appreciation Rights that,disbursements incurred in the aggregate, may be grantedadministration and execution of this Agreement and the exercise and performance of its duties hereunder. The Company also agrees to indemnify the Rights Agent for, and to hold it harmless against, any loss, liability, or expense, incurred without gross negligence, bad faith or willful misconduct on the part of the Rights Agent, for anything done or omitted by the Rights Agent in connection with the acceptance and administration of this Agreement, including the costs and expenses of defending against any one fiscal year to any one Participant shall be Seven Hundred Fifty Thousand (750,000).
(b)Restricted Stock and Restricted Stock Units. The maximum numberclaim of Shares of Restricted Stock and Restricted Stock Units that,liability in the aggregate, maypremises. In no case shall the Rights Agent be granted in any one fiscal year to any one Participant shall be Two Hundred Fifty Thousand (250,000) Shares and Units.
(c)Performance Units. The maximum number of Performance Units (valued as of the grant date) that, in the aggregate, may be granted in any one fiscal year to any one Participant shall be Five Hundred Thousand (500,000), to the extent settled in Shares,liable for special, indirect, incidental or Three Million Dollars ($3,000,000), to the extent settled in cash. This limitation shall be applied based on the maximum amount that could be paid under the Award of Performance Units.
(d)Performance Shares and Other Stock-Based Awards. The maximum number of Performance Shares and Other Stock-Based Awards that, in the aggregate, may be granted in any one fiscal year to any one Participant shall be Five Hundred Thousand (500,000). This limitation shall be applied based on the maximum amount that could be paid under the Award of Performance Shares and Other Stock-Based Awards.
(e)Long-Term Incentive Compensation Awards. The maximum Long-Term Incentive Compensation Awards that, in the aggregate, may be granted in any one fiscal year to any one Participant shall be Three Million Dollars ($3,000,000). This limitation shall be applied based on the maximum amount that could be paid under the Long-Term Incentive Compensation Awards.
(f)Director Award Limits. The maximum fair value of Awards made in any one fiscal year to any Director shall not exceed $350,000, with fair value determined as of the Award grant date under applicable accounting standards. consequential loss or damage.
The Rights Agent shall be protected and shall incur no liability for or in respect of any action taken, suffered or omitted by it in connection with its administration of this Agreement in reliance upon any Rights Certificate or certificate for Common Stock or for other securities of the Company, instrument of assignment or transfer, power of attorney, endorsement, affidavit, letter, notice, direction, consent, certificate, statement, or other paper or document believed by it to be genuine and to be signed, executed and, where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19.MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS AGENT
Any corporation into which the Rights Agent or any successor Rights Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Rights Agent or any successor Rights Agent shall be a party, or any corporation succeeding to the corporate trust, stock transfer or other shareholder services business of the Rights Agent or any successor Rights Agent, shall be the successor to the Rights Agent under this Agreement without the execution or filing of any paper or any further act on the part of any of the parties hereto; but only if such corporation would be eligible for appointment as a successor Rights Agent under the provisions of Section 21 hereof. In case at the time such successor Rights Agent shall succeed to the agency created by this Agreement, any of the Rights Certificates shall have been countersigned but not delivered, any such successor Rights Agent may adopt the countersignature of a predecessor Rights Agent and deliver such Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, any successor Rights Agent may countersign such Rights Certificates either in the name of the predecessor or in the name of the successor Rights Agent; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.
In case at any time the name of the Rights Agent shall be changed and at such time any of the Rights Certificates shall have been countersigned but not delivered, the Rights Agent may adopt the countersignature under its prior name and deliver Rights Certificates so countersigned; and in case at that time any of the Rights Certificates shall not have been countersigned, the Rights Agent may countersign such Rights Certificates either in its prior name or in its changed name; and in all such cases such Rights Certificates shall have the full force provided in the Rights Certificates and in this Agreement.
Section 20.DUTIES OF RIGHTS AGENT
The Rights Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the holders of Rights Certificates, by their acceptance thereof, shall be bound:
The Rights Agent may consult with legal counsel (who may be legal counsel for the Company), and the advice of such counsel shall be full and complete authorization and protection to the Rights Agent as to any action taken or omitted by it in good faith and in accordance with such opinion.
Whenever in the performance of its duties under this Agreement the Rights Agent shall deem it necessary or desirable that any fact or matter (including, without limitation, the identity of any Acquiring Person and the determination of Current Market Price) be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the Chief Executive Officer, the President, any Executive Vice President or any Senior Vice President of the Company and delivered to the Rights Agent; and such certificate shall be full authorization to the Rights Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.
The Rights Agent shall be liable hereunder only for its own gross negligence, bad faith or willful misconduct.
The Rights Agent shall not be liable for or by reason of any of the statements of fact or recitals contained in this Agreement or in the Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and recitals are and shall be deemed to have been made by the Company only.
The Rights Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Rights Agent) or in respect of the validity or execution of any Rights Certificate (except its countersignature thereof); nor shall it be responsible for any breach by the Company of any covenant or condition contained in this Agreement or in any Rights Certificate; nor shall it be responsible for any adjustment required under the provisions of Section 11 or Section 13 hereof or responsible for the manner, method or amount of any such adjustment or the ascertaining of the existence of facts that would require any such adjustment (except with respect to the exercise of Rights evidenced by Rights Certificates after actual notice of any such adjustment); nor shall it by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any shares of Common Stock or Preferred Stock to be issued pursuant to this Agreement or any Rights Certificate or as to whether any shares of Common Stock or Preferred Stock will, when so issued, be validly authorized and issued, fully paid and non-assessable.
The Company agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Rights Agent for the carrying out or performing by the Rights Agent of the provisions of this Agreement.
The Rights Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the Chief Executive Officer, the President, any Executive Vice President or Senior Vice President of the Company, and to apply to such officers for advice or instructions in connection with its duties, and it shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer.
The Rights Agent and any stockholder, director, officer or employee of the Rights Agent may buy, sell or deal in any of the Rights or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested, or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Rights Agent under this Agreement. Nothing herein shall preclude the Rights Agent from acting in any other capacity for the Company or for any other legal entity.
The Rights Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents, and the Rights Agent shall not be answerable or accountable for any act, default, neglect or misconduct of any such attorneys or agents or for any loss to the Company resulting from any such act, default, neglect or misconduct provided; however, reasonable care was exercised in the selection and continued employment thereof.
No provision of this Agreement shall require the Rights Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if there shall be reasonable grounds for believing that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.
If, with respect to any Rights Certificate surrendered to the Rights Agent for exercise or transfer, the certificate attached to the form of assignment or form of election to purchase, as the case may be, has either not been completed or indicates an affirmative response to clause 1 and/or 2 thereof, the Rights Agent shall not take any further action with respect to such requested exercise of transfer without first consulting with the Company.
Section 21.CHANGE OF RIGHTS AGENT
The Rights Agent or any successor Rights Agent may resign and be discharged from its duties under this Agreement upon thirty (30) days’ notice in writing mailed to the Company, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such resignation occurs
after the Distribution Date, to the registered holders of the Rights Certificates by first-class mail. The Company may, in its sole discretion, remove the Rights Agent or any successor Rights Agent upon thirty (30) days’ notice in writing, mailed to the Rights Agent or successor Rights Agent, as the case may be, and to each transfer agent of the Common Stock and Preferred Stock, by registered or certified mail, and, if such resignation occurs after the Distribution Date, to the holders of the Rights Certificates by first-class mail. If the Rights Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Rights Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after giving notice of such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Rights Agent or by the holder of a Rights Certificate (who shall, with such notice, submit his Rights Certificate for inspection by the Company), then any registered holder of any Rights Certificate may apply to any court of competent jurisdiction for the appointment of a new Rights Agent. Any successor Rights Agent, whether appointed by the Company or by such a court, shall be either (a) a legal business entity organized and doing business under the laws of the United States or of any state of the United States, in good standing, which is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by federal or state authority and which has at the time of its appointment as Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an Affiliate of a legal business entity described in clause (a) of this sentence. After appointment, the successor Rights Agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Rights Agent without further act or deed; but the predecessor Rights Agent shall deliver and transfer to the successor Rights Agent any property at the time held by it hereunder, and execute and deliver any further assurance, conveyance, act or deed necessary for the purpose. Not later than the effective date of any such appointment, the Company shall file notice thereof in writing with the predecessor Rights Agent and each transfer agent of the Common Stock and the Preferred Stock, and, if such appointment occurs after the Distribution Date, mail a notice thereof in writing to the registered holders of the Rights Certificates. Failure to give any notice provided for in this Section 21, however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Rights Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22.ISSUANCE OF NEW RIGHTS CERTIFICATES
Notwithstanding any of the provisions of this Agreement or of the Rights to the contrary, the Company may, at its option, issue new Rights Certificates evidencing Rights in such form as may be approved by its Board of Directors to reflect any adjustment or change in the Purchase Price and the number or kind or class of shares or other securities or property purchasable under the Rights Certificates made in accordance with the provisions of this Agreement. In addition, in connection with the issuance or sale of shares of Common Stock following the Distribution Date and prior to the redemption or expiration of the Rights, the Company (a) shall, with respect to shares of Common Stock so issued or sold pursuant to the exercise of stock options or under any employee plan or arrangement, granted or awarded as of the Distribution Date, or upon the exercise, conversion or exchange of securities hereinafter issued by the Company, and (b) may, in any other case, if deemed necessary or appropriate by the Board of Directors of the Company, issue Rights Certificates representing the appropriate number of Rights in connection with such issuance or sale provided; however, that (i) no such Rights Certificate shall be issued if, and to the extent that, the Company shall be advised by counsel that such issuance would create a significant risk of material adverse tax consequences to the Company or the Person to whom such Rights Certificate would be issued, and (ii) no such Rights Certificate shall be issued if, and to the extent that, appropriate adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23.REDEMPTION AND TERMINATION
The Board of Directors of the Company may, at its option, at any time prior to the earlier of (i) the close of business on the tenth day following the Stock Acquisition Date (or, if the Stock Acquisition Date shall have occurred prior to the Record Date, the close of business on the twentieth day following the Record Date), or (ii) the Final Expiration Date, redeem all but not less than all the then outstanding Rights at a redemption price of $0.001 per Right, as such amount may be appropriately adjusted to reflect any stock
4.3split, stock dividend or similar transaction occurring after the date hereof (such redemption price being hereinafter referred to as the “AdjustmentRedemption Price”). Notwithstanding anything contained in this Agreement to the contrary, the Rights shall not be exercisable after the first occurrence of Shares. If any changea Section 11(a) (ii) Event until such time as the Company’s right of redemption hereunder has expired. The Company may, at its option, pay the Redemption Price in corporate capitalization, suchcash, shares of Common Stock (based on the “Current Market Price,” as a stock split, reverse stock split, or stock dividend;defined in Section 11(d)(i) hereof, of the Common Stock at the time of redemption) or any corporate transaction such as a reorganization, reclassification, merger or consolidation or separation, including a spin-off,other form of consideration deemed appropriate by the Board of Directors.
