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 (Amendment No. _____)
Filed by the Registrant S
Filed by a Party other than the Registrant ¨
Check the appropriate box:
☐ | Preliminary Proxy Statement. | |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)). | |
☒ | Definitive Proxy Statement. | |
☐ | Definitive Additional Materials. | |
☐ | Soliciting Material Pursuant to §240.14a-12. |
Hovnanian Enterprises, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. | ||
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||
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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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HOVNANIAN ENTERPRISES, INC. | |
110 West Front Street, P.O. Box 500, Red Bank, N.J. 07701 (732) 747-7800 | |
January 28, 2013
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders, which will be held on Tuesday, March 12, 2013,10, 2015, at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017. The meeting will start promptly at 10:30 a.m., Eastern Time.
In accordance with the Securities and Exchange CommissionCommission’s rule allowing companies to furnish proxy materials to their shareholders over the Internet, the Company is primarily furnishing proxy materials to our shareholders of Class A Common Stock and registered shareholders of Class B Common Stock on the Internet, rather than mailing paper copies of the materials (including our Annual Report to Shareholders for fiscal 2012)2014) to each of those shareholders. We believe that this e-proxy process will expedite our shareholders’ receipt of proxy materials, lower costs and reduce the environmental impact of our Annual Meeting. If you received only a Notice Regarding the Availability of Proxy Materials (the “Notice”) by mail or electronic mail, you will not receive a paper copy of the proxy materials unless you request one. Instead, the Notice will instruct you as to how you may access and review the proxy materials on the Internet. The Notice will also instruct you as to how you may access your proxy card to vote over the Internet, by telephone or by mail. If you received a Notice by mail or electronic mail and would like to receive a paper copy of our proxy materials, free of charge, please follow the instructions included in the Notice.
We anticipate that the Notice will first be mailed to our shareholders on or about January 28, 2013,26, 2015, and will be sent by electronic mail to our shareholders who have opted for such means of delivery on or about January 28, 2013.
Attached to this letter isare a Notice of Annual Meeting of Shareholders and Proxy Statement, which describesdescribe the business to be conducted at the meeting. We will also report on matters of current interest to our shareholders.
It is important that your shares be represented and voted at the meeting. Therefore, we urge you to complete, sign, date and return the enclosed proxy card or, if applicable, register your vote via the Internet or by telephone according to the instructions on the proxy card. If you attend the meeting, you may still choose to vote your shares personally even though you have previously designated a proxy.
We sincerely hope you will be able to attend and participate in the Company’s 20132015 Annual Meeting. We welcome the opportunity to meet with many of you and give you a firsthand report on the progress of your Company.
Sincerely yours, | |
Ara K. Hovnanian Chairman of the Board |
PROXY VOTING METHODS
If at the close of business on January 14, 2013,9, 2015, you were a shareholder of record or held shares through a broker or bank, you may vote your shares as described below or you may vote in person at the Annual Meeting. To reduce our administrative and postage costs, we would appreciate if shareholders of Class A Common Stock and registered shareholders of Class B Common Stock would please vote through the Internet or by telephone, both of which are available 24 hours a day. You may revoke your proxies at the times and in the manners described on page 1 of the Proxy Statement. If you are a shareholder of record or hold shares through a broker or bank and are voting by proxy, your vote must be received by 11:59 p.m. (Eastern Time) on March 11, 20139, 2015 to be counted unless otherwise noted below.
To vote by proxy:
Shareholders of Class A Common Stock and Registered Shareholders of Class B Common Stock:
BY INTERNET
● | Go to the website atwww.proxyvote.com and follow the instructions, 24 hours a day, seven days a week. |
● | You will need the 12-digit Control Number included on your Notice Regarding the Availability of Proxy Materials to obtain your records and to create an electronic voting instruction form. |
BY TELEPHONE
● | From a touch-tone telephone, dial (800) 690-6903 and follow the recorded instructions, 24 hours a day, seven days a week. |
● | You will need the 12-digit Control Number included on your Notice Regarding the Availability of Proxy Materials in order to vote by telephone. |
BY MAIL
● | Request a proxy card from us by following the instructions on your Notice Regarding the Availability of Proxy Materials. |
● | When you receive the proxy card, mark your selections on the proxy card. |
�� | ● | Date and sign your name exactly as it appears on your proxy card. |
● | Mail the proxy card in the postage-paid envelope that will be provided to you. |
● | Mailed proxy cards must be received no later than March |
Shareholders of Record of Class B Common Stock held in Nominee Name:
● |
Shares of Class B Common Stock held in nominee name will be entitled to ten votes per share only if the beneficial owner voting instruction card and the nominee proxy card relating to such shares |
YOUR VOTE IS IMPORTANT—THANK YOU FOR VOTING
HOVNANIAN ENTERPRISES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hovnanian Enterprises, Inc. will be held on Tuesday, March 12, 2013,10, 2015, at the offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York, New York 10017 at 10:30 a.m. for the following matters:
1. | The election of directors of the Company for the ensuing year, to serve until the next Annual Meeting of Shareholders of the Company, and until their respective successors may be elected and qualified; |
2. | The ratification of the selection of Deloitte & Touche LLP, an independent registered public accounting firm, to examine the financial statements of the Company for the year ending October 31, |
3. |
To approve, in a non-binding, voluntary advisory vote, the compensation of the Company’s named executive officers; and |
4. | The transaction of such other business as may properly come before the meeting and any adjournment thereof. |
The Board of Directors recommends that you vote FOR each of the nominees listed in proposal 1, FOR proposal 2 FOR proposal 3, FOR proposal 4 and FOR proposal 5.
Only shareholders of record at the close of business on January 14, 2013January9, 2015 are entitled to notice of, and to vote at, the Annual Meeting. Accompanying this Notice of Annual Meeting of Shareholders is a proxy statement, proxy card(s) and the Company’s Annual Report for the fiscal year ended October 31, 2012.
To ensure your shares are voted, if you are a shareholder of Class A Common Stock or a registered shareholder of Class B Common Stock, you may vote your shares over the Internet, by telephone, or by requesting a paper proxy card to complete, sign and return by mail. Shares of Class B Common Stock held in nominee name will be entitled to ten votes per share only if the beneficial owner voting instruction card and the nominee proxy card relating to such shares are properly completed, mailed and received not less than three nor more than 20 business days prior to March 10, 2015. These voting procedures are described on the preceding page and on the proxy card.
All shareholders are urged to attend the meeting in person or by proxy. Shareholders who do not expect to attend the meeting are requested to complete, sign and date the enclosed proxy card and return it promptly, or, if applicable, to register their vote via the Internet or by telephone according to the instructions on the preceding page and the proxy card.
By order of the Board of Directors, | |
MICHAEL DISCAFANI Secretary |
January 26, 2015
If you are a shareholder of record and you plan to attend the Annual Meeting, please mark the appropriate box on your proxy card or, if applicable, so indicate when designating a proxy via the Internet or by telephone. If your shares are held by a bank, broker or other intermediary and you plan to attend, please send written notice to Hovnanian Enterprises, Inc., 110 West Front Street, P.O. Box 500, Red Bank, New Jersey 07701, Attention: Michael Discafani, Secretary, and enclose evidence of your ownership (such as a letter from the bank, broker or other intermediary confirming your ownership or a bank or brokerage firm account statement). The names of all those planning to attend will be placed on an admission list held at the registration desk at the entrance to the meeting. In order to be admitted to the Annual Meeting, you will need a form of personal identification (such as a driver’s license) along with your Notice, proxy card or proof of Common Stock ownership. If your shares are held beneficially in the name of a bank, broker or other holder of record and you wish to be admitted to the Annual Meeting of Shareholders, you must present proof of your ownership of our Common Stock, such as a bank or brokerage account statement. If you do not plan to attend the Annual Meeting, please designate a proxy by mail or, if applicable, via the Internet or by telephone. If you choose to vote by mail, please complete, sign and date the enclosed proxy card and return it promptly so that your shares will be voted. If you have received a hard copy of the proxy materials, the enclosed envelope requires no postage if mailed in the United States. | ||
TABLE OF CONTENTS
Page
GENERAL | 1 |
VOTING RIGHTS AND SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT | 2 |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE | 4 |
PROPOSAL 1 — ELECTION OF DIRECTORS | 5 |
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS | 8 |
PROPOSAL 2 — RATIFICATION OF THE SELECTION OF AN INDEPENDENT REGISTERED | 10 |
PROPOSAL 3 — VOLUNTARY ADVISORY VOTE ON EXECUTIVE COMPENSATION | 10 |
THE COMPENSATION COMMITTEE | 12 |
COMPENSATION DISCUSSION AND ANALYSIS | 14 |
Executive Summary | 14 |
Compensation Philosophy and Objectives | 18 |
Fiscal | 21 |
Details of Compensation Elements | 22 |
Actions for Fiscal | 33 |
Tax Deductibility and Accounting Implications | 34 |
Timing and Pricing of Stock Options and MSUs | 34 |
Stock Ownership Guidelines | 34 |
EXECUTIVE COMPENSATION | 35 |
35 | |
Grants of Plan-Based Awards in Fiscal | 39 |
Outstanding Equity Awards at Fiscal | 43 |
Option Exercises and Stock Vested in Fiscal | 47 |
Nonqualified Deferred Compensation for Fiscal | 48 |
Potential Payments Upon Termination or Change-in-Control Table | 50 |
NON-EMPLOYEE DIRECTOR COMPENSATION | 53 |
THE AUDIT COMMITTEE | 58 |
THE AUDIT COMMITTEE REPORT | 59 |
FEES PAID TO PRINCIPAL ACCOUNTANT | 59 |
PRINCIPAL ACCOUNTANT INDEPENDENCE | 60 |
CORPORATE GOVERNANCE | 60 |
OVERSIGHT OF RISK MANAGEMENT | 61 |
LEADERSHIP STRUCTURE | 62 |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS | 62 |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MARCH | 64 |
GENERAL | 64 |
SHAREHOLDER PROPOSALS FOR THE | 65 |
HOVNANIAN ENTERPRISES, INC.
110 WEST FRONT STREET
P.O. BOX 500
RED BANK, NEW JERSEY 07701
PROXY STATEMENT
GENERAL
The accompanying proxy is solicited on behalf of the Board of Directors of Hovnanian Enterprises, Inc. (the “Company”, “we”, “us”, or “our”) for use at the Annual Meeting of Shareholders referred to in the foregoing noticeNotice and at any adjournment thereof.
Shares represented by properly executed proxies that are received or executed in time and not revoked will be voted in accordance with the specifications thereon. If no specifications are made in an executed proxy, the persons named in the accompanying proxy card(s) will vote the shares represented by such proxies for the Board of Directors’ slate of directors, for the ratification of the selection of Deloitte & Touche LLP, an independent registered public accounting firm, to examine the financial statements of the Company for the fiscal year ending October 31, 2013, for the amendment to the Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock, for the amendment to the Certificate of Incorporation to increase the number of authorized shares of Class B Common Stock,2015 and for the approval, in a non-binding, voluntary advisory vote, of the compensation of the Company's named executive officers and on any other matters as recommended by the Board of Directors, unless contrary instructions are given.
Any person may revoke a previously designated proxy before it is exercised. If you voted by Internet, telephone or mail and are a shareholder of record, you may change your vote and revoke your proxy by (i)(1) delivering written notice of revocation to Michael Discafani, Secretary, provided such statement is received no later than March 11, 2013, (ii)9, 2015, (2) voting again by Internet or telephone at a later time before the closing of voting facilities at 11:59 p.m. (Eastern Time) on March 11, 2013, (iii)9, 2015, (3) submitting a properly signed proxy card with a later date that is received no later than March 11, 20139, 2015 or (iv)(4) revoking your proxy and voting in person at the 20132015 Annual Meeting. If you hold your shares in street name, you may submit new voting instructions by contacting your bank, broker or other nominee. You may also change your vote or revoke your proxy in person at the 20132015 Annual Meeting if you obtain a signed proxy from the record holder (broker or other nominee) giving you the right to vote the shares. Please note that attendance at the 20132015 Annual Meeting will not by itself revoke a proxy.
We will bear the costs of soliciting proxies from the holders of our Class A Common Stock and Class B Common Stock (collectively, “Common Stock”). We are initially soliciting these proxies by mail and electronic mail, but solicitation may be made by our directors, officers and selected other employees telephonically, electronically or by other means of communication. Directors, officers and employees who help us in the solicitation will not be specially compensated for those services, but they may be reimbursed for their out-of-pocket expenses incurred in connection with the solicitation. Brokerage houses, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to beneficial owners and will be reimbursed for their reasonable out-of-pocket expenses incurred in sending proxy materials to beneficial owners.
VOTING RIGHTS AND SECURITY OWNERSHIP OF
The Board of Directors has set January 14, 20139, 2015 as the record date for the 20132015 Annual Meeting of Shareholders. As of the close of business on the record date, there were shares of Class A Common Stock outstanding and shares of Class B Common Stock outstanding.
The following table sets forth as of November 1, 2012,January 9, 2015, (1) the Class A Common Stock and Class B Common Stock of the Company beneficially owned by holders of more than 5% of either the Class A Common Stock or the Class B Common Stock of the Company and (2) the Class A Common Stock, Class B Common Stock and Depositary Shares of the Company beneficially owned by each Director, each nominee for Director, each executive officer named in the tables set forth under “Executive Compensation” below and all Directors and executive officers as a group. The table does not include ownership with respect to our 7.25% Tangible Equity Units because none of the individuals or groups listed below has any beneficial ownership of such securities.
Class A Common Stock (1) | Class B Common Stock (1) | Depositary Shares (1) (3) | ||||||||||||||||||||||
Directors, Nominees for Director, Certain Executive Officers, Directors and Executive Officers as a Group and Holders of More Than 5% | Amount and Nature of Beneficial Ownership | Percent of Class (2) | Amount and Nature of Beneficial Ownership | Percent of Class (2) | Amount and Nature of Beneficial Ownership | Percent of Class (2) | ||||||||||||||||||
Estate of Kevork S. Hovnanian (4) | 7,567,392 | 6.40 | % | 7,138,646 | 48.70 | % | — | — | ||||||||||||||||
Ara K. Hovnanian (5) | 4,137,001 | 3.50 | % | 1,856,314 | 12.05 | % | — | — | ||||||||||||||||
Robert B. Coutts | 131,112 | 0.11 | % | — | — | — | — | |||||||||||||||||
Edward A. Kangas | 231,217 | 0.20 | % | — | — | — | — | |||||||||||||||||
Joseph A. Marengi | 121,512 | 0.10 | % | — | — | — | — | |||||||||||||||||
Brad G. O’Connor | 38,895 | 0.03 | % | — | — | — | — | |||||||||||||||||
Vincent Pagano Jr. | — | — | — | — | — | — | ||||||||||||||||||
Thomas J. Pellerito | 1,243,668 | 1.05 | % | — | — | — | — | |||||||||||||||||
Peter S. Reinhart as Trustee of the Sirwart Hovnanian 1994 Marital Trust (6) | — | — | 5,210,091 | 35.54 | % | — | — | |||||||||||||||||
John J. Robbins | 160,705 | 0.14 | % | — | — | — | — | |||||||||||||||||
J. Larry Sorsby | 274,302 | 0.23 | % | — | — | — | — | |||||||||||||||||
David G. Valiaveedan | 26,105 | 0.02 | % | — | — | 2,000 | 0.04 | % | ||||||||||||||||
Stephen D. Weinroth | 279,309 | 0.24 | % | 4,500 | 0.03 | % | — | — | ||||||||||||||||
All Directors and executive officers as a group (10 persons) | 13,771,218 | 11.55 | % | 8,999,460 | 58.41 | % | 2,000 | 0.04 | % |
Class A Common Stock (1) | Class B Common Stock (1) | Depositary Shares (1) (3) | ||||||||||||||||||||||||||||
Amount and Nature of Beneficial Ownership | Percent of Class (2) | Amount and Nature of Beneficial Ownership | Percent of Class (2) | Amount and Nature of Beneficial Ownership | Percent of Class (2) | |||||||||||||||||||||||||
Directors, Nominees for Director, Named Executive Officers and Directors and Executive Officers as a Group | ||||||||||||||||||||||||||||||
Ara K. Hovnanian (4) | 3,782,392 | 2.88 | % |
| 3,161,256 | 18.92 | % |
| — | — | ||||||||||||||||||||
Robert B. Coutts | 164,988 | 0.13 | % |
| — | — | — | — | ||||||||||||||||||||||
Edward A. Kangas | 266,906 | 0.20 | % |
| — | — | — | — | ||||||||||||||||||||||
Joseph A. Marengi | 143,851 | 0.11 | % |
| — | — | — | — | ||||||||||||||||||||||
Brad G. O’Connor | 109,312 | 0.08 | % |
| — | — | — | — | ||||||||||||||||||||||
Vincent Pagano Jr. | 53,956 | 0.04 | % |
| — | — | — | — | ||||||||||||||||||||||
Thomas J. Pellerito | 1,331,114 | 1.01 | % |
| — | — | — | — | ||||||||||||||||||||||
J. Larry Sorsby | 824,832 | 0.63 | % |
| — | — | — | — | ||||||||||||||||||||||
David G. Valiaveedan (5) | 82,665 | 0.06 | % |
| — | — | 2,000 | 0.04 | % |
| ||||||||||||||||||||
Stephen D. Weinroth | 295,248 | 0.22 | % |
| 4,500 | 0.03 | % |
| — | — | ||||||||||||||||||||
All Directors and executive officers as a group (10 persons) | 14,182,656 | 10.68 | % |
| 10,304,402 | 61.67 | % |
| 2,000 | 0.04 | % |
| ||||||||||||||||||
Holders of More Than 5% | ||||||||||||||||||||||||||||||
Estate of Kevork S. Hovnanian (6) | 6,596,543 | 5.02 | % |
| 3,255,251 | 21.73 | % |
| — | — | ||||||||||||||||||||
Peter S. Reinhart as Trustee of the Sirwart Hovnanian 1994 Marital Trust (7) | — | — | 5,210,091 | 34.77 | % |
| — | — | ||||||||||||||||||||||
Hovnanian Family 2012 L.L.C. (8) | 970,849 | 0.74 | % |
| 3,883,395 | 25.92 | % |
| — | — |
(1) | The figures in the table with respect to Class A Common Stock do not include the shares of Class B Common Stock beneficially owned by the specified persons. Shares of Class B Common Stock are convertible at any time on a |
On July 29, 2008, the Company’s Board of Directors declared a dividend of one Preferred Stock Purchase Right for each outstanding share of Class A Common Stock and Class B Common Stock. The dividend was paid to stockholders of record on August 15, 2008. Subject to the terms, provisions and conditions of the Rights Plan, if the Preferred Stock Purchase Rights become exercisable, each Preferred Stock Purchase Right would initially represent the right to purchase from the Company |
(2) | Based upon the number of shares outstanding plus options currently exercisable or exercisable within 60 days of |
(3) | Each Depositary Share represents 1/1,000th of a share of 7.625% Series A Preferred Stock. |
(4) | Includes |
(5) | Includes 8,785 shares of Class A Common Stock that are held jointly with Mr.Valiaveedan’s spouse.Mr.Valiaveedan and his spouse share voting and investment power with respect to such shares. |
(6) | Includes 6,156,543 shares of Class A Common Stock and 3,255,251 shares of Class B Common Stock held by the Executors of the Estate of Kevork S. Hovnanian, deceased (the “Estate of Kevork S. Hovnanian”). Ara K. Hovnanian is special purpose Executor with respect to investments in the Companyand, accordingly, the shares held by the Estate of Kevork S. Hovnanian are included in “All Directors and executive officers as a group,” but such shares are not also included in |
(7) |
Includes 4,833,826 shares of Class B Common Stock held by the Kevork S. Hovnanian Family Limited Partnership, a Connecticut limited partnership (the “Limited Partnership”). Peter S. Reinhart, as trustee of the Sirwart Hovnanian 1994 Marital Trust (the “Marital Trust”), is the managing general partner of the Limited Partnership and, as such, has the sole power to vote and dispose of the shares of Class B Common Stock held by the Limited Partnership, as well as |
(8) | Represents 970,849 shares of Class A Common Stock and 3,883,395 shares of Class B Common Stock held by the Hovnanian Family 2012 L.L.C. (the “2012 LLC”). Ara K. Hovnanian is the special purpose manager with respect to investments in the Companyand, accordingly, the shares held by the 2012 LLC are included in “All Directors and executive officers as a group,” but such shares are not also included in Mr. Hovnanian’s separate figure of beneficial ownership. The business address of the 2012 LLC is 110 West Front Street, P.O. Box 500, Red Bank, New Jersey 07701. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), requires the Company’s executive officers, directors, persons who beneficially own more than 10% of a registered class of the Company’s equity securities and certain entities associated with the foregoing (“Reporting Persons”) to file reports of ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission (the “SEC”). These Reporting Persons are required by SEC rules to furnish the Company with copies of all Forms 3, 4 and 5, and amendments thereto, that they file with the SEC.
Based solely on the Company’s review of copies of the forms and amendments of forms it has received and written representations from the Company’s officers and directors, the Company believes that, with respect to the fiscal year ended October 31, 2012,2014, all the Reporting Persons complied with all applicable filing requirements.
PROPOSAL 1 — ELECTION OF DIRECTORS
The Company’s Restated By-laws provide that the Board of Directors shall consist of up to eleven Directors who shall be elected annually by the shareholders. The Company’s Restated Certificate of Incorporation (“Certificate of Incorporation”) requires that, at any time when any shares of Class B Common Stock are outstanding, one-third of the Directors shall be independent, as defined therein.
Under the rules of the New York Stock Exchange (the “NYSE”“NYSE”), listed companies of which more than 50% of the voting power for the election of directors is held by an individual, group or other entity are not required to have a majority of independent directors, as defined by NYSE rules, or to comply with certain other requirements. Because Mr. A. Hovnanian, the Estate of Kevork S. Hovnanian, the Limited Partnership and the 2012 LLC established for members of his family and family trusts hold more than 50% of the voting power of the Company, the Company is a controlled company within the meaning of the rules of the NYSE. However, the Company does not avail itself of any of the exemptions afforded to controlled companies under the NYSE rules. This may change in the future at the Company’s discretion.
The Board of Directors has determined that a Board of Directors consisting of the seven nominees listed below is the best composition in order to satisfy both the independence requirements of the Company’s Certificate of Incorporation as well as the rules of the NYSE. The Board of Directors has also determined that Messrs. Coutts, Kangas, Marengi, Pagano and Weinroth are independent as defined under the Company’s Certificate of Incorporation and the NYSE rules. In reaching its determination that Mr. Pagano is independentThe Company’s Certificate of Incorporation may be found on the Company’s website at www.khov.com under applicable standards, the Corporate Governance and Nominating Committee and the Board of Directors considered that he was a partner with Simpson Thacher & Bartlett LLP until his retirement on December 31, 2012. Simpson Thacher & Bartlett LLP has provided, and continues to provide, legal services to the Company.
The following individuals have been recommended to the Board of Directors by the Corporate Governance and Nominating Committee and approved by the Board of Directors to serve as Directors of the Company to hold office until the next Annual Meeting of Shareholders and until their respective successors have been duly elected and qualified. Mr. Robbins, a current director, is not standing for re-election at the 2013 Annual Meeting of Shareholders. Mr. Robbins will serve through the remainder of his term, which will end at the Company’s 2013 Annual Meeting of Shareholders. The Board of Directors thanks Mr. Robbins for his many years of service to the Company. Mr. Pagano has been nominated as Mr. Robbins’ successor to the Board of Directors.
In the event that any of the nominees for Director should become unavailable to serve as a Director, it is intended that the shares represented by proxies will be voted for such substitute nominees as may be nominated by the Board of Directors, unless the number of Directors constituting a full Board of Directors is reduced. The Company has no reason to believe, however, that any of the nominees is, or will be, unavailable to serve as a Director. Proxies cannot be voted for a greater number of persons than the number of nominees shown below.