Immediately upon the action of the Board of Directors of the Company ordering the redemption of the Rights, evidence of which shall have been filed with the Rights Agent and without any further action and without any notice, the right to exercise the Rights will terminate and the only right thereafter of the holders of Rights shall be to receive the Redemption Price for each Right so held. Promptly after the action of the Board of Directors ordering the redemption of the Rights, the Company shall give notice of such redemption to the Rights Agent and the holders of the then outstanding Rights by mailing such notice to all such holders at each holder’s last address as it appears upon the registry books of the Rights Agent or, prior to the Distribution Date, on the registry books of the transfer agent for the Common Stock. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of redemption will state the method by which the payment of the Redemption Price will be made.
Section 24.NOTICE OF CERTAIN EVENTS
In case the Company shall propose, at any time after the Distribution Date, (i) to pay any dividend payable in stock of any class to the holders of Preferred Stock or to make any other distribution to the holders of Preferred Stock (other than a regular quarterly cash dividend out of earnings or retained earnings of the Company), or (ii) to offer to the holders of Preferred Stock rights or warrants to subscribe for or to purchase any additional shares of Preferred Stock or shares of stock of any class or any other securities, rights or options, or (iii) to effect any reclassification of its Preferred Stock (other than a reclassification involving only the subdivision of outstanding shares of Preferred Stock), or (iv) to effect any consolidation or merger into or with any other Person (other than a Subsidiary of the Company in a transaction which complies with Section 11(o) hereof), or to effect any sale or other disposition by the Companytransfer (or to permit one or more of allits Subsidiaries to effect any sale or other transfer), in one transaction or a portionseries of itsrelated transactions, of more than 50% of the assets, any other change in the Company’s corporate structure,cash flow or any distribution to stockholders (other than an ordinary cash dividend) results in the outstanding Shares, or any securities exchanged therefore or received in their place, being exchanged for a different number or class of shares or other securitiesearning power of the Company or for shares of stock or other securities ofand its Subsidiaries (taken as a whole) to any other corporation;Person or new, different Persons (other than the Company and/or additional sharesany of its Subsidiaries in one or other securities
more transactions each of which complies with Section 11(o) hereof), or (v) to effect the liquidation, dissolution or winding up of the Company, then, in each such case, the Company shall give to each holder of a Rights Certificate, to the extent feasible and in accordance with Section 25 hereof, a notice of such proposed action, which shall specify the record date for the purposes of such stock dividend, distribution of rights or warrants, or the date on which such reclassification, consolidation, merger, sale, transfer, liquidation, dissolution, or winding up is to take place and the date of any other corporation being receivedparticipation therein by the holders of outstanding Shares; then the Committeeshares of Preferred Stock, if any such date is to be fixed, and such notice shall make equitable adjustments, as it determines are necessarybe so given in the case of any action covered by clause (i) or (ii) above at least twenty (20) days prior to the record date for determining holders of the shares of Preferred Stock for purposes of such action, and appropriate, in:in the case of any such other action, at least twenty (20) days prior to the date of the taking of such proposed action or the date of participation therein by the holders of the shares of Preferred Stock, whichever shall be the earlier.
(a)In case any of the number and class of stock or other securities that comprise the Award Pool asevents set forth in Section 4.1;
(b)the limitations on the aggregate number of Awards that may be granted11(a)(ii) hereof shall occur, then, in any one fiscal yearsuch case, (i) the Company shall as soon as practicable thereafter give to any one Participant as set fortheach holder of a Rights Certificate, to the extent feasible and in accordance with Section 4.2;
(c)25 hereof, a notice of the number and classoccurrence of stock or other securities subject to outstanding Awards, andsuch event, which have not been issued or transferred under outstanding Awards;
(d)shall specify the Option Price under outstanding Options, the SAR Price under outstanding Stock Appreciation Rightsevent and the numberconsequences of Sharesthe event to be transferredholders of Rights under Section 11(a)(ii) hereof, and (ii) all references in settlement of outstanding Options andthe preceding paragraph to Preferred Stock Appreciation Rights; and
(e)the terms, conditions or restrictions of any Award and Agreement, including the price payable for the acquisition of Shares.
It is intended that, if possible, any adjustments contemplated above shall be made in a manner that satisfies applicable legal requirements, as well as applicable requirements with respectdeemed thereafter to taxation (including, without limitation and as applicable in the circumstances, Code section 424 and Code section 409A) and accounting (so asrefer to not trigger any charge to earnings with respect to such adjustment).
Without limiting the generality of the above, any good faith determination by the Committee as to whether an adjustment is required in the circumstances and the extent and nature of any such adjustment shall be final, conclusive and binding on all persons.
Article 5 -Common Stock Options
5.1Grant of Options. Subject to the terms and provisions of the Plan, Options may be granted to Eligible Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee. The Committee shall have sole discretion in determining the number of Shares subject to Options granted to each Participant. The Committee may grant a Participant ISOs, NQSOs and/or, a combination thereof, and may vary such Awards among Participants; provided that only Participants who are common law employees of the Employer may be granted ISOs. Notwithstanding anything in this Article 5 to the contrary, except for Options that are specifically designated as intended to be subject to Code section 409A, Options may only be granted to individuals who provide direct services on the date of grant of the Option to the Company or another entity in a chain of entities in which the Company or another such entity has a controlling interest (within the meaning of Treasury Regulation § 1.409A-1(b)(5)(iii)(E)) in each entity in the chain.if appropriate, other securities.
5.2Section 25.Option Price.NOTICES The Option Price for each grant
Notices or demands authorized by this Agreement to be given or made by the Rights Agent or by the holder of an Optionany Rights Certificate to or on the Company shall be determinedsufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in writing with the Committee and shall notRights Agent) as follows:
Beazer Homes USA, Inc.
1000 Abernathy Road, Suite 260
Atlanta, Georgia 30328
Attention: Chief Executive Officer
Subject to the provisions of Section 21, any notice or demand authorized by this Agreement to be less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted. Notwithstanding the prior sentence, an Option may be granted with an Option Price that is less than one hundred percent (100%) of the Fair Market Value of a Share on the date the Option is granted if such Option is granted in replacement for an award previously granted by an entity that is assumedgiven or made by the Company or by the holder of any Rights Certificate to or on the Rights Agent shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed (until another address is filed in a business combination, provided thatwriting with the Committee determines thatCompany) as follows:
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Notices or demands authorized by this Agreement to be given or made by the Company or the Rights Agent to the holder of any Rights Certificate (or, if prior to the Distribution Date, to the holder of certificates representing shares of Common Stock) shall be sufficiently given or made if sent by first-class mail, postage prepaid, addressed to such Option Price is appropriate to preserveholder at the economic benefitaddress of such holder as shown on the registry books of the replaced awardCompany.
Section 26.SUPPLEMENTS AND AMENDMENTS
Prior to the Distribution Date and willsubject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend any provision of this Agreement without the approval of any holders of certificates representing shares of Common Stock. From and after the Distribution Date and subject to the penultimate sentence of this Section 26, the Company and the Rights Agent shall, if the Company so directs, supplement or amend this Agreement without the approval of any holders of Rights Certificates in order (i) to cure any ambiguity, (ii) to correct or supplement any provision contained herein which may be defective or inconsistent with any other provisions herein, (iii) to shorten or lengthen any time period hereunder, or (iv) to change or supplement the provisions hereunder in any manner which the Company may deem necessary or desirable and which shall not impairadversely affect the exemptioninterests of the Option from Code section 409A.holders of Rights Certificates (other than an
5.3Acquiring Person or an Affiliate or Associate of an Acquiring Person) Durationprovided; however, this Agreement may not be supplemented or amended to lengthen, pursuant to clause (iii) of Options. Each Option shall expirethis sentence, (A) a time period relating to when the Rights may be redeemed at such time as the Committee shall determine atRights are not then redeemable, or (B) any other time period unless such lengthening is for the timepurpose of grant; provided, however, thatprotecting, enhancing or clarifying the Committee may extendrights of, and/or the term of any Option that would otherwise expire at a time when the Participant is not permitted by applicable law or Company policy to exercise such Option; and provided, further, that no Option shall be exercisable later than the tenth (10th) anniversary of its grant date.
5.4Exercise of Options. Options granted under the Plan shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, including conditions relatedbenefits to, the employmentholders of or provision of services byRights. Upon the Participant to the Company or any Employer, which need not be the same for each grant or for each Participant. The Committee may provide in the Agreement for automatic accelerated vesting and other rights upon the occurrencedelivery of a Change in Controlcertificate from an appropriate officer of the Company which states that the proposed supplement or uponamendment is in compliance with the occurrenceterms of other events as specifiedthis Section 26, the Rights Agent shall execute such supplement or amendment. Notwithstanding anything contained in this Agreement to the Agreement.
5.5Payment. Optionscontrary, no supplement or amendment shall be exercised bymade which changes the delivery of an oral, writtenRedemption Price, extends the Final Expiration Date, changes the Purchase Price or electronic notice of exercise to the Company or its designated representative, setting forthchanges the number of Shares with respect toone one-thousandths of a share of Preferred Stock for which a Right is exercisable, and following the Option is to be exercisedfirst occurrence of an event set forth in clauses (i) and satisfying any requirements that the Committee may apply from time to time. Full payment(ii) of the Option Price must be made onfirst sentence of Section 23(a) hereof any supplement or prioramendment shall require the concurrence of a majority of the members of the Board of Directors of the Company. Prior to the PaymentDistribution Date, as defined below. The Option Pricethe interests of the holders of Rights shall be payable to the Company in United States dollars either: (a) in cash; (b) cash equivalent approved by the Committee; (c) if approved by the Committee, by tendering previously acquired Shares (or delivering a certification or attestation of ownership of such Shares) having an aggregate Fair Market Value at the time of exercise equal to the total Option Price (provided that the tendered Shares must have been held by the Participant for any period required by the Committee); (d) if approved by the Committee, by cashless exercise as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions; (e) by any other means which the Committee determines to be consistentdeemed coincident with the Plan’s purpose and applicable law, including a net exercise; or (f) by any combinationinterests of the above. “Payment Date” shall mean the date on which a sale transaction in connection with a cashless exercise (whether or not payment is actually made pursuant to a cashless exercise) would have settled in connection with the subject option exercise.
5.6Nontransferabilityholders of Options. No ISO granted under the Plan may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Except as otherwise provided in a Participant’s Agreement or otherwise determined at any time by the Committee, no NQSO granted under this Article 5 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.Common Stock.