Board of Directors
Name | Age | Company Affiliation | Year First Became a Director | |||
Ara K. Hovnanian | 55 | President, Chief Executive Officer, Chairman of the Board & Director | 1981 | |||
Robert B. Coutts | 62 | Director | 2006 | |||
Edward A. Kangas | 68 | Director | 2002 | |||
Joseph A. Marengi | 59 | Director | 2006 | |||
Vincent Pagano Jr. | 62 | Director Nominee | — | |||
J. Larry Sorsby | 57 | Executive Vice President, Chief Financial Officer & Director | 1997 | |||
Stephen D. Weinroth | 74 | Director | 1982 |
Name | Age | Company Affiliation |
| Year First Became a Director |
| |
Ara K. Hovnanian | 57 | President, Chief Executive Officer, Chairman of the Board & Director |
|
| 1981 |
|
Robert B. Coutts | 64 | Director |
|
| 2006 |
|
Edward A. Kangas | 70 | Director |
|
| 2002 |
|
Joseph A. Marengi | 61 | Director |
|
| 2006 |
|
Vincent Pagano Jr. | 64 | Director |
|
| 2013 |
|
J. Larry Sorsby | 59 | Executive Vice President, Chief Financial Officer & Director |
|
| 1997 |
|
Stephen D. Weinroth | 76 | Director |
|
| 1982 |
|
Board of Directors — Composition
The Board of Directors seeks to ensure that the Board of Directors is composed of members whose particular experience, qualifications, attributes and skills, when taken together, will allow the Board of Directors to satisfy its oversight responsibilities effectively. As discussed below under “Corporate Governance and Nominating Committee” beginning on page 8,9, a slate of Directors to be nominated for election at the annual shareholders’ meeting each year is approved by the Board of Directors after recommendation by the Corporate Governance and Nominating Committee. In the case of a vacancy on the Board of Directors (other than one resulting from removal by shareholders), the Corporate Governance and Nominating Committee will identify individuals believed to be qualified candidates to serve on the Board of Directors and shall review the candidates who have met those qualifications with the Company’s Chairman who will recommend any director nomineesdetermine if the candidate is eligible for recommendation by the Corporate Governance and Nominating Committee to the full Board of Directors for election.Directors. The Board of Directors will then approve a director nominee to fill the vacancy on the Board of Directors. In identifying candidates for Director, the Corporate Governance and Nominating Committee, the Chairman and the Board of Directors take into account (1) the comments and recommendations of board members of the Board of Directors regarding the qualifications and effectiveness of the existing Board of Directors or additional qualifications that may be required when selecting new board members that may be made in connection with the self-examinations described below under “Corporate Governance and Nominating Committee” beginning on page 8,9, (2) the requisite expertise and sufficiently diverse backgrounds of the Board of Directors’ overall membership composition, (3) the independence of outside Directors and other possible conflicts of interest of existing and potential members of the Board of Directors and (4) all other factors such bodies and persons consider appropriate. Although the Company has no formal policy regarding diversity, the charter of the Corporate Governance and Nominating Committee includes a statement that it and the Board of Directors believe that diversity is an important component of a board of directors, including such factors as background, skills, experience, expertise, gender, race and culture. As mentioned above, the Corporate Governance and Nominating Committee and the Board of Directors include diversity as one of several criteria that they consider in connection with selecting candidates for the Board of Directors. The Board of Directors seeks to ensure that it is composed of members whose particular background, expertise, qualifications, attributes and skills, when taken together, allow the Board of Directors to satisfy its oversight responsibilities effectively.
When considering whether directors and nominees have the experience, qualifications, attributes and skills, taken as a whole, to enable the Board of Directors to satisfy its oversight responsibilities effectively in light of the Company’s business and structure, the Corporate Governance and Nominating Committee and the Board of Directors focused primarily on the information discussed in each of the Directors’ individual biographies set forth below on pages 5 and 6.6 to 7. In particular, with regard to Mr. Coutts, the Corporate Governance and Nominating Committee and the Board of Directors considered his strong background in the manufacturing sector, believing that his experience with a large multinational corporation engaged in the manufacture of complicated products is invaluable in evaluating the multiple integrated processes in the homebuilding business and also valuable in performance management and other aspects of the Company. With regard to Mr. Kangas, the Corporate Governance and Nominating Committee and the Board of Directors considered his significant experience, expertise and background with regard to accounting matters, including the broad perspective brought by his experience in consulting to clients in many diverse industries. With regard to Mr. Marengi, the Corporate Governance and Nominating Committee and the Board of Directors considered his strong background in the technology sector, because new technologies and their cost and benefit analyses are important factors in the success of the Company. With regard to Mr. Pagano, the Corporate Governance and Nominating Committee and the Board of Directors considered his significant experience, expertise and background with regard to legal and capital markets matters, including the broad perspective brought by his experience in advising clients in the homebuilding industry and many other diverse industries. With regard to Mr. Weinroth, the Corporate Governance and Nominating Committee and the Board of Directors considered his many years of experience in the investment banking field, which are very valuable to the Company as it continues to evaluate its debt profile and capital structure and various financing and refinancing alternatives. With regard to Mr. Hovnanian, our Chief Executive Officer and Chairman of the Board, the Corporate Governance and Nominating Committee and the Board of Directors considered his more than thirty years of experience with the Company. With regard to Mr. Sorsby, our Chief Financial Officer, the Corporate Governance and Nominating Committee and the Board of Directors considered his more than twenty years of experience with the Company.
● | Mr. Coutts, the Corporate Governance and Nominating Committee and the Board of Directors considered his strong background in the manufacturing sector, believing that his experience with a large multinational corporation engaged in the manufacture of complicated products is invaluable in evaluating the multiple integrated processes in the homebuilding business and also valuable in performance management and other aspects of the Company. |
● | Mr. Kangas, the Corporate Governance and Nominating Committee and the Board of Directors considered his significant experience, expertise and background with regard to accounting matters, including the broad perspective brought by his experience in consulting to clients in many diverse industries. |
● | Mr. Marengi, the Corporate Governance and Nominating Committee and the Board of Directors considered his strong background in the technology sector, because new technologies and their cost and benefit analyses are important factors in the success of the Company. |
● | Mr. Pagano, the Corporate Governance and Nominating Committee and the Board of Directors considered his significant experience, expertise and background with regard to legal and capital markets matters, including the broad perspective brought by his experience in advising clients in the homebuilding industry and many other diverse industries. |
● | Mr. Weinroth, the Corporate Governance and Nominating Committee and the Board of Directors considered his many years of experience in the investment banking field, which experiences are particularly valuable to the Company as it continues to evaluate its debt profile and capital structure and various financing and refinancing alternatives. |
● | Mr. Hovnanian, our Chief Executive Officer and Chairman of the Board, the Corporate Governance and Nominating Committee and the Board of Directors considered his more than thirty years of experience with the Company. |
● | Mr. Sorsby, our Chief Financial Officer, the Corporate Governance and Nominating Committee and the Board of Directors considered his more than twenty years of experience with the Company. |
Board of Directors — Nominees’ Biographies
Mr. Hovnanian has been Chief Executive Officer since July 1997 after being appointed President in 1988 and Executive Vice President in 1983. Mr. Hovnanian joined the Company in 1979 and has been a Director of the Company since 1981 and was Vice Chairman from 1998 through November 2009. In November 2009, he was elected Chairman of the Board following the death of Kevork S. Hovnanian, the chairman and founder of the Company and the father of Mr. Hovnanian. |
Mr. Coutts retired from the position of Executive Vice President of Lockheed Martin Corporation (NYSE), which he held from 2000 to 2008. Mr. Coutts was President and |
Mr. Kangas was the Global Chairman and Chief Executive Officer of Deloitte | ||
Mr. Marengi, from July 2007 to March 2012, served as a Venture Partner for Austin Ventures. Prior to that date, Mr. Marengi served as senior vice president for the Commercial Business Group of Dell Inc. (NASDAQ). In this role, Mr. Marengi was responsible for the Dell units serving medium business, large corporate, government, education and healthcare customers in the United States. Mr. Marengi joined Dell in July 1997 from Novell Inc. (NASDAQ), where he was president and chief operating officer. He joined Novell in 1989 and moved through successive promotions to become executive vice president of worldwide sales and field operations. | ||
Mr. Pagano was a partner at the law firm of Simpson Thacher & Bartlett LLP until his retirement at the end of 2012. He was the head of the firm’s capital markets practice from 1999 to 2012, and, before that, administrative partner of the firm from 1996 to 1999. He was a member of the firm’s executive committee during nearly all of | ||
Mr. Sorsby has been Chief Financial Officer of Hovnanian Enterprises, Inc. since 1996, and Executive Vice President since November 2000. Mr. Sorsby was also Senior Vice President from March 1991 to November 2000 and was elected as a Director of the Company in 1997. He is Chairman of the Board of Visitors for Urology at The Children’s Hospital of Philadelphia (“CHOP”) and also serves on the | ||
Mr. Weinroth was from 2003 to mid-2008 a Managing Member of Hudson Capital Advisors, LLC and since then he has been an advisor to Coral Reef Capital Partners, a successor firm to some of the Hudson Capital employees. He is Chairman of the Board (Emeritus) of Core Laboratories, N.V. (NYSE), a global oil field service company, where he had previously been Chairman from 1994 through 2001. From He is also a Trustee and the immediate past Chairman of The Joyce Theatre Foundation, Inc., and Vice Chairman and a Trustee of the Paul Taylor Dance Foundation as well as a Board member of the Flea Theater. Mr. Weinroth has been a Director of Hovnanian Enterprises, Inc. since 1982, is Chairman of the Company's Compensation Committee and |
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD OF DIRECTORS
During the year ended October 31, 2012,2014, the Board of Directors held four regularly scheduled meetings and onetwo telephonic meeting.meetings. In addition, Directors considered Company matters and had communications with the Chairman of the Board of Directors and others outside of formal meetings. During the fiscal year ended October 31, 2012,2014, each Director attended 100% of the meetings of the Board of Directors and at least 95%99% of the meetings of its Committees on which such Director served. DirectorsThe Company’s Corporate Governance Guidelines (“Guidelines”) provide that directors are expected to attend the Annual Meeting of Shareholders, but the Company does not have a formal policy with respect to attendance.Shareholders. All of the members of the Board of Directors attended the Annual Meeting of Shareholders held on March 27, 2012.
Audit Committee
The members of the Audit Committee of the Board of Directors wereare Messrs. Kangas, RobbinsCoutts, Pagano and Weinroth. The Board of Directors has determined that all of the members of the Audit Committee meet the standards for independence in our Certificate of Incorporation, which is available on our website at www.khov.com under the Investor Relations tab, “SEC Filings/Quarterly Filings/09-08-08 Filing Date,Current Reports/03-15-13,” and the independence requirements mandated by the NYSE listing standards.
The Audit Committee is currently chaired by Mr. Kangas and is responsible for reviewing and approving the scope of the annual audit undertaken by the Company’s independent registered public accounting firm and meeting with them to review the results of their work as well as their recommendations. The Audit Committee selects the Company’s independent registered public accounting firm and also approves and reviews their fees. The duties and responsibilities of the Audit Committee are set forth in its charter, which may be foundis available at www.khov.com under “Investor Relations/Corporate Governance.” During the fiscal year ended October 31, 2012, the Audit Committee met on three occasions and held eight telephonic meetings. The Audit Committee also authorizes staffing and compensation of the Internal Audit Department. The Vice President of Internal Audit for the Company reports directly to the Audit Committee on, among other things, the Company’s compliance with certain Company procedures which are designed to enhance management’s understanding of operating issues and the results of the Audit Department’s annual audits of the various aspects of the Company’s business. In fiscal 2012, the Audit Department issued eight traditional audit reports and performed 16 reviews pursuant to Section 404 of the Sarbanes-Oxley Act of 2002. For additional information related to the Audit Committee, see “The Audit Committee” below.
Compensation Committee
The Company has a Compensation Committee, although it is not required to have such a committee because it is a controlled company under the rules of the NYSE. The members of the Compensation Committee of the Board of Directors during fiscal 2012 wereare Messrs. Weinroth, Coutts, Kangas and Coutts.Marengi. The Board of Directors has determined that all of the members of the Compensation Committee meet the standards for independence in our Certificate of Incorporation and the independence requirements mandated by the rules of the NYSE listing standards.and SEC. In addition, all members of the Compensation Committee qualify as “Non-Employee Directors” for purposes of Rule 16b-3 under the Exchange Act, and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended (the “Code”). The duties and responsibilities of the Compensation Committee are set forth in its charter, which may be found on our websiteis available at www.khov.com under “Investor Relations/Corporate Governance.”
The Compensation Committee is currently chaired by Mr. Weinroth and is responsible for reviewing salaries, bonuses and other forms of executive compensation for the Company’s senior executives, key management employees and non-employee Directors, and is active in other compensation and personnel areas as the Board of Directors from time to time may request. In addition, all members of the Compensation Committee qualify as “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act, and as “outside directors” for purposes of Section 162(m) (“Section 162(m)”) of the Internal Revenue Code of 1986, as amended. For a discussion of the criteria used and factors considered by the Compensation Committee in reviewing and determining executive compensation, see “The Compensation Committee” and “Compensation Discussion and Analysis” below. During the fiscal year ended October 31, 2012, the Compensation Committee met on four occasions and held no telephonic meetings.
Corporate Governance and Nominating Committee
The Company has established a Corporate Governance and Nominating Committee, although the Company is not required to have such committee because it is a controlled company under the rules of the NYSE. The members of the Corporate Governance and Nominating Committee of the Board of Directors during fiscal 2012 wereare Messrs. Weinroth,Pagano, Kangas and Marengi. The Board of Directors has determined that all of the members of the Corporate Governance and Nominating Committee meet the standards for independence in our Certificate of Incorporation and the independence requirements mandated by the NYSE listing standards.
The Corporate Governance and Nominating Committee is currently chaired by Mr. Weinroth.Pagano. The Corporate Governance and Nominating Committee is responsible for corporate governance matters, and reviewing and recommending nominees for the Board of Directors, succession planning and other Board-related policies. The Corporate Governance and Nominating Committeealso overseesthe annual performance evaluation of the Board of Directors and its Committees, the Board’sBoard of Directors’ periodic review of the Company’s Corporate Governance Guidelines (“Guidelines”) and compliance with the Company’s Related Person Transaction Policy. During the fiscal year ended October 31, 2012, the Corporate Governance and Nominating Committee met on three occasions and held no telephonic meetings.