5.7Section 27.Special Rules for ISOs.EXCHANGE
In no event shall(i) The Company may, at its option, at any Participant who owns (withintime after the meaningStock Acquisition Date, upon resolution by the Board of Code section 424(d)) stockDirectors of the Company, possessing more than ten percent (10%)exchange all or part of the total combined voting powerthen outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for Common Stock at an exchange ratio of one share of Common Stock per Right, appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement (such exchange ratio being hereinafter referred to as the “Section 27(a)(i) Exchange Ratio”). Notwithstanding the foregoing, the Company may not effect such exchange at any time after any Acquiring Person, together with all classesAffiliates and Associates of such Acquiring Person, becomes the Beneficial Owner of 50% or more of the shares of Common Stock then outstanding.
(ii) The Company may, at its option, at any time after the Stock Acquisition Date, upon resolution by the Board of Directors of the Company, exchange all or part of the then outstanding and exercisable Rights (which shall not include Rights that have become void pursuant to the provisions of Section 7(e) hereof) for Common Stock at an exchange ratio specified in the following sentence, as appropriately adjusted to reflect any stock split, stock dividend or similar transaction occurring after the date of this Agreement. Subject to such adjustment, each Right may be exchanged for that number of shares of Common Stock obtained by dividing the Adjustment Spread (as defined below) by the then Current Market Price (determined pursuant to Section 11(d) hereof) per share of Common Stock on the earlier of (i) the date on which any Person becomes an Acquiring Person or (ii) the date on which a tender or exchange offer by any Person (other than an Exempted Person, the Company, any Subsidiary of the Company, any employee benefit plan of the Company or of any Subsidiary of the Company, or any “parent”Person organized, appointed or “subsidiary” (withinestablished by the Company for or pursuant to the terms of any such plan) is first published or sent or given within the meaning of Code section 424(e) or (f), respectively) be eligible to receive an ISO (i) at an Option Price less than one hundred ten percent (110%)Rule 14d-4(a) of the Fair Market Value of a Share on the date the ISO is granted, or (ii) that is exercisable later than the fifth (5th) anniversary date of its grant date. The aggregate Fair Market Value of Shares with respect to which ISOs granted to a Participant are first exercisable in any calendar yearGeneral Rules and Regulations under the Plan and all other incentive stock option plansExchange Act, if upon consummation thereof such Person would be the Beneficial Owner of 4.95% or more of the Employer)shares of Common Stock then outstanding (such exchange ratio being the “Section 27(a)(ii) Exchange Ratio”). The “Adjustment Spread” shall not exceed One Hundred Thousand Dollars ($100,000). For this purpose, Fair Market Value shall be determined with respect to a particular ISO onequal (x) the date on which such ISO is granted.
5.8Dividends and Other Distributions. A Participant receiving Options shall not possess voting rights and shall accrue dividend equivalents on Options only to the extent provided in the Agreement relating to the Award. Any rights to dividend equivalents on Options shall be subject to the same restrictions on vesting and payment as the underlying Award.
Article 6 - Stock Appreciation Rights
6.1Grant of SARs. Subject to the terms and provisions of the Plan, SARs may be granted to Eligible Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee. A Stock Appreciation Right may be granted to an Eligible Participant in connection with an Option granted under Article 5 of this Plan or may be granted independently of any Option. A Stock Appreciation Right shall entitle the holder, within the specified period, to exercise the SAR and receive in exchange therefor a payment having an aggregate value equal to the amount by which the Fair Market Value of a Share exceeds the SAR Price, times the number of Shares with respect to which the SAR is exercised. A SAR granted in connection with an Option (a “Tandem SAR”) shall entitle the holder of the related Option, within the period specified for the exercise of the Option, to surrender the unexercised Option, or a portion thereof, and to receive in exchange therefore a payment having an aggregate value equal to the amount by which the Fair Market Value of a Share exceeds the Option Price, times the number of Shares under the Option, or portion thereof, which is surrendered.
6.2Tandem SARs. Each Tandem SAR shall be subject to the same terms and conditions as the related Option, including limitations on transferability, and shall be exercisable only to the extent such Option is exercisable and shall terminate or lapse and cease to be exercisable when the related Option terminates or lapses. The grant of a Tandem SAR must be concurrent with the grant of the Option.
6.3Payment. The Committee shall have sole discretion to determine in each Agreement whether the payment with respect to the exercise of a SAR will be in the form of all cash, all Shares, or any combination thereof. If payment is to be made in Shares, the number of Shares shall be determined based on the Fair Market Value of a Sharemarket price on the date of exercise.such event of the number of Adjustment Shares determined pursuant to Section 11(a)(ii) minus (y) the Purchase Price.
(iii) Notwithstanding anything contained in this Section 27(a) to the contrary, the Company may not exchange any Rights pursuant to this Section 27(a) unless such exchange is approved by a majority of the members of the Board of Directors of the Company.
6.4SAR Price. The SAR Price for each grantImmediately upon the action of the Board of Directors of the Company ordering the exchange of any Rights pursuant to paragraph (a) of this Section 27 and without any further action and without any notice, the right to exercise such Rights shall terminate and the only right thereafter of a SARholder of such Rights shall be determinedto receive that number of shares of Common Stock equal to the number of such Rights held by such holder multiplied by the CommitteeSection 27(a)(i) Exchange Ratio or Section 27(a)(ii) Exchange Ratio, as the case may be. The Company shall promptly give public notice of any such exchange provided; however, that the failure to give, or any defect in, such notice shall not affect the validity of such exchange. The Company promptly shall mail a notice of any such exchange to all of the holders of such Rights at their last addresses as they appear upon the registry books of the Rights Agent. Any notice which is mailed in the manner herein provided shall be deemed given, whether or not the holder receives the notice. Each such notice of exchange will state the method by which the exchange of the shares of Common Stock for Rights will be effected and, in the event of any partial exchange, the number of Rights which will be exchanged. Any partial exchange shall be effected pro rata based on the number of Rights (other than Rights which have become void pursuant to the provisions of Section 7(e) hereof) held by each holder of Rights.
In the event that there shall not be less than one hundred percent (100%)sufficient shares of Common Stock issued but not outstanding or authorized but unissued to permit any exchange of Rights as contemplated in accordance with this Section 27, the Company shall make adequate provision to substitute, to the extent that there are insufficient shares of Common Stock available (1) cash, (2) other equity securities of the Fair Market Value of a Share on the date the SAR is granted. Notwithstanding the prior sentence, a SAR may be granted with a SAR Price that is less than one hundred percent (100%) of the Fair Market Value of a Share on the date the SAR is granted if such SAR is granted in replacement for an award previously granted by an entity that is assumed by the Company, in a business combination, provided that the Committee determines that such SAR Price is appropriate to preserve the economic benefit of the replaced award and will not impair the exemption of the SAR from Code section 409A.
6.5Duration of SARs. Each SAR shall expire at such time as the Committee shall determine at the time of grant; provided, however, that the Committee may extend the term of any SAR that would otherwise expire at a time when the Participant is not permitted by applicable law or Company policy to exercise such SAR; and provided, further, that no SAR shall be exercisable later than the tenth (10th) anniversary of its grant date.(3)
debt securities of the Company, (4) other assets or (5) any combination of the foregoing, having an aggregate value per Right equal to (x) in the case of an exchange pursuant to Section 27(a)(i), the then current per share market price (determined pursuant to Section 11(d) hereof) of the Common Stock multiplied by the Section 27(a)(i) Exchange Ratio and (y) in the case of an exchange pursuant to Section 27(a)(ii), the Adjustment Spread, where such aggregate value has been determined by a majority of the members of the Board of Directors of the Company, after receiving advice from a nationally recognized investment banking firm. To the extent that the Company determines that any such substitution must be made, the Company shall provide, subject to Section 7(e) hereof, that such substitution shall apply uniformly to all outstanding Rights.
The Company shall not be required to issue fractions of shares of Common Stock or to distribute certificates which evidence fractional shares of Common Stock. In lieu of such fractional shares of Common Stock, the Company shall pay to the registered holders of the Rights Certificates with regard to which such fractional shares of Common Stock would otherwise be issuable an amount in cash equal to the same fraction of the current market value of a whole share of Common Stock. For the purposes of this paragraph (d), the current market value of a whole share of Common Stock shall be the closing price of a share of Common Stock (as determined pursuant to the second sentence of Section 11(d) hereof) for the Trading Day immediately prior to the date of the exchange pursuant to this Section 27.
Section 28.SUCCESSORS
All the covenants and provisions of this Agreement by or for the benefit of the Company or the Rights Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.
Section 29.DETERMINATIONS AND ACTIONS BY THE BOARD OF DIRECTORS, ETC.
For all purposes of this Agreement, any calculation of the number of shares of Common Stock outstanding at any particular time, including for purposes of determining the particular percentage of such outstanding shares of Common Stock of which any Person is the Beneficial Owner, shall be made in accordance with the last sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the Exchange Act. The Board of Directors of the Company (with, where specifically provided for herein, the concurrence of a majority of the members of the Board of Directors of the Company) shall have the exclusive power and authority to administer this Agreement and to exercise all rights and powers specifically granted to the Board (with, where specifically provided for herein, the concurrence of a majority of the members of the Board of Directors of the Company) or to the Company, or as may be necessary or advisable in the administration of this Agreement, including, without limitation, the right and power to (i) interpret the provisions of this Agreement, and (ii) make all determinations deemed necessary or advisable for the administration of this Agreement (including a determination to redeem or not redeem the Rights or to amend the Agreement). All such actions, calculations, interpretations and determinations (including, for purposes of clause (y) below, all omissions with respect to the foregoing) which are done or made by the Board (with, where specifically provided for herein, the concurrence of a majority of the members of the Board of Directors of the Company) in good faith, shall (x) be final, conclusive and binding on the Company, the Rights Agent, the holders of the Rights and all other parties, and (y) not subject the Board to any liability to the holders of the Rights.
Section 30.BENEFITS OF THIS AGREEMENT
Nothing in this Agreement shall be construed to give to any Person other than the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock) any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Rights Agent and the registered holders of the Rights Certificates (and, prior to the Distribution Date, registered holders of the Common Stock).
6.6Section 31.ExerciseSEVERABILITY
If any term, provision, covenant or restriction of SARsthis Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated . SARs grantedprovided; however, that notwithstanding anything in this Agreement to the contrary, if any such term, provision, covenant or restriction is held by such court or authority to be invalid, void or unenforceable and the Board of Directors of the Company determines in its good faith judgment that severing the invalid language from this Agreement would adversely affect the purpose or effect of this Agreement, the right of redemption set forth in Section 23 hereof shall be reinstated and shall not expire until the close of business on the twentieth day following the date of such determination by the Board of Directors.
Section 32.GOVERNING LAW
This Agreement, each Right and each Rights Certificate issued hereunder shall be deemed to be a contract made under the Planlaws of the State of New York and for all purposes shall be exercisable atgoverned by and construed in accordance with the laws of such timesstate applicable to contracts made and to be subjectperformed entirely within such state.
Section 33.COUNTERPARTS
This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such restrictionscounterparts shall together constitute but one and conditionsthe same instrument.
Section 34.DESCRIPTIVE HEADINGS
Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof and the words “herein,” “hereof,” “hereby,” “hereto,” “hereunder” and words of similar import are references to this Agreement as a whole and not to any particular section or other provision hereof.
Section 35.EFFECTIVENESS
This Agreement shall become effective as of the Committee shall in each instance approve, including conditions relatedclose of business on November 14, 2022 (the “Effective Date”); provided, that, notwithstanding anything herein to the employmentcontrary, the Board of or provision of services byDirectors may, in its sole discretion, terminate this Agreement prior to the Participant with the Company or any Employer, which need not be the same for each grant or for each Participant. The Committee may provide in the Agreement for automatic accelerated vesting and other rights uponEffective Date following the occurrence of a Change“Distribution Date” as defined in Control ofthat certain Section 382 Rights Agreement between the Company or upon the occurrenceand American Stock Transfer & Trust Company, LLC, dated as of other eventsNovember 6, 2016, and effective as specified in the Agreement. Upon exercise of a Tandem SAR, the number of Shares subject to exercise under the related Option shall automatically be reduced by the number of Shares represented by the Option or portion thereof which is surrendered. SARs shall be exercised by the delivery of an oral, written or electronic notice of exercise to the Company or its designated representative, setting forth the number of Shares with respect to which the SAR is to be exercised and satisfying any requirements that the Committee may apply from time to time.November 12, 2016.
6.7Nontransferability of SARs. Except as otherwise provided in a Participant’s Agreement or otherwise determined at any time by the Committee consistent with securities and other applicable laws, rules and regulations, no SAR granted under this Article 6 may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.[SIGNATURE PAGE IMMEDIATELY FOLLOWS]
6.8Dividends and Other Distributions. A Participant receiving SARs shall not possess voting rights and shall accrue dividend equivalents on SARs only to the extent provided in the Agreement relating to the Award. Any rights to dividend equivalents on SARs shall be subject to the same restrictions on vesting and payment as the underlying Award.
Article 7 - Restricted Stock and Restricted Stock Units
7.1Grant of Restricted Stock/Unit. Subject to the terms and provisions of the Plan, Restricted Stock Awards and Restricted Stock Unit Awards may be granted to Eligible Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee. Awards of Restricted Stock/Units may be made either alone or in addition to or in tandem with other Awards granted under the Plan and may be current grants of Restricted Stock, deferred grants of Restricted Stock or Restricted Stock Units.
7.2Nontransferability. Except as otherwise provided in this Article 7 or an Agreement, Restricted Stock and Restricted Stock Units may not be sold, exchanged, transferred, pledged, or otherwise alienated or hypothecated or otherwise disposed of during the Restriction Period or, in the case of Restricted Stock Units, until the date of delivery of Shares or other payment with respect to the Restricted Stock Units (other than by will or by the laws of descent and distribution). Further, except as otherwise provided in the applicable Agreement, a Participant’s rights with respect to Shares of Restricted Stock or Restricted Stock Units shall be available during the Participant’s lifetime only to the Participant or the Participant’s legal representative.
7.3Certificates. Upon an Award of Restricted Stock to a Participant, Shares of Restricted Stock shall be registered in the Participant’s name. Certificates, if issued, may either be held in custody by the Company until the Restriction Period expires or until restrictions thereon otherwise lapse and/or be issued to the Participant and registered in the name of the Participant, bearing an appropriate restrictive legend and remaining subject to appropriate stop-transfer orders. If required by the Committee, the Participant shall deliver to the Company one or more stock powers endorsed in blank relating to the Restricted Stock. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, unrestricted certificates for such shares shall be delivered to the Participant.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written.
Attest: BEAZER HOMES USA, INC.
By: By:
Name: Name:
Title: Title:
Attest: AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
By: By:
Name: Name:
Title: Title:
EXHIBIT A
FORM OF DESIGNATIONS, PREFERENCES AND RIGHTS OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF BEAZER HOMES USA, INC.
Section 1. Designation and Amount. The shares of such series shall be designated as “Series A Junior Participating Preferred Stock” and the number of shares constituting such series shall be 100,000.
Section 2. Dividends and Distributions.
(a) The holders of shares of Series A Junior Participating Preferred Stock shall be entitled to receive, when, as and if declared by the Board of Directors of Beazer Homes USA, Inc., a Delaware corporation (the “Company”), out of funds legally available for the purpose, quarterly dividends payable in cash on the last day of March, June, September and December in each year (each such date being referred to herein as a “Quarterly Dividend Payment Date”), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Junior Participating Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock, par value $0.001 per share, of the Company (the “Common Stock”) since the immediately preceding Quarterly Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Junior Participating Preferred Stock. In the event the Company shall at any time after November 14, 2016 (the “Rights Declaration Date”) (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) The Company shall declare a dividend or distribution on the outstanding shares of Series A Junior Participating Preferred Stock as provided in Paragraph (A) above immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock); provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the outstanding shares of Series A Junior Participating Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(c) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Junior Participating Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares of Series A Junior Participating Preferred Stock, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Junior Participating Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board
of Directors may fix a record date for the determination of holders of shares of Series A Junior Participating Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be no more than thirty (30) days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Junior Participating Preferred Stock shall have the following voting rights:
(a) Subject to the provision for adjustment hereinafter set forth, each share of Series A Junior Participating Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Company. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the number of votes per share to which holders of shares of Series A Junior Participating Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein or by law, the holders of shares of Series A Junior Participating Preferred Stock and the holders of shares of Common Stock shall vote together as one class on all matters submitted to a vote of stockholders of the Company.
(c) (i) If at any time dividends on any Series A Junior Participating Preferred Stock shall be in arrears in an amount equal to six (6) quarterly dividends thereon, the occurrence of such contingency shall mark the beginning of a period (herein called a “default period”) which shall extend until such time when all accrued and unpaid dividends for all previous quarterly dividend periods and for the current quarterly dividend period on all shares of Series A Junior Participating Preferred Stock then outstanding shall have been declared and paid or set apart for payment. During each default period, all holders of Preferred Stock (including holders of the Series A Junior Participating Preferred Stock) with dividends in arrears in an amount equal to six (6) quarterly dividends thereon, voting as a class, irrespective of series, shall have the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders of Series A Junior Participating Preferred Stock may be exercised initially at a special meeting called pursuant to subparagraph (iii) of this Section 3(c) or at any annual meeting of stockholders, and thereafter at annual meetings of stockholders, provided that such voting right shall not be exercised unless the holders of ten percent (10%) in number of shares of Preferred Stock outstanding shall be present in person or by proxy. The absence of a quorum of the holders of Common Stock shall not affect the exercise by the holders of Preferred Stock of such voting right. At any meeting at which the holders of Preferred Stock shall exercise such voting right initially during an existing default period, they shall have the right, voting as a class, to elect Directors to fill such vacancies, if any, in the Board of Directors as may then exist up to two (2) Directors or, if such right is exercised at an annual meeting, to elect two (2) Directors. If the number which may be so elected at any special meeting does not amount to the required number, the holders of the Preferred Stock shall have the right to make such increase in the number of Directors as shall be necessary to permit the election by them of the required number. After the holders of the Preferred Stock shall have exercised their right to elect Directors in any default period and during the continuance of such period, the number of Directors shall not be increased or decreased except by vote of the holders of Preferred Stock as herein provided or pursuant to the rights of any equity securities ranking senior to or pari passu with the Series A Junior Participating Preferred Stock.
(iii) Unless the holders of Preferred Stock shall, during an existing default period, have previously exercised their right to elect Directors, the Board of Directors may order, or any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding, irrespective of series, may request, the calling of a special meeting of the holders of Preferred Stock, which meeting shall thereupon be called by the President, a Vice-
President or the Secretary of the Company. Notice of such meeting and of any annual meeting at which holders of Preferred Stock are entitled to vote pursuant to this Paragraph (c)(iii) shall be given to each holder of record of Preferred Stock by mailing a copy of such notice to such holder at such holder’s last address as the same appears on the books of the Company. Such meeting shall be called for a time not earlier than twenty (20) days and not later than sixty (60) days after such order or request, or in default of the calling of such meeting within sixty (60) days after such order or request, such meeting may be called on similar notice by any stockholder or stockholders owning in the aggregate not less than ten percent (10%) of the total number of shares of Preferred Stock outstanding. Notwithstanding the provisions of this Paragraph (c)(iii), no such special meeting shall be called during the period within sixty (60) days immediately preceding the date fixed for the next annual meeting of the stockholders.
(iv) In any default period, the holders of Common Stock, and other classes of stock of the Company if applicable, shall continue to be entitled to elect the whole number of Directors until the holders of Preferred Stock shall have exercised their right to elect two (2) Directors voting as a class, after the exercise of which right (x) the Directors so elected by the holders of Preferred Stock shall continue in office until their successors shall have been elected by such holders or until the expiration of the default period, and (y) any vacancy in the Board of Directors may (except as provided in Paragraph (c)(ii) of this Section 3) be filled by vote of a majority of the remaining Directors theretofore elected by the holders of the class of stock which elected the Director whose office shall have become vacant. References in this Paragraph (c) to Directors elected by the holders of a particular class of stock shall include Directors elected by such Directors to fill vacancies as provided in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right of the holders of Preferred Stock as a class to elect Directors shall cease, (y) the term of any Directors elected by the holders of Preferred Stock as a class shall terminate, and (z) the number of Directors shall be such number as may be provided for in the certificate of incorporation or by-laws of the Company irrespective of any increase made pursuant to the provisions of Paragraph (c)(ii) of this Section 3 (such number being subject, however, to change thereafter in any manner provided by law or in the certificate of incorporation or by-laws of the Company). Any vacancies in the Board of Directors effected by the provisions of clauses (y) and (z) in the preceding sentence may be filled by a majority of the remaining Directors.
(d) Except as set forth herein, holders of Series A Junior Participating Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions payable on the Series A Junior Participating Preferred Stock as provided in Section 2 hereof are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Junior Participating Preferred Stock outstanding shall have been paid in full, the Company shall not:
(i) declare or pay dividends on, make any other distributions on, or redeem or purchase or otherwise acquire for consideration any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except dividends paid ratably on the Series A Junior Participating Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled;
7.4(iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, Dividends and Other Distributions.provided Exceptthat the Company may at any time redeem, purchase or otherwise acquire shares of any such parity stock in exchange for shares of any stock of the Company ranking junior (either as providedto dividends or upon dissolution, liquidation or winding up) to the Series A Junior Participating Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of Series A Junior Participating Preferred Stock, or any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes.