The Guidelines require that each Director prepares annually an assessment of each Board committee on which such Director serves as well as of the full Board of Directors as to the effectiveness of each committee and the full Board of Directors and any recommendations for improvement. The duties and responsibilities of the Corporate Governance and Nominating Committee are set forth in its charter, which may be foundis available at www.khov.com under “Investor Relations/Corporate Governance,” and the Guidelines may be foundare available at the same website address under “Investor Relations/Corporate Governance.Governance/Guidelines.”
In conducting its nomination function, among other factors, the Corporate Governance and Nominating Committee generally considers the size of the Board of Directors best suited to fulfill its responsibilities, the Board of Directors’ overall membership composition to ensure the Board of Directors has the requisite expertise and consists of persons with sufficiently diverse backgrounds, the independence of outside directors and other possible conflicts of interest of existing and potential members of the Board of Directors as more fully described under “Election of Directors – Board of Directors – Composition” above.
The Company does not have a specific policy regarding shareholder nominations of potential directors to the Board of Directors, other than through the process described under “Shareholder Proposals for the 20142016 Annual Meeting” below. The Corporate Governance and Nominating Committee will consider director candidates recommended by shareholders.shareholders in the same manner as it considers candidates recommended by others. Possible nominees to the Board of Directors may be suggested by any Director and given to the Corporate Governance and Nominating Committee. The Corporate Governance and Nominating Committee may seek potential nominees and engage search consultants to assist it in identifying potential nominees. The Corporate Governance and Nominating Committee adopted an amendment to itsCommittee’s charter in November 2009contains a provision affirming its belief that diversity is an important factor to consider in evaluating potential nominees. The Corporate Governance and Nominating Committee recommends to the Board of Directors a slate of nominees for the Board of Directors for inclusion in the matters to be voted upon at theeach Annual Meeting. The Company’s Restated By-laws provide that Directors need not be shareholders. Vacancies on the Board of Directors, other than those resulting from removal by shareholders, may be filled by action of the Board of Directors.
As of the 120th calendar day prior to MarchJanuary 27, 2013,2015, the Board of Directors had not received any recommendation for the nomination of a candidate to the Board of Directors by any shareholder or group of shareholders that at such time held more than 5% of the Company’s voting stock for at least one year.
VOTE REQUIRED
The election of the nominees to the Company’s Board of Directors for the ensuing year, to serve until the next Annual Meeting of Shareholders of the Company, and until their respective successors may be elected and qualified, requires that each director be elected by the affirmative vote of a majority of the votes cast by the shareholders of Class A Common Stock and Class B Common Stock, voting together, represented in person or by proxy at the 20132015 Annual Meeting. In determining whether each director has received the requisite number of affirmative votes, abstentions and broker non-votes will have no impact on such matter because such shares are not considered votes cast.
Mr. Hovnanian and others with voting power over the shares held by the Estate of Kevork S. Hovnanian, the Limited Partnership, the 2012 LLC and certain family trusts have informed the Company that they intend to vote in favor of the nominees named in this proposal. Because of their collective voting power, this proposal is assured passage.
Our Board of Directors recommends that shareholders vote FOR the election of the nominees named in this proposal to the Company’s Board of Directors.
PROPOSAL 2 — RATIFICATION OF THE SELECTION OF AN INDEPENDENT
The selection of an independent registered public accounting firm to examine financial statements of the Company to be made available or transmitted to shareholders and to be filed with the SEC for the fiscal year ending October 31, 20132015 is submitted to this Annual Meeting of Shareholders for ratification. Deloitte & Touche LLP has been selected by the Audit Committee of the Company to examine such financial statements. In the event that the shareholders fail to ratify the appointment, the Audit Committee will consider the view of the shareholders in determining its selection of the Company’s independent registered public accounting firm for the subsequent fiscal year. Even if the selection is ratified, the Audit Committee may, in its discretion, direct the appointment of a new independent registered public accounting firm at any time if the Audit Committee determines that such a change would be in the best interests of the Company and its shareholders.
The Company has been advised that representatives of Deloitte & Touche LLP will attend the Annual Meeting of Shareholders to respond to appropriate questions and will be afforded the opportunity to make a statement if the representatives so desire.
VOTE REQUIRED
Ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm to examine financial statements of the Company for the year ending October 31, 20132015 requires the affirmative vote of a majority of the votes cast by the shareholders of Class A Common Stock and Class B Common Stock, voting together, presentrepresented in person or by proxy at the 20132015 Annual Meeting. In determining whether the proposal has received the requisite number of affirmative votes, abstentions will have no impact on such matter because such shares are not considered votes cast.
Mr. Hovnanian and others with voting power over the shares held by the Estate of Kevork S. Hovnanian, the Limited Partnership, the 2012 LLC and certain family trusts have informed the Company that they intend to vote in favor of this proposal. Because of their collective voting power, this proposal is assured passage.
Our Board of Directors recommends that shareholders vote FOR ratification of the selection of Deloitte & Touche LLP as the Company’s independent registered public accounting firm.
PROPOSAL 3—1 The Company will have the authority to issue a total of 460,100,000 shares of all classes of stock if Proposal 4 is also approved.
In accordance with the requirements of Section 14A of the Exchange Act (which was added by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”))Act) and the related rules of the SEC, we are including in these proxy materials a separate resolution subject to shareholder vote to approve, in a non-binding vote, the compensation of our named executive officers, as disclosed on pages 1814 to 50.
In light of the voting results with respect to the frequency of shareholder votes on executive compensation at the 2011 Annual Meeting of Shareholders in which a substantial majority of our shareholders (96.3% of the votes cast by shareholders of Class A Common Stock and Class B Common Stock, voting together) voted for “say-on-pay” proposals to occur every three years, the Board of Directors initially decided that the Company would hold, in accordance with the vote of an overwhelming majority, a triennial advisory vote on the compensation of named executive officers, whichofficers. The next required “say-on-pay” vote would nextwill take place at the Company’s 20142017 Annual Meeting of Shareholders. However,Shareholders; however, we have voluntarily elected to hold our nexta “say-on-pay” vote at this 20132015 Annual Meeting of Shareholders.
In considering their vote, shareholders may wish to review with care the information on the Company’s compensation policies and decisions regarding the named executive officers presented in Compensation Discussion and Analysis on pages 1814 to 36,34, as well as the discussion regarding the Compensation Committee on pages 16 and 17.
As we discuss in the Compensation Discussion and Analysis section, the Board of Directors believes that the Company’s long-term success depends in large measure on the talents of the Company’s employees. The Company’s compensation system plays a significant role in the Company’s ability to attract, retain and motivate the highest quality associates in a difficult market. The principal underpinnings of the Company’s compensation system are an acute focus on performance, shareholder alignment, sensitivity to the relevant market place and a long-term orientation.
The Compensation Committee ties increases or decreases in overall compensation with the overall financial performance of the Company. During fiscal years when the Company’s profitability has been higher, total compensation has been higher. During more recent years when the Company’s performance has been lower due in part to the economic downturn and recession, particularly in the housing industry, the Compensation Committee’s policies and actions have significantly lowered overall compensation. These policies and actions include:
● | Significant reductions in annual bonus |
● | Selection of bonus metrics to correspond to the |
● |
Focus on a return to profitability and lowering net debt or refinancing debt over |
● | Practice of |
● | Active management of both equity award levels and the number of shares available for new |
The text of the resolution in respect of this proposal is as follows:
“Resolved, that the compensation paid to the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K in the Proxy Statement relating to the Company’s Annual Meeting of Shareholders to be held on March 12, 2013,10, 2015, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby approved.”
The Board recommends that shareholders vote FOR approval of this resolution.
THE COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors (the “Committee”) is the principal overseer of the Company’s various policies and procedures related to executive compensation. The Committee meets at least four times a year to discuss industry trends with regard to overall compensation issues and consults with outside compensation consultants as needed. The Committee is governed by its Charter, which is available on the Company’s public website (www.khov.com)at www.khov.com under “Investor Relations/Corporate Governance”.
Areas of Responsibility
The Committee, in conjunction with the Board of Directors and with management’s input, shapes the Company’s executive compensation philosophy and objectives. In particular, the Committee is charged with:
● | Reviewing and approving, at least annually, the salaries, bonuses and other forms of compensation, including |
● | Reviewing, at least annually, compensation paid to the Company’s non-employee Directors; |
● | Participating in the review of compensation of other designated key employees of the Company; |
● | Periodically reviewing the Company’s policies and procedures pertaining to the Company’s equity award plans and forms of equity grants to all employees and non-employee Directors, employee benefit plans (for example, the 401(k) plan and deferred compensation plans), severance agreements and executive |
● | Fostering good corporate governance practices as they relate to executive compensation; |
● | Reviewing, at least annually, as part of the Board of Directors’ oversight responsibilities, the Company's compensation program and reports from |
● | Preparing the compensation committee report on executive compensation for inclusion in the Company’s annual proxy statement, in accordance with applicable rules and regulations of the NYSE, SEC and other applicable regulatory bodies; and |
● | Reviewing and discussing with management the “Compensation Discussion and Analysis” (the “CD&A”) for inclusion in the Company’s annual proxy statement and, based on that review and discussion, determining whether or not to recommend to the Board of Directors that the CD&A be included in the Company’s annual proxy statement. |
The Committee’s areas of responsibilities are discussed in more detail below under “Compensation Discussion and Analysis.” During the fiscal year ended October 31, 2012, the members of the Committee were all “non-employee directors” for purposes of Rule 16b-3 of the Exchange Act, and “outside directors” for purposes of Section 162(m) of the Internal Revenue Code of 1986, as amended.
Compensation Review Process for the Named Executive Officers
The Committee, in conjunction with the Board of Directors and with management’s input, is responsible for making decisions related to the overall compensation of the NEOs.
At least annually, the Committee establishes objective financial measures for determining bonus awards to the NEOs. The Committee also considers salary, employee benefits and discretionary bonus awards, if any, for the NEOs.
In determining overall compensation for the NEOs, the Committee may consult with other members of the Board of Directors, including the CEO and the CFO. Each of theseCFO, rather than relying solely on the Company’s financial performance measures in determining their compensation. These individuals often providesprovide the Committee with insight on the individual and overall performance of executives (other than with respect to himself), including the achievement of personal objectives, if any, rather than relying solely on the Company’s financial performance measures in determining their compensation.any. The CEO and CFO are not present for the Committee’s evaluation of their individual performance. The Committee also reviews and analyzes the compensation of the named executive officers of the Company’s peer group of 11 publicly-traded homebuilding companies (the “Peer Group”), discussed further below. The Committee may engage outside compensation consultants in relation to various compensation issues. The Committee may also instruct a compensation consultant to provide assistance in fostering an overall compensation program that aligns with its compensation philosophy to guide, motivate, retain and reward its executives for the achievement of the Company’s financial performance, strategic initiatives and individual goals, including increased long-term shareholder value in the context of a challenging business environment. Notwithstanding any input from compensation consultants, the Committee has the sole discretion to make all final decisions related to NEO compensation.
Outside Compensation Consultant and No Conflicts of Interest
For fiscal 2012,2014, the Committee engaged Pearl MeyerFrederic W. Cook & PartnersCo., Inc. (“PM&P”F.W. Cook”) as the Committee’s outside compensation consultant to provide certain services related to executive and non-employee Director compensation. PM&P does not provide any other services to the Company unless approved by the Committee, and no such services were provided in fiscal 2012. After considering the relevant factors, the Company has determined that no conflicts of interest have been raised in connection with the services PM&P performed for the Company in fiscal 2012. In fiscal 2012, PM&P2014, F.W. Cook assisted the Committee with its review of the Company’s annual bonus and long-term incentive plans for the NEOs as well as its review of the compensation program for the non-employee directors.
The Committee’s primary objective in engaging PM&PF.W. Cook has been to obtain advice and feedback related to maintaining programs that provide compensation opportunities for executives within the median range of the competitive homebuilderPeer Group forcomparable financial performance and PM&Pperformance. F.W. Cook also provided assistance to the Committee in fostering an overall compensation program as discussed above.
The Committee weighs the advice and feedback from its compensation consultant and the members of the Board of Directors, as well as the views of, and information gathered by, the members of management it has consulted in conjunction with its review of other information the Committee considers relevant when making decisions or making recommendations to the full Board of Directors regarding executive compensation.
Board Communication
The Company’s Board of Directors is updated at least quarterly of any compensation decisions or recommendations made by the Committee, and the Committee requests feedback from the Board of Directors regarding specific compensation issues as it deems necessary.