(b) The Company shall not permit any subsidiary of the Company to purchase or otherwise acquire for consideration any shares of stock of the Company unless the Company could, under Paragraph (a) of this Article 7Section 4, purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Junior Participating Preferred Stock purchased or otherwise acquired by the Company in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock to be created by resolution or resolutions of the Board of Directors, subject to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation (voluntary or otherwise), dissolution or winding up of the Company, no distribution shall be made to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Series A Junior Participating Preferred Stock shall have received an amount equal to $1,000 per share of Series A Junior Participating Preferred Stock, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment (the “Series A Liquidation Preference”). Following the payment of the full amount of the Series A Liquidation Preference, no additional distributions shall be made to the holders of shares of Series A Junior Participating Preferred Stock unless, prior thereto, the holders of shares of Common Stock shall have received an amount per share (the “Common Adjustment”) equal to the quotient obtained by dividing (i) the Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in subparagraph (c) below to reflect such events as stock splits, stock dividends and recapitalizations with respect to the Common Stock) (such number in clause (ii), the “Adjustment Number”). Following the payment of the full amount of the Series A Liquidation Preference and the Common Adjustment in respect of all outstanding shares of Series A Junior Participating Preferred Stock and Common Stock, respectively, holders of Series A Junior Participating Preferred Stock and holders of shares of Common Stock shall receive their ratable and proportionate share of the remaining assets to be distributed in the Agreement, a Participant receiving a Restricted Stock Award shall have,ratio of the Adjustment Number to 1 with respect to such RestrictedPreferred Stock Award, alland Common Stock, on a per share basis, respectively.
(b) In the event, however, that there are not sufficient assets available to permit payment in full of the rightsSeries A Liquidation Preference and the liquidation preferences of all other series of Preferred Stock, if any, which rank on a stockholderparity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Junior Participating Preferred Stock, then such remaining assets shall be distributed ratably to the holders of such parity shares in proportion to their respective liquidation preferences. In the event, however, that there are not sufficient assets available to permit payment in full of the Company, including the right to vote the SharesCommon Adjustment, then such remaining assets shall be distributed ratably to the extent, if any, such Shares possess voting rights and the right to receive any dividends; provided, however, the Committee shall require that any dividends on such Sharesholders of Restricted Stock shall be automatically deferred and reinvested in additional Restricted Stock subject to the same restrictions on vesting as the underlying Award, or that dividends and other distributions on Restricted Stock shall be paid to the Company for the account of the Participant and held pending and subject to the same restrictions on vesting as the underlying Award. A Participant receiving a Restricted Stock Unit Award shall not possess voting rights and shall accrue dividend equivalents on such Units only to the extent provided in the Agreement relating to the Award. Any rights to dividend equivalents on such Restricted Stock units shall be subject to the same restrictions on vesting as the underlying Award.
7.5Short-Term Deferral. To the extent an Award described in this Section is a 409A Award and is subject to a substantial risk of forfeiture within the meaning of Code section 409A (or will be granted upon the satisfaction of a condition that constitutes such a substantial risk of forfeiture), any compensation due under the Award (or pursuant to a commitment to grant an Award) shall be paid in full not later than the 60th day following the date on which there is no longer such a substantial risk of forfeiture with respect to the Award (and the Participant shall have no right to designate the year of the payment), unless the Committee shall clearly and expressly provide otherwise at the time of granting the Award.
Article 8 - Performance Shares and Units
8.1Grant of Performance Shares/Units. Subject to the terms and provisions of the Plan, Performance Shares and Performance Units may be granted to Eligible Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.
8.2Value of Performance Shares/Units. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. In addition to any non-performance terms applicable to the Award, the Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Shares, Performance Units or both, as applicable, that will be paid out to the Participant. For purposes of this Article 8, the time period during which the performance goals must be met shall be called a “Performance Period.” The Committee may, but is not obligated to, set such performance goals by reference to the performance measures set forth in Article 11.
8.3Earning of Performance Shares/Units. Subject to the terms of this Plan, after the applicable Performance Period has ended, the holder of the Performance Shares/Units shall be entitled to receive a payout of the number and value of Performance Shares/Units earned by the Participant over the Performance Period, to be determined as a function of the extent to which the corresponding performance goals have been achieved and any applicable non-performance terms have been met.
8.4Form and Timing of Payment of Performance Shares/Units. Subject to the terms of this Plan and the applicable Agreement, the Committee, in its sole discretion, may pay earned Performance Shares/Units in the form of cash or Shares or other Awards (or a combination thereof) which have an aggregate Fair Market Value equal to the value of the earned Performance Shares/Units at the close of the applicable Performance Period. Any such Shares may be granted subject to any restrictions deemed appropriate by the Committee. The determination of the Committee with respect to the form and timing of payout of such Awards shall be set forth in the Agreement pertaining to the grant of the Award.Common Stock.
(c) In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the Adjustment Number in effect immediately prior to such event shall be adjusted by multiplying such Adjustment Number by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event.
8.5Section 7. Dividends and Other Distributions. Consolidation, Merger, etc. In case the Company shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case the shares of Series A Participant receiving a Performance Share/Unit AwardJunior Participating Preferred Stock shall not possess voting rights and shall accrue dividend equivalents on such Performance Shares/Units onlyat the same time be similarly exchanged or changed in an amount per share (subject to the extent providedprovision for adjustment hereinafter set forth) equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Company shall at any time after the Rights Declaration Date (i) declare any dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding Common Stock into a smaller number of shares, then in each such case the amount set forth in the Agreement relatingpreceding sentence with respect to the Award. Any rights to dividend equivalents on Performance Shares/Unitsexchange or change of shares of Series A Junior Participating Preferred Stock shall be subjectadjusted by multiplying such amount by a fraction the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to the same restrictions on vesting and payment as the underlying Award.such event.
8.6Section 8. Nontransferability. Except as otherwise provided in this Article 8 or the applicable Agreement, Performance Shares/Units may not be sold, exchanged, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution.
Article 9 - Other Stock Based Awards
The Committee shall have the authority to specify the terms and provisions of other forms of equity-based or equity-related awards not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company. The Other Stock-Based Awards may provide for cash payments based in whole or in part on the value or future value of Shares, for the acquisition or future acquisition of Shares, or any combination of the foregoing. Notwithstanding the foregoing, where the value of an Other Stock-Based Award is based on the difference in the value of a Share at different points in time, the grant or exercise price will not be less than 100% of the Fair Market Value of the Shares on the date of grant unless the Other Stock-Based Award is granted in replacement for an award previously granted by an entity that is assumed by the Company in a business combination, provided that the Committee determines that the Other Stock-Based Award preserves the economic benefit of the replaced award.
In addition, a Participant receiving an Other Stock-Based Award shall not possess voting rights and shall accrue dividend equivalents on an Other Stock-Based Award only to the extent provided in the Agreement relating to the Award. Any rights to dividend equivalents on an Other Stock-Based Award shall be subject to the same restrictions on vesting and payment as the underlying Award.
Article 10 - Long-Term Incentive Compensation Awards
Subject to the terms of this Plan, the Committee will determine all of the terms and conditions of a Long-Term Incentive Compensation Award, including but not limited to the performance measures, performance period, the potential amount payable, and the timing of payment, subject to the following: (a) the Committee must require that payment of all or any portion of the amount subject to the Long-Term Incentive Compensation Award is contingent on the achievement of one or more performance measures during the period the Committee specifies, although the Committee may specify that all or a portion of the performance measures subject to an Award are deemed achieved upon a Participant’s death, Disability or retirement, or such other circumstances as the Committee may specify; and (b) the performance period must relate to a period of more than one fiscal year of the Company. The Long-Term Incentive Compensation Awards will be payable in cash and the Committee may provide Participants with the right to defer all or part of any Award.
Article 11 - Performance Measures
11.1In GeneralNo Redemption. The Committee may, in its discretion, include performance conditionsshares of Series A Junior Participating Preferred Stock shall not be redeemable.
Section 9. Amendment. The certificate of incorporation of the Company shall not be further amended in any Award.manner which would materially alter or change the powers, preferences or special rights of the Series A Junior Participating Preferred Stock so as to affect them adversely without the affirmative vote of the holders of a majority or more of the outstanding shares of Series A Junior Participating Preferred Stock, voting separately as a class.
Section 10. Fractional Shares. Series A Junior Participating Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder’s fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of Series A Junior Participating Preferred Stock.
11.2Performance MeasuresEXHIBIT B
[FORM OF RIGHTS CERTIFICATE]
Certificate No. R- Rights
NOT EXERCISABLE AFTER NOVEMBER 14, 2022 OR EARLIER IF REDEEMED BY THE COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE COMPANY, AT $0.001 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). The Committee may select performance measures for Awards granted to Eligible Participants from amongACCORDINGLY, THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.]
Rights Certificate
BEAZER HOMES USA, INC.
This certifies that [ ], or registered assigns, is the following: earnings, earnings per share, consolidated pre-tax earnings, net earnings, net income, operating income, EBIT (earnings before interest and taxes), EBITDA (earnings before interest, taxes, depreciation and amortization), gross margin, operating margin, profit margin, revenues, revenue growth, market value added, market share, economic value added, return measures (including but not limited to return on equity, return on investment, return on assets, return on net assets, and return on capital employed), total stockholder return, relative total stockholder return, profit, operating profit, economic profit, capitalized economic profit, after-tax profit, pre-tax profit, cash, cash flow measures (including but not limited to operating cash flow, free cash flow, and cash flow return), sales, sales volume, sales growth, assets, inventory turnover ratio, productivity ratios, Share price, cost, unit cost, expense ratios, charge-off levels, operating efficiency, operating expenses, improvement in or attainmentregistered owner of expense levels, working capital, improvement in or attainmentthe number of working capital levels, debt, debt to equity ratio, debt reduction, capital targets, consummationRights set forth above, each of acquisitions, dispositions, projects or other specific events or transactions, and/or such other metrics as may be approved bywhich entitles the Committee from time to time.
Any performance measure may be appliedowner thereof, subject to the terms, provisions and conditions of the Rights Agreement, dated as of December 7, 2021 (the “Rights Agreement”), between Beazer Homes USA, Inc., a Delaware corporation (the “Company”), and American Stock Transfer & Trust Company, andLLC, a New York limited liability company (the “Rights Agent”), to purchase from the Company at any other entity included intime prior to 5:00 P.M. (New York City time) on November 14, 2025 at the term “Employer” inoffice or offices of the aggregate, toRights Agent designated for such purpose, or its successors as Rights Agent, one one-thousandth of a selectionfully paid, non-assessable share of these, to each as a whole or alternatively, or to any business unitSeries A Junior Participating Preferred Stock (the “Preferred Stock”) of the Company, or any other entity includedat a purchase price of $50.00 per one one-thousandth of a share (the “Purchase Price”), upon presentation and surrender of this Rights Certificate with the Form of Election to Purchase and related Certificate duly executed. The number of Rights evidenced by this Rights Certificate (and the number of shares which may be purchased upon exercise thereof) set forth above, and the Purchase Price per share set forth above, are the number and Purchase Price as of November 14, 2022 based on the Preferred Stock as constituted at such date. The Company reserves the right to require prior to the occurrence of a Triggering Event (as such term is defined in the Rights Agreement) that a number of Rights be exercised so that only whole shares of Preferred Stock will be issued.
Upon the occurrence of a Section 11(a)(ii) Event (as such term “Employer”is defined in the Rights Agreement), either individually, alternativelyif the Rights evidenced by this Rights Certificate are beneficially owned by (i) an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined in the Rights Agreement), (ii) a transferee of any combinationsuch Acquiring Person, Associate or Affiliate, or (iii) under certain circumstances specified in the Rights Agreement, a transferee of a person who, after such transfer, became an Acquiring Person, or an Affiliate or Associate of an Acquiring Person, such Rights shall become null and measured either annually or cumulatively over a period of years, on an absolute basis or relative to a pre-established target, to results for previous years or to a designated comparison group of entities or to a published or stock market or other index, in each case as specified by the Committee. The Committeevoid and no holder hereof shall specify the period over which the performance goals for a particular Award shall be measured.
11.3Committee Determination of Achievement of Performance Goals; Adjustments. The Committee shall determine whether the applicable performance goals have been metany right with respect to a particular Awardsuch Rights from and if they have,after the Committee shall so certify in writing and ascertain the amount payable under the applicable Award. The Committee is authorized to make adjustments in performance-based criteria oroccurrence of such Section 11(a)(ii) Event.
As provided in the termsRights Agreement, the Purchase Price and conditionsthe number and kind of shares of Preferred Stock or other Awards in recognition of unusual or nonrecurring events affectingsecurities, which may be purchased upon the Company or its financial statements (including, but not limited to, asset write-downs; litigation or claim judgments or settlements; reorganizations or restructuring programs; extraordinary, unusual, or nonrecurring items of gain or loss as defined under US generally accepted accounting principles; mergers, acquisitions or divestitures; and foreign exchange gains and losses) or changes in applicable laws, regulations or accounting principles. Such adjustments shall be made in accordance with guidelines established by the Committee at the time the performance-based Award is granted. The Committee shall also have the discretion to adjust downward the determinationsexercise of the degreeRights evidenced by this Rights Certificate are subject to modification and adjustment upon the happening of attainment of the pre-established performance goals.
If applicable tax and/or securities laws permit Committee discretion to alter the governing performance measures without obtaining stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining stockholder approval.
Article 12 - Beneficiary Designation
To the extent permitted by the Committee, each Participant under the Plan may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any vested but unpaid Award is to be paid in case of the Participant’s death. In the absence of any such designation, vested but unpaid Awards outstanding at the Participant’s death shall be paid to the Participant’s estate.
Article 13 - Deferrals
The Committee may permit or require a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant under any Award. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such deferrals. Any deferrals required or permitted by the Committee of Awards shall be made in compliance with Code section 409A.
certain events, including Triggering Events.
Article 14 - WithholdingThis Rights Certificate is subject to all of the terms, provisions and conditions of the Rights Agreement, which terms, provisions and conditions are hereby incorporated herein by reference and made a part hereof and to which Rights Agreement reference is hereby made for a full description of the rights, limitations of rights, obligations, duties and immunities hereunder of the Rights Agent, the Company and the holders of the Rights Certificates, which limitations of rights include the temporary suspension of the exercisability of such Rights under the specific circumstances set forth in the Rights Agreement. Copies of the Rights Agreement are on file at the above-mentioned office of the Rights Agent and are also available upon written request to the Rights Agent.
14.1Tax Withholding. The CompanyThis Rights Certificate, with or without other Rights Certificates, upon surrender at the principal office or offices of the Rights Agent designated for such purpose, may be exchanged for another Rights Certificate or Rights Certificates of like tenor and date evidencing Rights entitling the holder to purchase a like aggregate number of one one-thousandths of a share of Preferred Stock as the Rights evidenced by the Rights Certificate or Rights Certificates surrendered shall have entitled such holder to purchase. If this Rights Certificate shall be exercised in part, the power andholder shall be entitled to receive upon surrender hereof another Rights Certificate or Rights Certificates for the right to deduct or withhold, or require a Participant to remitnumber of whole Rights not exercised.
Subject to the Company, an amount sufficient to satisfy Federal, state, and local taxes or similar charges, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of or in connection with this Plan or any Award.
14.2Share Withholding. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or Restricted Stock Units, upon the achievement of performance goals related to Performance Shares or Performance Units, or upon any other taxable event arising as a result of or in connection with an Award granted hereunder that is settled in Shares, unless other arrangements are made with the consentprovisions of the Committee, Participants shall satisfyRights Agreement, the withholding requirementRights evidenced by havingthis Certificate may be redeemed by the Company withhold Shares havingat its option at a Fair Market Value on the date the tax is to be determined equal to not more than the amount necessary to satisfy the Company’s withholding obligations at the maximum statutory withholding rates. All such withholding arrangements shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.
Article 15 - Amendment and Termination
15.1Amendment or Terminationredemption price of Plan. The Committee may$0.001 per Right at any time terminate or fromprior to the earlier of the close of business on (i) the tenth day following the Stock Acquisition Date (as such time period may be extended pursuant to time amend the PlanRights Agreement), and (ii) the Final Expiration Date. In addition, the Rights may be exchanged, in whole or in part, but no such action shall adversely affect in any material respect any rights or obligations with respect to any Awards previously granted under the Plan, unless a Participant who is adversely affected by such amendment consents in writing. The Company will obtain the approvalfor shares of the stockholders before amending the Plan to the extent required by Code section 422 and/Common Stock, or the rulesshares of preferred stock of the Company having essentially the same value or economic rights as such shares. Immediately upon the action of the Board of Directors of the Company authorizing any such exchange, and without any further action or any notice, the Rights (other than Rights which are not subject to such exchange) will terminate and the Rights will only enable holders to receive the shares issuable upon such exchange. Under certain circumstances set forth in the Rights Agreement, the decision to redeem the Rights shall require the concurrence of a majority of the members of the Board of Directors of the Company.
No fractional shares of Preferred Stock will be issued upon the exercise of any Right or Rights evidenced hereby (other than fractions which are integral multiples of one one-thousandth of a share of Preferred Stock, which may, at the Shares are tradedelection of the Company, be evidenced by depositary receipts), but in lieu thereof a cash payment will be made, as provided in the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or receive dividends or be deemed for any purpose the holder of shares of Preferred Stock or of any other applicable law.
15.2Amendmentsecurities of Agreement. The Committeethe Company which may at any time amend outstanding Agreementsbe issuable on the exercise hereof, nor shall anything contained in a manner not inconsistent with the termsRights Agreement or herein be construed to confer upon the holder hereof, as such, any of the Plan;rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give consent to or withhold consent from any corporate action, or, to receive notice of meetings or other actions affecting stockholders (except as provided however, if such amendment is adversein the Rights Agreement), or to receive dividends or subscription rights, or otherwise, until the ParticipantRight or Rights evidenced by this Rights Certificate shall have been exercised as provided in any material respect, as determined by the Committee, the amendmentRights Agreement.
This Rights Certificate shall not be effective as to that Participant unless andvalid or obligatory for any purpose until it shall have been countersigned by the Participant consents, in writing, to such amendment. ToRights Agent.
WITNESS the extent not inconsistent with the termsfacsimile signature of the Plan, the Committee may, at any time, amend an outstanding Agreement in a manner that is not unfavorable to the Participant without the consent of such Participant. Except to the extent provided in Section 4.3, the Committee shall not without the approval of the stockholdersproper officers of the Company (i) reduce the purchase price or base priceand its corporate seal.
Dated as of any previously granted Option or SAR, (ii) cancel any previously granted Option or SAR in exchange for another Option or SAR with a lower purchase price or base price or (iii) cancel any previously granted Option or SAR in exchange for cash or another award if the purchase price of such Option or the base price of such SAR exceeds the Fair Market Value of a Share on the date of such cancellation, in each case other than in connection with a Change in Control.________________
Attest: BEAZER HOMES USA, INC.
By: By:
Name: Name:
Title: Title:
Attest: AMERICAN STOCK TRANSFER & TRUST COMPANY, LLC
By: By:
Name: Name:
Title: Title:
15.3Recoupment[Form of Compensation or CancellationReverse Side of Awards. Awards under the Plan shallRights Certificate]
FORM OF ASSIGNMENT
(To be subject to any policy of recoupment of compensation adopted or amended from time to timeexecuted by the Board orregistered holder if such holder desires to transfer the Committee, including, without limitation, any policy it deems necessary or desirableRights Certificate.)
FOR VALUE RECEIVED hereby sells, assigns and transfers unto (Please print name and address of transferee) this Rights Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint Attorney, to comply withtransfer the requirements of Section 954within Rights Certificate on the books of the Dodd-Frank Wall Street Reformwithin-named Company, with full power of substitution.
Dated:
Signature:
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and Consumer Protection Act (providing for recoverytransferred by or on behalf of erroneously awarded compensation), Section 304a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the Sarbanes-Oxley Actundersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or subsequently became an Acquiring Person or an Affiliate or Associate of 2002 (providing for forfeiture of certain bonuses and profits), and any implementing rules and regulations of the U.S. Securities and Exchange Commission and applicable listing standards of a national securities exchange adopted in accordance with either of these Acts which policy is incorporated into this Plan, the Awards and the Agreements. an Acquiring Person.
Dated:
Signature:
Signature Guaranteed:
NOTICE
The Committee may provide in the Agreement that if a Participant engages in any “detrimental activity” (as defined in the Agreement), the Committee may, notwithstanding any other provision in this Plansignature to the contrary, cancel, rescind, suspend, withhold or otherwise restrict or limit any unexpired, unexercised, unpaid or deferred Awardforegoing Assignment and require the Participant to payCertificate must correspond to the Companyname as written upon the fair market valueface of the compensation received by the Participant from the Award.
Article 16 - Changethis Rights Certificate in Control
Except as otherwise provided in an employment,every particular, without alteration or enlargement or any change in control or similar agreement with the Company that provides for the effect of a Change in Control (as defined in the Plan or in any such other agreement for similar transactions) on outstanding Awards (an “Outstanding Award”) granted under the Plan to a Participant, the Agreement may provide (in addition to other provisions) that upon a Change in Control the Committee shall have the authority to determine (which determination may be different for different types or grants of Outstanding Awards or for different groups of Participants) that Outstanding Awards:whatsoever.
(a)
will be continued by the Company (if the Company is the surviving entity); or
(b)will be assumed by the surviving entity or its parent or subsidiary; or
(c)will be substituted for by the surviving entity or its parent or subsidiary with an equivalent award for the Outstanding Award.