Compensation Committee Report
The Committee has reviewed and discussed the Compensation Discussion and Analysis provided below with the Company’s management. Based on this review and discussion, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statementProxy Statement and in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012.
COMPENSATION COMMITTEE
Stephen D. Weinroth, Chair
Robert B. Coutts
Edward A. Kangas
Joseph A. Marengi
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended October 31, 2012,2014, the members of the Compensation Committee were Messrs. Weinroth, Coutts, Kangas and Coutts.Marengi. Each of Messrs. Weinroth, Coutts, Kangas and Coutts areMarengi is a non-employee Directors, wereDirector, was never officersan officer or employeesemployee of the Company or any of its subsidiaries and did not have any relationships requiring disclosure under Item 404404(a) of Regulation S-K during fiscal 2012.in this Proxy Statement. None of our executive officers served on the board of directors or compensation committee of any other entity that has or had one or more executive officers who served on our Board of Directors or our Compensation Committee during fiscal 2012.
COMPENSATION DISCUSSION AND ANALYSIS
1. EXECUTIVE SUMMARY
Company Performance in Fiscal 2012
In fiscal 2014, the Company generated growth in revenues and achieved its second consecutive year of profitability. However, the significant market growth exhibited in the second quarter of fiscal 2012, the Company began to see positive operating trends, which continued into the third and fourth quarters of fiscal 2012.housing industry in 2013 moderated in 2014. Below are some highlights forof the Company’s performance during fiscal 2012:
● | Total revenues for fiscal |
● | During fiscal |
● | During fiscal |
● | Consolidated contract backlog as of October 31, |
● | During |
● | During |
● | Pre-tax profit for fiscal 2014 was $20.2 million compared with pre-tax profit of $21.9 million for fiscal 2013; |
● | A non-cash tax benefit of $285.1 million from the reduction of the Company’s valuation allowance for its deferred tax assets was included in net income for fiscal 2014; |
● | Net income for fiscal 2014 was $307.1 million, or $1.87 per fully diluted common share, compared with net income of $31.3 million, or $0.22 per fully diluted common share for fiscal 2013; and |
● | Total liquidity as of October 31, 2014 was $309.2 million compared to $373.5 million as of October 31, 2013. Total liquidity as of October 31, 2014 included $255.1 million of |
Best Practices
● |
Pay-for-Performance: The |
The following graph demonstrates the link between the CEO’s annual realized pay and the Company’s Total Shareholder Return (“TSR”). Annual realized pay includes: (1) base salary, annual bonus, perquisites and other compensation (“Annual Compensation”) plus (2) long-term cash awards and stock awards vesting during the fiscal year and the realized value of options exercised during the year (“Realized Value of Long-Term Compensation”).
(1) | Represents the value of (1) the 2010 Long-Term Incentive Program award for performance during fiscal 2011, 2012 and 2013, which vested during fiscal 2013 and 2014 and (2) the June 10, 2011 restricted stock unit award (the only restricted stock unit award vesting in these years) for performance during fiscal 2012 and 2013, which vested during fiscal 2013 and 2014. The CEO did not exercise any stock options during the fiscal 2011 through 2014 period. | |
The TSR Index measures the change in the Company's stock price relative to fiscal |
● | Emphasis on Long-Term Value Creation and Retention: The Committee seeks to align the interests of management with the long-term interests of the Company’s shareholders by granting a significant portion of |
● | Maintaining an Appropriate Peer Group: In constructing the Peer Group described below, the Committee selected those companies that compete directly with the Company in the homebuilding industry, are of comparable size and complexity in operations to the Company and are generally in the markets in which the Company competes. The Committee reviews the composition of the Peer Group on an annual basis and makes adjustments, if needed. The Committee reviews the executive compensation of the Peer Group companies and seeks to award target total direct compensation (the sum of base salary, annual bonus/incentive awards and long-term incentive awards (including the grant date fair value of equity awards and the annualized value of long-term incentive program awards at the target outcome for the performance criteria), but excluding all other compensation elements) opportunity for our NEOs near the median of the Peer Group, with variation in actual compensation earned both above and below the median, depending on performance. |
● | CEO Total Direct Compensation vs. Peer Group: The following graphs compare the CEO’s total direct compensation to the Peer Group chief executive officer median data for fiscal 2011 through 2013. No comparison is shown for fiscal 2014 because complete Peer Group chief executive officer median data was not available at the time of filing this Proxy Statement. For fiscal 2014, our CEO’s base salary was $1.1 million, his bonus was $1.1 million and his long-term incentive awards (including the grant date fair value of MSUs and the annualized value of long-term incentive program awards at the target outcome for the performance criteria) were $4.7 million. | |
Hovnanian CEO Total Direct Compensation vs. Peer Group CEO Median Total Direct Compensation (1)(2) ($`000)
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(1) | Reflects the sum of base salary, annual bonus/incentive awards and long-term incentive awards (including thegrant date fair value of equity awards and theannualized value of long-term incentive program awards at the target outcome for the performance criteria) and excludes all other compensation elements. |
(2) | Data shown is based on each Peer Group company’s respective fiscal year which varies among Peer Group companies and, consequently, may be different than the Company’s fiscal year. |
(3) | Long-term incentives include the grant date fair value of equity awards and the annualized value of long-term incentive program awards at the target outcome for the performance criteria. |
Hovnanian CEO Total Direct Compensation vs.
Peer Group CEO Median Total Direct Compensation (1)(2)
(1) | Reflects the sum of base salary, annual bonus/incentive awards and long-term incentive awards (including thegrant date fair value of equity awards and theannualized value of long-term incentive program awards at the target outcome for performance criteria) but excludes all other compensation elements. |
(2) | Data shown is based on each Peer Group company’s respective fiscal year which varies among Peer Group companies and, consequently, may be different than the Company’s fiscal year. |
● | No Employment Agreements, Excise Tax Gross-Ups |
● | Maintenance and |
● | Perquisites: The Committee has provided NEOs only a few perquisites in addition to typical medical, dental and life insurance benefits. |
● | Clawback Policy: Under Section 304 of the Sarbanes-Oxley Act of 2002, if we are required to restate our financial results due to material noncompliance with any financial reporting requirements as a result of misconduct, the CEO and CFO could be required to reimburse us for any bonus or other incentive-based or equity-based compensation received during the 12 months following the first public issuance of the non-complying document and any profits realized from the sale of our securities during those 12 months. In addition to this requirement, it is the Company’s policy that, if we are required to restate our financial results due to material noncompliance by the Company with any financial reporting requirement under the securities laws as a result (directly or indirectly) of an executive officer’s misconduct, the Board of Directors will require, at its discretion and approval, the reimbursement and/or cancellation of any incentive-based compensation (including stock options awarded as compensation) in excess of the amount that would have been awarded based on the restated financial results. This policy applies to incentive-based compensation awarded to the executive officer during the three-year period preceding the date on which the Company is required to prepare an accounting restatement based on erroneous data. |
Compensation Decisions for Fiscal 2012
The Committee’s compensation decisions for fiscal 20122014 reflected a conservative approach to fixed pay elements (base salary), the achievement of pre-established goals (annual bonuses) and long-term equity awards well below median of the Peer Group in view of the challenging business environment and the Company’s stock performance in such environment.
● | Base Salaries: For the eighth year in a row, the Committee did not increase the CEO’s base salary. The |
● | Regular Annual Bonuses: Consistent with the achievement of specified financial or personal objectives, fiscal |
● | Discretionary Bonuses: |
● | Long-Term Awards, including stock options, market share units and participation in the Long-Term Incentive Program |
2. COMPENSATION PHILOSOPHY AND OBJECTIVES
The Committee, in conjunction with the Board of Directors and with senior management, has been instrumental in shaping the Company’s compensation philosophy and objectives because of its responsibilities and oversight of the Company’s various policies and procedures concerning executive compensation.
The six primary objectives that the Committee considers in making compensation decisions are discussed below, as are our other philosophies and mechanisms for determining compensation. In making compensation-related decisions, the Committee also considered its role in promoting good corporate governance practices.
Primary Objectives for the Compensation Program
The Company’s primary objectives for compensating its executives are as follows:
1. | To fairly compensate its executives in a manner that is appropriate with respect to their performance, level of responsibilities, abilities and skills; |
2. | To offer compensation that guides, motivates, retains and rewards its executives for the achievement of the Company’s financial performance, strategic initiatives and individual goals; |
3. | To align the executive’s interests with the interests of |
4. | To maintain competitive pay opportunities for its executives so that it retains its talent pool and, at the same time, has the ability to attract new and highly-qualified individuals to join the organization as it grows or in the event of succession or replacement of an executive; |
5. | To safeguard that the reward system is appropriately designed in the context of a challenging business environment; and |
6. | To ensure that compensation plans do not incentivize a level of risk that is reasonably likely to have a material adverse effect on the Company. |
Tailored Compensation
Consistent with these objectives, the Company’s compensation philosophy also takes into consideration the very unique roles played by each of the NEOs for whom compensation is reported in the tables below, and the Committee seeks to individually tailor their compensation packages to align their pay mix and pay levels with their contributions to, and positions within, the Company. For example:
● | CEO, CFO and COO: The compensation |
● | ||
Other NEOs: The Company’s Vice President — Chief Accounting Officer and Corporate Controller, Mr. Brad G. O’Connor, and Vice President — Finance and Treasurer, Mr. David G. Valiaveedan, have, as a result of their respective positions, less direct influence on the Company’s strategic and operational decisions. Therefore, overall compensation levels for these NEOs reflect both objective financial measures of the Company and the attainment of personal objectives (as determined by the Committee, which may consult with the CFO, |
Variable Incentive Compensation and Discretionary Awards
The Company’s compensation philosophy emphasizes variable incentive compensation elements (bonus and long-term incentives), the value of which reflects the Company’s financial and stock performance. For executives who report to the CFO, including Messrs. O’Connor and Valiaveedan, the variable compensation elements also include personal performance objectives.
For all executive officers, the Committee retains the flexibility to adjust incentive awards downward or to consider discretionary bonus awards in “special circumstances”special circumstances as described on page 31below under “Discretionary Bonuses.”
Peer Group Considerations
As context for setting the compensation levels for the CEO, CFO and COO in fiscal 2012,2014, the Committee considered the compensation levels and practices of its Peer Group companies. The Company’s Peer Group includes the following 11 publicly-traded homebuilding companies: (1) Beazer Homes USA, Inc.; (2) D.R. Horton, Inc.; (3) KB Home; (4) Lennar Corporation; (5) M.D.C. Holdings, Inc.; (6) Meritage Homes Corporation; (7) NVR, Inc.; (8) Pulte Homes,Group, Inc.; (9) Ryland Group, Inc.; (10) The Standard Pacific Corp.; and (11) Toll Brothers, Inc. The companies in the Peer Group are the same as those used in fiscal 20112013 and were selected by the Committee, in consultation with PM&Pthe Committee’s compensation consultant, F.W. Cook, and management, because of their comparable business profile. In particular, the Company’s revenue size relative to the companies in the Peer Group and the presence of the Peer Group companies in the Company’s markets were considered the most relevant factors for selection of peer companies within the homebuilding industry. The Committee will continue to review the appropriateness of the Peer Group composition. For the other NEOs, the Committee places equal or greater weight on its consideration of internal pay equity, an evaluation of individual performance contributions and other factors described in detail below.
The Committee relies heavily on Peer Group comparisons for the CEO, CFO and COO. Because only fourfive of the 11 Peer Group companies report data for a chief operating officer position, the Committee may also review broad-based compensation survey data for the COO. The Committee periodically reviews the compensation for the other NEOs relative to the Peer Group and broad-based compensation survey data, with consideration of internal pay relationships in years when market benchmarking is not conducted. The Committee does not consider the specific participants in the broad-based compensation survey data to be a material factor in its review.reviews. The Committee believes that a review of market survey data periodically (but not necessarily every year) is sufficient for these positions based on their roles and historical compensation levels. The Committee consideredreviewed broad-based market survey data in connectionfiscal 2014 to assess current market trends with its fiscal 2012respect to compensation determinations.
Consideration of Market Conditions
In determining overall compensation for all the NEOs, the Committee also takes into account leadership abilities and risk management contributions, which are especially critical during difficult market conditions. In addition, in establishing compensation levels, the Committee takes into consideration competitive market pressures, both within and outside of the homebuilding industry.
From late 2006 through the beginning of 2012, the homebuilding industry hashad been impacted by a lack of consumer confidence, increasing home foreclosure rates, large supplies of resale and new home inventories, and more restrictive lending standards for homebuyers, resulting in weak demand for new homes, slower sales, higher than normal cancellation rates, and increased price discounts and other sales incentives to attract homebuyers. BeginningIn 2013, the homebuilding industry showed significant market growth over the prior years, however the growth exhibited in the second quarter of fiscal 2012,2013 moderated in 2014. During 2014, the Company began to seeexperienced some positive operating trends which continued intocompared to the thirdprior year such as higher revenues, higher deliveries and fourth quarters of fiscal 2012.increased community count. See “Executive Summary” for highlights of the Company’s performance in fiscal 2012.