If (a), (b) or (c) above do not apply to an Outstanding Award, the Agreement may provide that the Committee will in its discretion determine the impact of the Change in Control on the Outstanding Award, including the right to determine to fully vest Outstanding Awards that are not continued, assumed or substituted and to cash out Outstanding Awards.
If subsections (a), (b), or (c) above apply to an Outstanding Award, the continued, assumed or substituted awards will provide (i) similar terms and conditions and preserve the same benefits as the Outstanding Award that is being continued or replaced, and (ii) that, in the event of the Participant’s involuntary termination without Cause or termination for Good Reason on, or within the two-year period following, the date of the Change in Control, the Outstanding Award (or substituted award) will fully vest and become immediately exercisable and/or nonforfeitable.
The Agreement may contain such other provisions relating to the treatment of Outstanding Awards upon a Change in Control as the Committee determines are necessary or desirable.
In the event that any acceleration of vesting or other action with respect to an Award and any other payment or benefit received or to be received by a Participant would subject the Participant to any excise tax pursuant to Code section 4999 due to the characterization of such acceleration of vesting, action, payment or benefit as an “excess parachute payment” under Code section 280G, the Committee may in its discretion elect to reduce the amount payable with respect to an Award.
Article 17 - Miscellaneous Provisions
17.1Restrictions on Shares. All certificates for Shares delivered under the Plan shall be subject to such stop-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Shares are then listed and any applicable federal or state laws, and the Committee may cause a legend or legends to be placed on any such certificates to make appropriate reference to such restrictions. In making such determination, the Committee may rely upon an opinion of counsel for the Company.
Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any Shares under the Plan or make any other distribution of the benefits under the Plan unless such delivery or
distribution would comply with all applicable laws (including, without limitation,FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the requirementsRights Certificate.)
To: BEAZER HOMES USA, INC.:
The undersigned hereby irrevocably elects to exercise Rights represented by this Rights Certificate to purchase the shares of Preferred Stock issuable upon the exercise of the Securities ActRights (or such other securities of 1933), and the applicable requirements of any securities exchange or similar entity.
17.2Rights of Stockholder. Except as provided otherwise in the Plan or in an Agreement, no Participant receiving an Award shall have any right as a stockholder with respect to any Shares covered by such Award (including but not limited to the right to vote the Shares) prior to the date on which the Participant becomes the record holder of such Shares.
17.3No Implied Rights. Nothing in the Plan or any Agreement shall confer upon any Participant any right to continue in the service of the Employer, or to serve as a Director thereof, or interfere in any way with the right of the Employer to terminate the Participant’s employment or other service relationship at any time and for any reason. Unless agreed by the Board or the Committee, no Award granted under the Plan shall be deemed salary or compensation for the purpose of computing benefits under any employee benefit plan, severance program, or other arrangement of the Employer for the benefit of its employees. To the extent that any person acquires a right to receive payments from the Company under the Plan, such right shall, except as otherwise provided by the Committee, be no greater than the right of an unsecured general creditor of the Company.
17.4Compliance with Code Section 409A. At all times, this Plan, an Award and any Agreement shall be interpreted and operated (i) with respect to 409A Awards in accordance with the requirements of Code section 409A, and (ii) to maintain the exemptions from Code section 409A of Options, SARs and Restricted Stock and any Awards designed to meet the short-term deferral exception under Code section 409A. In addition, to the extent required to avoid a violation of the applicable rules under Code section 409A by reason of Code section 409A(a)(2)(B)(i), any payment under an Award shall be delayed until the earliest date of payment that will result in compliance with the rules of Code section 409A(a)(2)(B)(i) (regarding the required six-month delay for distributions to specified employees that are related to a separation from service). To the extent that a 409A Award provides for payment upon the recipient’s termination of employment as an employee or cessation of service as a Director, the 409A Award shall be deemed to require payment upon the individual’s “separation from service” within the meaning of Code section 409A.
17.5Successors. The terms of the Plan and all outstanding Awards shall be binding upon the Company, and its successors and assigns.
17.6Tax Elections. Each Participant agrees to promptly give the Committee a copy of any election made by such Participant under Code section 83(b) or any similar provision thereof. Notwithstanding the preceding sentence, the Committee may condition any Award on the Participant making or not making an election under Code section 83(b) with respect to the Award.
17.7Right of Setoff. The Company or an Employer may, to the extent permitted by applicable law, deduct from and setoff against any amounts payable in connection with any Award, such amounts as may be owed by the Participant to the Company or an Employer.of any other person which may be issuable upon the exercise of the Rights) and requests that certificates for such shares be issued in the name of and delivered to:
17.8No Fractional Shares. No fractional SharesPlease insert social security or other identifying number
(Please print name and address):
If such number of Rights shall not be all the Rights evidenced by this Rights Certificate, a new Rights Certificate for the balance of such Rights shall be issuedregistered in the name of and delivered to:
Please insert social security or deliveredother identifying number
(Please print name and address):
Dated:
Signature:
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not being exercised by or on behalf of a Person who is or was an Acquiring Person or an Affiliate or Associate of any such Acquiring Person (as such terms are defined pursuant to the PlanRights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ] did [ ] did not acquire the Rights evidenced by this Rights Certificate from any Person who is, was or became an Acquiring Person or an Affiliate or Associate of an Acquiring Person.
Dated:
Signature:
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate must correspond to the name as written upon the face of this Rights Certificate in every particular, without alteration or enlargement or any Award; in the discretion of the Committee, the Company shall forfeit the value of fractional shares or make cash payments in lieu of fractional Shares.change whatsoever.
17.9Uncertificated Shares. To the extent that the Plan provides for issuance of certificates to reflect the transfer of Shares, the transfer of such Shares may be effected on a noncertificated basis, to the extent not prohibited by applicable law or the rules of any stock exchange.
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE SERIES A JUNIOR
PARTICIPATING PREFERRED STOCK
17.10On November 3, 2021, the Board of Directors of Beazer Homes USA, Inc. (the “Legal ConstructionCompany”) approved the execution of a Section 382 Rights Agreement (the “Rights Agreement”) between the Company and American Stock Transfer & Trust Company, LLC (the “Rights Agent”), and on February 2, 2022, the adoption of the Rights Agreement was approved by the stockholders of the Company. The Rights Agreement provides for a distribution of one preferred stock purchase right (a “Right”) for each share of Common Stock, par value $0.001 per share, of the Company (the “Common Stock”) outstanding to stockholders of record at the close of business on November 14, 2022 (the “Record Date”). Each Right entitles the registered holder to purchase from the Company a unit (a “Unit”) consisting of one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Stock”), at a Purchase Price of $50.00 per Unit (the “Purchase Price”), subject to adjustment. The description and terms of the Rights are set forth in the Rights Agreement.
(a)The Board of Directors of the Company adopted the Rights Agreement in an effort to protect stockholder value by attempting to protect against a possible limitation on the Company’s ability to use its net operating loss carryforwards (the “Severability.NOLs If any provision”) to reduce potential future federal income tax obligations. The Company has experienced and continues to experience substantial operating losses, and under the Internal Revenue Code of this Plan or an Agreement is or becomes or is deemed invalid, illegal or unenforceable in any jurisdiction, or would disqualify the Plan or any Agreement under any law deemed applicable1986, as amended (the “Code”), and rules promulgated by the Committee, such provision shall be construed or deemed amendedInternal Revenue Service, the Company may “carry forward” these losses in certain circumstances to conformoffset any current and future earnings and thus reduce the Company’s federal income tax liability, subject to applicable laws or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Agreement, it shall be strickencertain requirements and the remainder of the Plan or the Agreement shall remain in full force and effect.
(b)Gender and Number. Where the context admits, words in any gender shall include the other gender, words in the singular shall include the plural and words in the plural shall include the singular.
(c)Governing Law.restrictions. To the extent that the NOLs do not preemptedotherwise become limited, the Company believes that it will be able to carry forward a significant amount of NOLs, and therefore these NOLs could be a substantial asset to the Company. However, if the Company experiences an “Ownership Change,” as defined in Section 382 of the Code, its ability to use the NOLs will be substantially limited, and the timing of the usage of the NOLs could be substantially delayed, which could therefore significantly impair the value of that asset.
A copy of the Rights Agreement is being filed with the Securities and Exchange Commission as an Exhibit to a Registration Statement on Form 8-A. A copy of the Rights Agreement is available free of charge from the Company. This Summary of Rights does not purport to be complete and is qualified in its entirety by federal law,reference to the PlanRights Agreement, which is incorporated herein by reference.
Distribution Date; Acquiring Persons; Transfer of Rights. Initially, the Rights will be attached to all Common Stock certificates representing shares then outstanding, and all Agreements hereunder shallno separate Rights Certificates will be construeddistributed. Subject to certain exceptions specified in accordancethe Rights Agreement, the Rights will separate from the Common Stock and a Distribution Date will occur upon the earlier of (i) ten (10) days following a public announcement that a person or group of affiliated or associated persons (an “Acquiring Person”) has acquired, or obtained the right to acquire, beneficial ownership of 4.95% or more of the outstanding shares of Common Stock (the “Stock Acquisition Date”) or (ii) ten (10) business days following the commencement of a tender offer or exchange offer that would result in a person or group beneficially owning 4.95% or more of the outstanding shares of Common Stock. The definition of Acquiring Person excludes any Exempted Person (as defined below) and any person who would become an Acquiring Person solely as a result of an Exempted Transaction (as defined below). Until the Distribution Date, (i) the Rights will be evidenced by the Common Stock certificates and will be transferred with and governedonly with such Common Stock certificates, (ii) new Common Stock certificates after the Record Date will contain a notation incorporating the Rights Agreement by reference and (iii) the lawssurrender for transfer of any certificates for Common Stock outstanding will also constitute the transfer of the State of Delaware, excluding any conflicts or choice or law rule or principle that might otherwise refer construction or interpretation ofRights associated with the Plan or the Agreement (as applicable) to the substantive law of any other jurisdiction.
17.11Data Privacy; Transfer of Data. By accepting an Award, a Participant (a) explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of any of Participant’s personal data that is necessary to facilitate the implementation, administration and management of the Award and the Plan, (b) understands that the Company and any Employer may, for the purpose of implementing, administering and managing the Plan, hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, and details of all Awards or entitlements to Shares granted to Participant under the Plan or otherwise (“Data”), (c) understands that Data may be transferred to any third parties assisting in the implementation, administration and management of the Plan, including any broker with whom the Shares issued with respect to an Award may be deposited, and that these recipients may be located in Participant’s country or elsewhere, and that the recipient’s country may have different data privacy laws and protections than Participant’s country; (d) waives any data privacy rights Participant may have with respect to the Data; and (e) authorizes the Company and any Employer and its agents to store and transmitCommon Stock represented by such information in electronic form.
certificate.
As soon as practicable after the Distribution Date, Rights Certificates will be mailed to holders of record of the Common Stock as of the close of business on the Distribution Date. Thereafter, the separate Rights Certificates alone will represent the Rights. Except as otherwise determined by the Board of Directors, only shares of Common Stock issued prior to the Distribution Date will be issued with Rights.
Exempted Persons. The following persons shall be “Exempted Persons” under the Rights Agreement:
(i) Any person who, together with all affiliates and associates of such person, is the beneficial owner of Common Stock, options and/or warrants exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding on November 14, 2022, will be an “Exempted Person.” However, any such person will no longer be deemed to be an Exempted Person and shall be deemed an Acquiring Person if such person, together with all affiliates and associates of such person, becomes the beneficial owner of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Common Stock that such person had at any time since November 14, 2022, except solely (x) pursuant to equity compensation awards granted to such person by the Company or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (y) as a result of a redemption of shares of Common Stock by the Company.
(ii) In addition, any person who, together with all affiliates and associates of such person, becomes the beneficial owner of Common Stock, options and/or warrants exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock then outstanding as a result of a purchase by the Company or any of its subsidiaries of shares of Common Stock will also be an “Exempted Person.” However, any such person will no longer be deemed to be an Exempted Person and will be deemed to be an Acquiring Person if such person, together with all affiliates and associates of such person, becomes the beneficial owner, at any time after the date such person became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Beneficial Ownership of Common Stock that such person had at any time since the date such person first became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, except solely (x) pursuant to equity compensation awards granted to such person by the Company or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (y) as a result of a redemption of shares of Common Stock by the Company.
(iii) In addition, any person who, together with all affiliates and associates of such person, is the beneficial owner of Common Stock, options and/or warrants exercisable for shares of Common Stock representing 4.95% or more of the shares of Common Stock outstanding, and whose beneficial ownership, as determined by the Board of Directors of the Company in its sole discretion, (x) would not jeopardize or endanger the availability of the Company of its NOLs or (y) is otherwise in the best interests of the Company, will be an Exempted Person. However, any such person will cease to be an Exempted Person if (A) such person ceases to beneficially own 4.95% or more of the shares of the then outstanding Common Stock, or (B) after the date of such determination by the Board of Directors of the Company, such person, together with all affiliates and associates of such person, becomes the beneficial owner of securities representing a percentage of Common Stock that exceeds by one-half of one percent (0.5%) or more the lowest percentage of Beneficial Ownership of Common Stock that such person had at any time since the date such person first became the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, except solely (I) pursuant to equity compensation awards granted to such person by the Company or as a result of an adjustment to the number of shares of Common Stock represented by such equity compensation award pursuant to the terms thereof or (II) as a result of a redemption of shares of Common Stock by the Company, or (C) the Board of Directors of the Company, in its sole discretion, makes a contrary determination with respect to the effect of such person’s beneficial ownership (together with all affiliates and associates of such person) with respect to the availability to the Company of its NOLs.
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| IN WITNESS WHEREOF, this Plan is executed this ___ day of November, 2019.41 | | | |
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| | | BEAZER HOMES USA, INC. | |
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| | | | |
| | | By: | |
| | | | |
| | | | Authorized Officer |
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ATTEST: | | | | |
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| | | | |
By: | | | | |
| Secretary | | | |
A purchaser, assignee or transferee of the shares of Common Stock (or options or warrants exercisable for Common Stock) from an Exempted Person will not thereby become an Exempted Person, except that a transferee from the estate of an Exempted Person who receives Common Stock as a bequest or inheritance from an Exempted Person shall be an Exempted Person so long as such transferee continues to be the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock.
Exempted Transactions. The following transactions shall be “Exempted Transactions” under the Rights Agreement: any transaction that the Board of Directors of the Company determines, in its sole discretion, is exempt from the Rights Agreement, which determination shall be made in the sole and absolute discretion of the Board of Directors prior to the date of such transaction, including, without limitation, if the Board of Directors determines that (i) neither the beneficial ownership of shares of Common Stock by any person, directly or indirectly, as a result of such transaction nor any other aspect of such transaction would jeopardize or endanger the availability to the Company of the Company’s tax benefits or (ii) such transaction is otherwise in the best interests of the Company. In granting an exemption for an “Exempted Transaction”, the Board of Directors of the Company may require any person who would otherwise be an Acquiring Person to make certain representations or undertakings or to agree that any violation or attempted violation of such representations or undertakings will result in such consequences and subject to such conditions as the Board of Directors of the Company may determine in its sole discretion, including that any such violation shall result in such person becoming an Acquiring Person.
Excercisability; Expiration. The Rights are not exercisable until the Distribution Date and will expire on the earliest of (i) the close of business on November 14, 2025, (ii) the time at which the Rights are redeemed pursuant to the Rights Agreement, (iii) the time at which the Rights are exchanged pursuant to the Rights Agreement, (iv) the repeal of Section 382 of the Code or any successor statute if the Board of Directors of the Company determines that the Rights Agreement is no longer necessary or desirable for the preservation of certain tax benefits, or (v) the beginning of a taxable year of the Company to which the Board of Directors of the Company determines that certain tax benefits may not be carried forward. At no time will the Rights have any voting power.
In the event that an Acquiring Person becomes the beneficial owner of 4.95% or more of the then outstanding shares of Common Stock, each holder of a Right will thereafter have the right to receive, upon exercise, Common Stock (or, in certain circumstances, cash, property or other securities of the Company), having a value equal to two times the exercise price of the Right. The exercise price is the Purchase Price times the number of Units associated with each Right (initially, one). Notwithstanding any of the foregoing, following the occurrence of an Acquiring Person becoming such (a “Flip-In Event”), all Rights that are, or (under certain circumstances specified in the Rights Agreement) were, beneficially owned by any Acquiring Person will be null and void. However, Rights are not exercisable following the occurrence of a Flip-In Event until such time as the Rights are no longer redeemable by the Company as set forth below.
For example, at an exercise price of $50.00 per Right, each Right not owned by an Acquiring Person (or by certain related parties) following an event set forth in the preceding paragraph would entitle its holder to purchase $100.00 worth of Common Stock (or other consideration, as noted above) for $50.00. If the Common Stock at the time of exercise had a market value per share of $5.00, the holder of each valid Right would be entitled to purchase twenty (20) shares of Common Stock for $50.00.
In the event that, at any time following the Stock Acquisition Date, (i) the Company engages in a merger or other business combination transaction in which the Company is not the surviving corporation; (ii) the Company engages in a merger or other business combination transaction in which the Company is the surviving corporation and the Common Stock is changed or exchanged; or (iii) 50% or more of the Company’s assets, cash flow or earning power is sold or transferred, each holder of a Right (except Rights which have previously been voided as set forth above) shall thereafter have the right to receive, upon exercise of the Right, common stock of the acquiring company having a value equal to two times the exercise price of the Right. The events set forth in this paragraph (a “Flip-Over Event”) and in the second preceding paragraph are referred to as the “Triggering Events.”
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including, without limitation, the right to vote or to receive dividends. While the distribution of the Rights will not be taxable to stockholders or to the Company, stockholders may, depending upon the circumstances, recognize taxable income in the event that the Rights become exercisable for Common Stock (or other consideration) of the Company as set forth above or in the event the Rights are redeemed.
Anti-Dilution Provisions. The Purchase Price payable, and the number of Units of Preferred Stock or other securities or property issuable, upon exercise of the Rights are subject to adjustment from time to time to prevent dilution (i) in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock, (ii) if holders of the Preferred Stock are granted certain rights or warrants to subscribe for Preferred Stock or convertible securities at less than the current market price of the Preferred Stock, or (iii) upon the distribution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding regular quarterly cash dividends) or of subscription rights or warrants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price will be required until cumulative adjustments amount to at least 1% of the Purchase Price. No fractional Units will be issued and, in lieu thereof, an adjustment in cash will be made based on the market price of the Preferred Stock on the last trading date prior to the date of exercise.
Exchange. At any time after the Stock Acquisition Date, the Board of Directors of the Company may exchange the Rights (other than Rights owned by an Acquiring Person), in whole or in part, at an exchange ratio equal to (i) a number of shares of Common Stock per Right with a value equal to the spread between the value of the number of shares of Common Stock for which the Rights may then be exercised and the Purchase Price or (ii) if prior to the acquisition by the Acquiring Person of 50% or more of the then outstanding shares of Common Stock, one share of Common Stock per Right (subject to adjustment).
Redemption. At any time until ten (10) days following the Stock Acquisition Date, the Company may redeem the Rights in whole, but not in part, at a price of $0.001 per Right. Immediately upon the action of the Board of Directors ordering redemption of the Rights, the Rights will terminate and the only right of the holders of Rights will be to receive the $0.001 redemption price.
Amendments. Other than those provisions relating to the principal economic terms of the Rights, any of the provisions of the Rights Agreement may be amended by the Board of Directors of the Company prior to the Distribution Date. After the Distribution Date, the provisions of the Rights Agreement may be amended by the Board in order to cure any ambiguity, to make changes which do not adversely affect the interests of holders of Rights (excluding the interests of any Acquiring Person), or to shorten or lengthen any time period under the Rights Agreement provided; however, that no amendment to adjust the time period governing redemption shall be made at such time as the Rights are not redeemable.
ANNEX I
NON-GAAP RECONCILIATION
Reconciliation of Adjusted EBITDA (earnings before interest, taxes, depreciation, amortization, stock-based compensation, debt extinguishment, impairments and abandonments)abandonments, and other non-recurring items) to total Company net income, the most directly comparable GAAP measure, is provided for the period shown below. Management believes that Adjusted EBITDA assists investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective capitalization, tax position and level of impairments. These EBITDA measures should not be considered alternatives to net income determined in accordance with GAAP as an indicator of operating performance.
| | | | | |
FISCAL YEAR ENDED SEPTEMBER 30, 20192021 (IN THOUSANDS) | |
Net lossincome | $ | (79,520)122,021 | |
BenefitExpense from income taxes | $ | (37,245)21,501 | |
| Interest amortized to home construction and land sales expenses and capitalized interest impaired | $ | 108,94187,290 | |
| Interest expense not qualified for capitalization | $ | 3,1092,781 | |
| EBIT | $ | (4,715)233,593 | |
Depreciation and amortization and stock-based compensation amortization | $ | 25,28513,976 | |
| EBITDA | $ | 20,570247,569 | |
Loss on extinguishment of debt | |
| Stock-based compensation expense | $ | 24,92012,167 | |
| Inventory impairments and abandonments (a) | $ | 134,711853 | |
| Litigation settlement in discontinued operations | $ | 120 | |
| Restructuring and severance expenses | $ | (10) | |
| Adjusted EBITDA | $ | 180,201262,724 | |
(a) In periods during which we impaired certain of our inventory assets, capitalized interest that is impaired is included in the line above titled “Interest amortized to home construction and land sales expenses and capitalized interest impaired."