As an example of the Committee’s consideration of market conditions at the time of setting bonus formulas, the Committee sought to emphasize improving EBITDA without limiting management’s ability to strategically deploy cash, suchpre-tax profit and liquidity and, as for repurchasing debt and making land purchases, in anticipation of the initial stages of recovery in the homebuilding industry. As a result, the Committee approvedfiscal 2014 bonus formulas for the CEO, CFO and COO included both a pre-tax profit and a liquidity balances component. In addition, the bonus formulas for these NEOs were structured so that they required at least a 20% improvement in Pre-tax Profit in fiscal 2014 over fiscal 2013 in order for the CEO, CFO and COO to be eligible for the same bonus metrics foramount under their new fiscal 20122014 bonus formula as inthey earned under their fiscal 2011, except that the cash balances component was removed. For fiscal 2012, the CEO and CFO salaries remained the same as in fiscal 2011. The salaries2013 bonus formula.
As another example of the COO, Mr. Thomas Pellerito, Vice President — Chief Accounting Officer and Corporate Controller, Mr. Brad G. O’Connor, and Vice President — Finance and Treasurer, Mr. David G. Valiaveedan, were increased by 10%, 8.5% and 5.3%, respectively, over fiscal 2011. The salary increases for Messrs. O’Connor and Valiaveedan resulted in a corresponding increase in the dollar amountconsideration of their bonus opportunity for fiscal 2012. The adjustments for Messrs. Pellerito and Valiaveedan were made to provide better alignment with the compensation of comparable positions in the Peer Group and, for Mr. Valiaveedan, to further align him with the median level in the broad-based compensation survey data. Mr. O’Connor’s base salary was increased as a result of his promotion to Vice President — Chief Accounting Officer and Corporate Controller.
Say-on-Pay and Say-on-Frequency Votes
In light of the voting results with respect to the frequency of shareholder votes on executive compensation at the 2011 Annual Meeting of Shareholders at which a substantial majority of our shareholders (96.3% of the votes cast by shareholders of Class A Common Stock and Class B Common Stock, voting together) voted for “say-on-pay” proposals to occur every three years, the Board of Directors initially decided that the Company would hold, in accordance with the vote of an overwhelming majority, a triennialan advisory vote on the compensation of named executive officers which would next take place atevery three years. However, the Company’s 2014 Annual Meeting of Shareholders. However, we haveCompany voluntarily elected to hold our nexta “say-on-pay” vote at thisits 2013 Annual Meeting of Shareholders. We currently expectShareholders in advance of the next required vote. Because the last scheduled “say-on-pay” vote was held at the 2014 Annual of Meeting of Shareholders, the Company’s next advisory vote on the frequencycompensation of shareholder votes onits named executive officer compensationofficers is required to occurbe held at the Company’s 2017 Annual Meeting of Shareholders.
The Board of Directors thoughtfully considers the opinions expressed by shareholders through their votes, periodic meetings and other communications, and believes that shareholder engagement leads to enhanced governance practices. During fiscal 2012,2014, the Company conducted proactive investor outreach programs, including attending 1013 investor conferences as well as other meetings with the investment community and meeting one-on-one or in small groups with more than 250200 investors. Additionally, the Company periodically engages investors to discuss specific matters of importance to shareholders. For example, in March 2012, the CFO contacted several major institutional shareholders to obtain feedback regarding the Company’s compensation philosophy and pay levels for which he received positive feedback.
In addition, the Committee considered the result of the 2014 advisory, non-binding “say-on-pay” proposal in connection with the discharge of its responsibilities. A substantial majority of our shareholders (99.1% of the votes cast by shareholders of Class A Common Stock and Class B Common Stock, voting together) approved the compensation of our named executive officers for fiscal 2013 described in our proxy statement for the 2014 Annual Meeting of Shareholders. As this level of support was extremely high, the Committee decided that the say-on-pay vote result did not necessitate substantive changes to our compensation programs.
3. FISCAL 20122014 COMPENSATION ELEMENTS AND COMPENSATION MIX
Compensation Elements at a Glance
There are five main compensation elements that support the Company’s compensation objectives, each of which is discussed in detail below.
1. | Base salaries; |
2. | Annual bonuses; |
3. | Stock grants (for example, stock options and MSU and restricted stock unit (“RSU”) awards); |
4. | Long-Term Incentive Programs (“LTIPs”) (described below) (payable in both cash and stock); and |
5. | Other employee benefits, including limited perquisites. |
Compensation Mix
Fixed vs. Variable Compensation. A significant portion of executives’ “Total Direct Compensation” (which includes base salary, annual bonuses, stock grants and LTIP awards) opportunity consists of variable compensation – that is, the compensation ultimately realized compensation on an annualized basis is dependent on either Company or individual performance. Of the elements of Total Direct Compensation, base salary is fixed compensation, while annual bonuses, stock grants and LTIP awards are variable compensation. An important part of each NEO’s compensation package consists of stock options,equity, the ultimate value of which is tied to the Company’s stock performance. These variable elements are intended to align the executives’ performance and interests with Company performance and long-term shareholder value.
The intent of the Committee for fiscal 20122014 was to maintain variable compensation opportunity as a significant percentage of Total Direct Compensation opportunity for all NEOs and to maintain its approximate level from year to year. In addition, the Committee intends for Total Direct Compensation and the level of variable compensation realized to align with the median level of the Peer Group in years when the Company performs at median levels compared to the Peer Group. From fiscal 2007 through fiscal 2012,2014, the percentage of variable compensation received by the Company’s NEOs had declined from historical levels because total bonus amounts ultimately received by our NEOs were zero for the CEO for fiscal 2007 and significantly lower than historical amounts for all NEOs from fiscal 2007 through fiscal 2012.2014. Fiscal 20122014 bonus amounts, on average, were approximately 92%89% lower than the highest award for these NEOs during the last ten years. InFor fiscal 2012,2014, the Committee also awarded stock grants to each of the NEOs, as discussed below, at values that were lower than historical levels even when considering the greater number of options awarded togranted the CEO, CFO and COO with an exercise price 33 1/3% aboveawards in the closingform of MSUs rather than stock options, although the target number of shares underlying the MSU awards for fiscal 2014 and the target number of shares underlying the stock options for fiscal 2013 remain the same. The Committee also determined that 50% of the MSUs would be subject to financial performance conditions in addition to the stock price onperformance conditions applicable to all MSU awards. Mr. O’Connor received the same number of stock options as in fiscal 2013 and Mr. Valiaveedan’s grant date. The value of theincreased from 15,000 stock options in fiscal 20122013 to 20,000 stock grants were also well below the Peer Group median long-term incentive values for the CEO, CFO and COO and well below the Peer Group and broad-based compensation survey median for the other NEOs.
Long-Term vs. Short-Term Compensation. An important portion of each NEO’s Total Direct Compensation is long-term compensation, which normally includesmay include stock option, MSU, RSU and/or restricted stock unitLTIP awards and deferred share awards granted in lieu of cash for a portion of total bonus amounts. Short-term compensation consists of base salary and the cash portion of annual bonus amounts. Long-term compensation is intended to foster long-term commitment by the executive, employee-shareholder alignment and improved long-term shareholder value. From fiscal 2009 through fiscal 20122014 there were no deferred shares awarded to NEOs due to the reduced amount of the overall bonuses for each NEO as compared to more profitable years, and the annual bonus amounts were paid 100% in cash.cash. In fiscal 2010,2013, the Committee also adopted a specialan LTIP for the named executive officersNEOs and other key senior executives of the Company, as discussed below. No RSUs were granted to any NEOs in fiscal 2014.
The average long-term compensation amounts (including stock and option grants at their grant date fair value and the LTIP award annualized at target) as a percent of Total Direct Compensation for fiscal years 2008 through 2012 for the CEO and CFO were 48% and 34%, respectively. The average long-term compensation amount (including stock and option grants at their grant date fair value and the LTIP awardawards annualized at target) as a percent of Total Direct Compensation for fiscal years 2010 through 20122014 for the CEO, CFO and COO (who was promoted to his current position in fiscal 2010) was 36%.were 57%, 43% and 40%, respectively. The average long-term compensation amounts (including stock and option grants at their grant date fair value and the LTIP awards annualized at target) as a percent of Total Direct Compensation for Messrs. O’Connor and Valiaveedan arehave been and continue to be lower than that of the CEO, CFO and COO because while the Committee believes it is important for these executives to be compensated in part based on the long-term performance of the Company, they have less direct influence on the long-term financial success of the Company as compared to the CEO, CFO and COO.
4. DETAILS OF COMPENSATION ELEMENTS
Base Salaries
Base salaries are intended to reward executives for their day-to-day contributions to the Company. The Committee believes that base salaries within the competitive median range are necessary to retain the Company’s executive talent pool, and it determined that the fiscal 20122014 base salaries of the Company’s executive officers were necessary to retain their services.
Base salaries of all the NEOs are reviewed annually by the Committee and are subject to adjustment based on factors that may include individual performance, change in responsibilities, average salary increases or decreases in the industry, compensation for similar positions involvingin the Company’s Peer Group or broad-based compensation survey data if comparable data were unavailable from the Peer Group companies, as well as other factors such as cost of living increases and internal pay relationships with other executives.
● | CEO: For fiscal 2007 through |
● | CFO: For fiscal 2011 |
● | COO and Other NEOs: For fiscal |
Annual Bonuses
Regular Bonuses
The Company provides each of the NEOs with an opportunity to earn annual bonuses, which are intended to reward executives for the attainment of short-term financial objectives and, in the case of some NEOs, individual performance objectives.objectives, and for which the relevant metrics and formulas are assessed annually. Fiscal 20122014 annual bonus awards were made pursuant to the Company’s amendedAmended and restatedRestated Hovnanian Enterprises, Inc. Senior Executive Short-Term Incentive Plan (the “Short-Term Incentive Plan”) and the 2012 Hovnanian Enterprises, Inc. Stock Incentive Plan (“2012 Plan”), each of which is a shareholder approved plan, although no stock-based awards were paid as partshareholder-approved plan.
The Committee has discretion under the Short-Term Incentive Plan to reduce or eliminate the amount of any bonus amounts payable to any participant based on performance or any other factors the fiscal 2012 bonus awards under either plan.
Bonus opportunities are intended to be competitive with industry-wide practices in order to retain and attract executive talent. For fiscal 2012,2014, as in the past several fiscal years, 2009 through 2011, the earned bonuses for the NEOs were paid 100% in cash.
The regular annual bonus opportunities in fiscal 20122014 for each of the NEOs are shown in the following table. The performance goals for each NEOMessrs. O’Connor and Valiaveedan are discussed below.
CEO | CFO | COO | Vice President — Chief Accounting Officer and Corporate Controller | Vice President — Finance and Treasurer | ||||||||||
Return on Average Common Equity | % of Pre-tax | $ | N/A | $ | $ | |||||||||
Pre-tax Profit plus Liquidity Balances | $ | $ bonus based onPre-tax Profit plusLiquidity Balances | $ bonus based on Pre-tax Profit plus Liquidity Balances | N/A | N/A | |||||||||
Tailored Personal Objectives | N/A | N/A | N/A | $ | $ | |||||||||
Formula | Total award is greater of (a) ROACE factor or | Total award is greater of (a) ROACE factor or | Total award is | Total award is sum of ROACE and personal objectives factors, with maximum amount of | Total award is sum of ROACE and personal objectives factors, with maximum amount of | |||||||||
(1) | Based on fiscal 2014 results, payments under the ROACE award component were zero. |
Historically, annual bonuses for the CEO and the CFO have been linked to a measure of the Company’s return on average equity (ROACE, as the current example), a common industry practice. For fiscal 2011,2013, the bonus formula for the CEO, CFO and CFO, the bonus formulaCOO included a component related to net debt was changed to a calculation based onadjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) improvement and a separate cash balances. Duringbalances measure. For fiscal 2012,2014, the Committee sought to emphasize improving EBITDA without limiting management’s ability to strategically deploy cash, such as for repurchasing debtpre-tax profit and making land purchases, in anticipationliquidity (as discussed above under “Consideration of the initial stages of recovery in the homebuilding industry.Market Conditions”). As a result, the Committee approveddetermined that for fiscal 2014, the Adjusted EBITDA component of these NEOs’ bonus formulas would change to a Pre-tax Profit (defined below) component. The bonus formulas for these NEOs were structured so that they required at least a 20% improvement in Pre-tax Profit in fiscal 2014 over fiscal 2013 in order for the CEO, CFO and COO to be eligible for the same bonus metrics foramount under their new fiscal 20122014 bonus formula as inthey earned under their fiscal 2011, except that2013 bonus formula. In addition, the cash balances component of these NEOs’ bonus formulas was removed. The COO’smodified to also take into account the available borrowing capacity under the Company’s revolving credit facility (that is, to make it a liquidity balances measure). In recognition of the Company’s continued improvements in operating trends and to further incentivize future improvements, the Committee increased the overall fiscal 20122014 maximum bonus opportunity was based in part on the same EBTIDA improvement goals and was also based on the Company achieving positive pre-tax profit in both the third and fourth quarters of fiscal 2012 in order to provide an additional incentive to achieve pre-tax profitability given his oversight of homebuilding operations. The Committee believes that the goals established for fiscal 2012, which are described below, supported the financial objectives of the Company and were set at levels that were challenging, but attainable. Furthermore, the maximum bonus levels for the CEO, CFO and CFO were capped at no more than the actual 2011 bonus amounts earned. The COO’s maximum bonus level was capped at $350,000, which included an additional $100,000 bonus opportunity comparedCOO to $2,500,000, $950,000 and $950,000, respectively, from $1,500,000, $575,000 and $575,000, respectively, in fiscal 2011 related to the pre-tax profit component of his bonus formula.
Specifically, the bonus formulas for the CEO and the CFO for fiscal 20122014 provided that annual bonuses would be equal to the greater of (a) the executive’s bonus formula based on the Company’s ROACE andor (b) the bonus formula based on the Company’s Pre-tax Profit plus ending Liquidity (defined below) balances in each fiscal quarter. The COO’s bonus formula for fiscal 2014 was based solely on the sum of the Company’s EBITDA improvement.Pre-tax Profit plus ending Liquidity balances factors. “ROACE” is defined as “net income” (as described below) divided by “average common equity” (stockholders’ equity less preferred stock at the beginning of the fiscal year and at the end of each fiscal quarter during the year divided by five). “EBITDA improvement”For all of the ROACE bonus formulas discussed below for the NEOs, “net income” used in calculating ROACE is after taxes and preferred dividends (as reflected on the Company’s financial statements) and excludes land charges. “Pre-tax Profit” is defined as the difference between the EBITDAearnings (losses) before income tax expense as reflected inon the Company’s fiscal 2012audited financial statements, excluding the impact of any items deemed by the Committee to be extraordinary items (for example, losses from land impairments and losses from debt repurchases/debt retirements such as call premiums, above par purchase prices and related issuance costs or gains or losses on extinguishmentfrom debt repurchases). “Liquidity” is defined as homebuilding cash and cash equivalents plus restricted cash that collateralizes letters of debt, inventory impairment losses and land option write-offs, andcredit plus the available borrowing capacity under the Company’s EBITDA reflected in its fiscal 2011 financial statements.revolving credit facility. The Committee used this EBITDA improvement measure because it believed it was appropriate to exclude from the bonus formula items outside management’s control (e.g., impairments driven by a declining market) and it did not want to discourage management from making capital structure improvements (e.g., debt extinguishments, which could result in gains or losses on the extinguishment of debt). However, if fiscal 2012 EBITDA had not been adjusted, the bonuses earned by the CEO, CFO and COO under the EBITDA improvement component of the annual bonus would still have been the same. While the EBITDA component of the bonus formula for the CEO, CFO and COO in prior years compared adjusted EBITDA to EBITDA in the preceding year, for fiscal 2013, the EBITDA component of the bonus formulas for these NEOs is structured so that it will require improvement in adjusted EBITDA in fiscal 2013 over fiscal 2012 adjusted EBITDA in order for the CEO, CFO and COO to be eligible for the same or increased bonus levels under this component of the fiscal 2013 bonus formula compared to their earned fiscal 2012 bonuses. Specifically, the Committee determined that the fiscal 2013 EBITDA2014 Pre-tax Profit component of the bonus formulas for the CEO, CFO and COO willwould be based on achieving targeted levels of the Company’s adjusted EBITDAPre-tax Profit for fiscal 2013,2014 (as shown below), which levels have beenwere set in reference to fiscal 2012 adjusted EBITDA.2013 Pre-tax Profit. The fiscal 2013 bonus formulas forLiquidity balances component of the NEOs are described in more detail below under “Actions for Fiscal 2013.”
For fiscal 2012,2014, the bonus formulas for Messrs. O’Connor and Valiaveedan remained the same as their fiscal 20112013 formulas. Messrs. O’Connor and Valiaveedan have, as result of their respective positions, less direct influence on the Company’s strategic and operational decisions compared to the CEO, CFO and COO, and, therefore, their bonus formulas do not include an EBITDA improvement component. Specifically, these NEOs’ fiscal 20122014 bonus formulas provided as in fiscal 2011, that bonuses would be based on both (a) a formula based on the Company’s ROACE and (b) the attainment of tailored personal objectives.
Since fiscal 2007, the NEOs have also been offered the opportunity to earn a one-time retention bonus equal to 3% of such NEO’s fiscal year endyear-end 2007 base salary if the NEO remains employed with the Company through the end of the first fiscal year in which the Company’s ROACE returns to 20%. At the end of fiscal 2012,2014, the Company’s ROACE did not meet this threshold, so there were no resulting retention bonuses were earned for this year.
The following description provides detail as to the determination of each NEO’s fiscal 2014 annual bonus. Due to the reduced amount of the bonuses as compared to more profitable years, all bonuses for fiscal 2014 were paid in 100% in cash. In addition, for fiscal 2012,2014, the Committee had imposed a cap on each NEO’s bonus, was subject to a cap, whichas had been the case for NEOs since fiscal 2009. In light of improvements in key financial indicators over the last few years and the revised fiscal 2015 bonus structure as discussed below under “Actions for Fiscal 2015,” the Committee has increased for fiscal 2013 bonuses and intends to consider removing or further increasing in future fiscal years asdetermined that if the Company’s financial results improveperformance exceeds the levels established under the Pre-tax Profit component of the CEO, CFO and COO’s bonus formulas for fiscal 2015, the Committee may extrapolate the amount of the bonus above these levels. The caps for the other NEOs for fiscal 2015 remain the same as they did in fiscal 2012. See “Actions for Fiscal 2013.”
● | CEO: The CEO’s bonus formula for fiscal |
FOR THE CEO, THE BONUS FORMULA WAS THE GREATER OF:
(a) ROACE Calculation Method*
ROACE percentage | % Pre-tax Income |
0.0% | 0.00% |
5.0% | 1.00% |
10.0% | 1.25% |
15.0% | 1.50% |
20.0% | 2.00% |
ROACE percentage | % Pre-tax Profit |
0.0% | 0.00% |
5.0% | 1.00% |
10.0% | 1.25% |
15.0% | 1.50% |
20.0% | 2.00% |
| * | The bonus is interpolated on a linear basis between the points shown in the table, and may be extrapolated beyond the maximum ROACE percentage shown at a rate of 0.10% of |
OR
(b) EBITDA ImprovementPre-tax Profit plus Liquidity Balances Calculation Method*
EBITDA Improvement (millions) | $ | 0.0 | $ | 37.5 | $ | 75.0 | ||||||
Bonus (thousands) | $ | 0.0 | $ | 474.8 | $ | 949.5 |
Percentage Change in Pre-tax Profit betweenFiscal 2013 and Fiscal 2014 | Bonus (thousands) |
Below -40% | $ 0.0 |
-40% | $ 250.0 |
-20% | $ 550.0 |
0% | $ 850.0 |
20% | $1,150.0 |
40% | $1,350.0 |
60% | $1,550.0 |
80% | $1,750.0 |
100% | $1,950.0 |
120% or greater | $2,150.0 |
PLUS
Number of Fiscal 2014Quarter-Ends at or Above $170 Million Liquidity | Bonus (thousands) |
Less than 2 | $ 0.0 |
2 | $150.0 |
3 | $250.0 |
4 | $350.0 |
| * | The Pre-tax Profit bonus is interpolated on a linear basis between the points shown in the table. The total bonus was capped at |
Based on the bonus formula above, because there was no payment under the ROACE component, and EBITDA Improvementthe CEO’s 2014 cash bonus was $213.8entirely attributed to the Pre-tax Profit plus Liquidity Balances Calculation Method of his bonus formula. Fiscal 2014 Pre-tax Profit was $26.6 million, which significantly exceededrepresented a percentage change in pre-tax profit between fiscal 2013 and fiscal 2014 of -4%, and the maximum performance level,Liquidity balances at the end of all four fiscal 2014 quarters were above $170 million. As a result, Mr. Hovnanian earned a cash bonus equal to the cap of $949,500,$1,140,293, which was entirely attributed to the EBITDA Improvement Calculation Method ofrepresented a 24% decrease from his bonus formula.
● | CFO: The CFO’s bonus formula for fiscal |
FOR THE CFO, THE BONUS FORMULA WAS THE GREATER OF:
(a)ROACE Calculation Method*
ROACE percentage | Bonus (thousands) | ||||
0.0% | $ | 0.0 | |||
4.7% 5.0% 10.0% 15.0% 20.0% 25.0% | $ | 350.0 |
ROACE percentage | Bonus (thousands) |
| ||
0.0% | $ 0.0 |
| ||
5.0% | $375.0 |
| ||
10.0% | $750.0 |
| ||
12.0% | $950.0 | Capped | ||
15.0% | $950.0 | |||
20.0% | $950.0 | |||
25.0% | $950.0 |
* | The bonus is interpolated on a linear basis between the first |
OR
(b) Pre-tax Profit plusLiquidity Balances Calculation Method*
Percentage Change in Pre-tax Profit betweenFiscal 2013 and Fiscal 2014 | Bonus (thousands) |
Below -40% | $ 0.0 |
-40% | $ 95.0 |
-20% | $205.0 |
0% | $315.0 |
20% | $425.0 |
40% | $500.0 |
60% | $575.0 |
80% | $650.0 |
100% | $725.0 |
120% or greater | $800.0 |
PLUS
Number of Fiscal 2014Quarter-Ends at or Above $170 Million Liquidity | Bonus (thousands) |
Less than 2 | $ 0.0 |
2 | $ 75.0 |
3 | $100.0 |
4 | $150.0 |
* | The Pre-tax Profit bonus is interpolated on a linear basis between the points shown in the table. The total bonus was capped at $950,000 and was also subject to the maximum payout under the Short-Term Incentive Plan. |
Based on the bonus formula above and the ROACE and Pre-tax Profit plus Liquidity balances results as described above for the CEO, Mr. Sorsby earned a cash bonus equal to $443,108, which represented a 23% decrease from his fiscal 2013 bonus. Mr. Sorsby’s bonus was entirely attributed to the Pre-tax Profit plus Liquidity Balances Calculation Method of his bonus formula.
● | COO: The COO’s bonus formula for fiscal 2014 provided for a bonus award equal to a fixed dollar amount based on the Company’s Pre-tax Profit plus a fixed dollar amount based on the Company’s quarterly Liquidity balances, with his total bonus not to exceed $950,000. |
FOR THE COO, the Pre-tax Profit plusLiquidity Balances Calculation Method*
Percentage Change in Pre-tax Profit betweenFiscal 2013 and Fiscal 2014 | Bonus (thousands) |
Below -40% | $ 0.0 |
-40% | $ 95.0 |
-20% | $205.0 |
0% | $315.0 |
20% | $425.0 |
40% | $500.0 |
60% | $575.0 |
80% | $650.0 |
100% | $725.0 |
120% or greater | $800.0 |
PLUS
EBITDA Improvement (millions) | $ | 0.0 | $ | 37.5 | $ | 75.0 | ||||||
Bonus (thousands) | $ | 0.0 | $ | 175.0 | $ | 350.0 |
Number of Fiscal 2014 Quarter-Ends at or Above $170 Million Liquidity | Bonus (thousands) |
Less than 2 | $ 0.0 |
2 | $ 75.0 |
3 | $100.0 |
4 | $150.0 |
* | The Pre-tax Profit bonus is interpolated on a linear basis between the points shown in the table. The bonus was capped at |
Based on the bonus formula above and the ROACE and EBITDA ImprovementPre-tax Profit plus Liquidity balances results described above Mr. Sorsby earned a cash bonus equal tofor the cap of $350,000, which was entirely attributed to the EBITDA Improvement Calculation Method of his bonus formula.
EBITDA Improvement (millions) | $ | 0.0 | $ | 37.5 | $ | 75.0 | ||||||
Bonus (thousands) | $ | 0.0 | $ | 125.0 | $ | 250.0 |
● | Other NEOs: Fiscal |
FOR OTHER NEOs, THE BONUS FORMULA WAS BOTH:
(a) Calculation Method – for Achievement of Financial Performance Measure*
ROACE Percentage | Brad O’Connor | David Valiaveedan | ||||||
0.0% | $0 | $0 | ||||||
5.0% | 10% of base salary | 15% of base salary | ||||||
10.0% | 20% of base salary | 30% of base salary | ||||||
15.0% | 40% of base salary | 40% of base salary | ||||||
20.0% | 60% of base salary | 50% of base salary |
ROACE Percentage | Brad O’Connor | David Valiaveedan |
0.0% | $0 | $0 |
5.0% | 10% of base salary | 15% of base salary |
10.0% | 20% of base salary | 30% of base salary |
15.0% | 40% of base salary | 40% of base salary |
20.0% or greater | 60% of base salary | 50% of base salary |
* | The bonuses are interpolated on a linear basis between the points shown in the table. The total bonuses payable under both components combined were capped at |
AND
(b) Calculation Method – for Meeting Personal Objectives Measure*
Goals | Brad O’Connor | David Valiaveedan |
Threshold | Up to 20% of base salary | Up to 30% of base salary |
Target | Up to 40% of base salary | Up to 40% of base salary |
Outstanding | Up to 60% of base salary | Up to 50% of base salary |
* |
|
Mr. O’Connor’s fiscal 20122014 personal objectives included implementing controls, either systemic or manual, for the segregation ofensuring federal and state deferred tax assets among the groups of entities securingwere used effectively and in accordance with federal and state tax laws; leading the Company’s secured bonds; providing support to operating group management related to centralizing accounting functions at the operating group leveldepartment in preparing and exploring the centralization of functions at headquarters (e.g., vendor maintenance); ensuring the timely filing of all SEC-requiredrequired SEC documents, including any transaction-related prospectus supplements or other offering documents; and overseeingenhancing the adoption offinancial planning process to more fully utilize the tools available to complete the financial plan more extensive second year SEC-mandated requirements for XBRL filings.quickly and accurately. Mr. O'Connor successfully completed these objectives by ensuring timely compliancecoordinating with SEC requirementsthe company’s auditors and leading the tax team in their analysis and preparation for XBRL filings,fully and properly utilizing the federal and state deferred tax assets as well as the efficiency and accuracy of new internal reporting tools. He also led thethey become available; spearheading a cross-functional team of Senior Accountingaccounting and Finance Managersinformation technology associates to identifyenhance the use of enterprise-wide systems to more quickly and implement accounting process centralization ataccurately complete the operating groupfinancial plan; and headquarters levelsoverseeing the preparation and led a project team that implemented system improvements relating to the segregationfiling of assets for the Company’s secured bonds.
Mr. Valiaveedan’s fiscal 20122014 personal objectives included developing and executing the Company’s capital structure strategy, including obtaining non-recourse bank financing, negotiating joint venture and land banking agreements, preparing Company projections and managing existing joint ventures. During fiscal 2012,2014, Mr. Valiaveedan successfully negotiated and closed a land banking arrangement with GSO Capital Partners, LP and the buyout of a joint venture partner. In addition, he played an instrumentalintegral role in the developmentdeveloping and execution ofexecuting the Company’s capital markets strategy including several debt refinancing transactionsin both the public and equityprivate markets. He led the origination and equity-linkedexecution of non-recourse loans, joint ventures and our land banking transactions. These significant transactions raisedIn addition, he negotiated a new benchmark covenant package and was instrumental with respect to our ability to successfully issue bonds in the capital extended debt maturitiesmarkets and reducedobtain amendments for certain of the Company’s interest expense.
Based on the bonus formulas above, actual financial results and the Committee’s determinations regarding each executive’s personal objectives, neither of these NEOs earned bonuses related to the ROACE Calculation Method for fiscal 2012,2014, but each earned a cash bonus for meeting his respective fiscal 20122014 personal objectives in full (the “outstanding” category). Since, however,Because the outstanding payouts for meeting personal objectives would exceedCompany achieved positive Pre-tax Profit of $26.6 million in 2014, the cap described above the bonuses werewas not reduced, by 50% to comply with the cap, resulting in payments of $93,000$197,327 (representing 60% of base salary) and $72,500$153,831 (representing 50% of base salary) for Mr. O’Connor and Mr. Valiaveedan, respectively.
Discretionary Bonuses
The Committee has the authority to make discretionary bonus awards, which it considers under special circumstances, including exceptional contributions not reflected in the regular bonus measures, new hire sign-on bonuses and retention rewards. Discretionary bonuses of $50,000No discretionary bonus awards were granted to each of Messrs. O’Connor and Valiaveedan for their performance duringthe NEOs in fiscal 2012. These awards recognized their significant contributions involving capital raising/restructuring activities as well as their leadership and assistance in generating positive operating trends in the latter half of fiscal 2012.
Stock Grants
The Committee may make grants of stock options, stock appreciation rights, MSUs, restricted stock and restricted stock units (“RSUs”),RSUs, unrestricted shares of stock or stock-based awards settled in cash pursuantunder the shareholder-approved 2012 Hovnanian Enterprises, Inc. Amended and Restated Stock Incentive Plan (as further amended or amended and restated from time to time, the 2012 Plan.“Stock Plan”). In fiscal 2012,2014, the Committee awarded MSUs to the CEO, CFO and COO and stock options to each of the other NEOs. Messrs. O’Connor and Valiaveedan were eligible to elect to receive RSUs in lieu of stock options, but neither made such an election. No other stock-based awards were made to NEOs in fiscal 2012.
Equity awards are intended to establish a strong commitment to maintain employment with the Company and focus on creating long-term shareholder value. In addition, stock options are selected over other types of stock-based awards because their design inherently rewards executives only if the stock price increases, which provides a balance with cash incentives and the more retention-oriented RSU grants. Because the ultimate value received by stock option and RSU holdersequity award recipients is directly tied to increases in the Company’s stock price, stock options and RSUs alsothey serve to link the interests of management and shareholders and to motivate executive officers to make decisions that will increase the long-term total return to shareholders. Additionally, grants under the 2012Stock Plan include vesting and termination provisions that the Committee believes will encourage stock option and RSU holdersequity award recipients to remain long-term employees of the Company.
The Committee ultimately approves the size of the grants taking into account the recommendations by the CEO (other than for his own grant) and other criteria as determined by the Committee. The Committee generally targets a specific number of optionsshares rather than a specific optionshare value. This philosophy directly aligns optionequity grant values with shareholder value since optionequity values are generally higher when the stock price is increasing and lower when the stock price is decreasing. Consequently, despiteIn fiscal 2014, the fact that the stock price has remained significantly lower than historical levels, the number of each NEO’s option grants has generally remained relatively consistent, with the exception of the option grants forCommittee granted the CEO, CFO and COO awards in the form of MSUs rather than stock options, although the target number of shares underlying the MSU awards for fiscal 2012 which had an exercise price 33 1/3% above2014 and the closingtarget number of shares underlying the stock options for fiscal 2013 remain the same. The Committee also determined that 50% of the MSUs would be subject to financial performance conditions in addition to the stock price onperformance conditions applicable to all the grant date.MSU awards. The Committee’s determination and rationale for the fiscal 20122014 grants is described below. The Committee will continue to determine the appropriate mix of optionsequity and other award types based on the objectives of the compensation program, the Company’s business needs, the potential dilution impact and the pool of shares remaining available for grant under the Company’s shareholder-approved incentive plans.
Stock options, MSUs and RSUs generally vest (assuming, in the case of the performance-based awards, that the conditions have been met), in four equal annual installments, commencing on the second anniversary date of the grant date, providing a five-year period before becoming fully vested.
Fiscal 2012 Stock Option2014 Equity Awards
In determining the fiscal 20122014 equity awards for the NEOs, the Committee considered, without giving specific weight to any one factor, then-available information on Peer Group equity awards for the NEOs, the anticipated changes in equity award values across industries, the Company’s available share pool and the potential impact on shareholder dilution, the Company’s stock performance, the historical equity awards provided to each NEO, the desire to retain the employment of each NEO, and the desire to continue to link a portion of each NEO’s compensation with future Company performance. Except for the CEO, all stock optionequity awards in fiscal 20122014 were made in the form of optionsrights to purchasereceive shares of Class A Common Stock. Because the Committee took into consideration the potential benefits to the Company previously expressed by the Board of Directors of the continuity of share ownership and control of the Hovnanian family, the CEO’s stock optionequity award was made in the form of optionsright to purchasereceive shares of Class B Common Stock.
● | CEO, CFO and COO. Fifty percent of the MSUs will vest in |
The In the case of the |
Total Revenue Growth: FYE 2016 vs. FYE 2014 | Applicable Revenue Multiplier* |
0.0% or less | 0% |
12.5% | 50% |
25.0% or greater | 100% |
* | The applicable Revenue Multiplier for revenue growth between 0% and 12.5% or between 12.5% and 25.0% will be determined by linear interpolation. |
● | Other NEOs. In fiscal |
2010 Long-Term Incentive Program
In fiscal 2010, the Company adopted a Long-Term Incentive Program (the “2010 LTIP”) under its previous stockholder-approved Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (“2008 Plan”) to aid the Company in retaining key employees and to motivate them to exert their best efforts to promptly return the Company to profitability and lower debt levels by providing rewards at the end of a multi-year period. The 2010 LTIP iswas intended to incentivize achievement of specified pre-tax profit goals and specified improvements in the Company’s capital structure through reductions in homebuilding debt.
Each of the NEOs iswas a participant in the 2010 LTIP and their awards, if any, will beaward payouts were determined based on actual performance for the full 36-month performance period, subject to the vesting requirements over an additional 24-month period, as described below. This performance period commenced on November 1, 2010 (the beginning of fiscal 2011) and will endended on October 31, 2013 (that is, the performance period coverscovered fiscal 2011, 2012 and 2013). After the performance period, the awards remain subject to vesting conditions during fiscal 2014 and 2015. The executive will not receive the full award payout unless the executive remains employed for the entire five-year period.
At the end of fiscal 2013, the Company achieved $27.7 million in pre-tax profit and reduced homebuilding debt to $1.44 billion, resulting in a payout of 157.75% of the target award. As a condition of earning each portion of the award, and as a retention inducement, following the performance period, a participant must also be employed through the vesting dates outlined below (other than in cases of death, disability or qualified retirement, or in the case of Messrs. O’Connor and Valiaveedan, specified termination following a change in control of the Company). The vesting percentages relate to the earned award value as of October 31, 2013.
1. | 50% of the award vested on October 31, 2013 and was paid in January 2014; |
2. | 30% of the award vested on October 31, 2014 and was paid in January 2015; and |
3. | 20% of the award will become vested on October 31, 2015 and is payable in January 2016; |
with the cash portion of the earned award value having vested and been paid before any share portion of the earned award value becomes vested and payable.
2013 Long-Term Incentive Program
In fiscal 2013, the Company adopted a Long-Term Incentive Program (the “2013 LTIP”) under its stockholder-approved Stock Plan to further aid the Company in retaining key employees and to motivate them to exert their best efforts to achieve greater levels of profitability and to extend the maturity and/or reduce the amount of existing homebuilding debt by providing rewards at the end of a multi-year period. The 2013 LTIP is intended to incentivize achievement of specified pre-tax profit goals and specified improvements in the Company’s capital structure through refinancings of, or reductions in, homebuilding debt.
Each of the NEOs is a participant in the 2013 LTIP and their award payouts, if any, will be determined based on actual performance for the full 31-month performance period, subject to vesting requirements over an additional 24-month period, as described below. This performance period commenced on March 11, 2013 and will end on October 31, 2015 (that is, the performance period covers a portion of fiscal 2013 and all of fiscal years 2014 and 2015). After the performance period, the awards, to the extent earned, remain subject to vesting conditions during fiscal 20142016 and 2015.2017. The executive will not receive the full award unless the Company achieves the pre-tax profit and refinancings and/or reductions in existing homebuilding debt performance goals and the executive remains employed for the entire five-year55-month period.
Pre-tax profit and refinancings and/or reductions in existing homebuilding debt were chosen as the performance metrics for the 2013 LTIP because they are critical during this challenging economic cycle. The Committee determined that other goals, such as revenue growth and cost reductions, would be reflected in pre-tax profit calculations, but in a balanced way with an emphasisto focus management on achieving profitability. The Committee believed that a focus on revenue growth alone would not adequately emphasize profitability and that a focus on cost-cutting alone could emphasize short-term achievements that may sacrifice future profitability. The Committee also determined that ifimproving the current difficult economic conditions continue during all or mostoperating performance of the LTIP’s performance period and achievement of pre-tax profit is not attainable, then realization of reduced homebuilding debt would put the Company in a better financial position to weather suchwhile ensuring an extended downturn and return to profitability when the economic conditions ultimately improve.
Award payouts, if any, will be based on a specific target multiple of each participant’s base salary in effect on the date the participant iswas granted the award (the “Grant Date,“grant date,” or JuneMarch 11, 20102013, for all NEOs). If shares of stock are elected as a form of payout, theThe target number of shares iswas set based on the closing price of the Class A Common Stock on the Grant Date,grant date, regardless of whether the share price increases or decreases by the time the award is determined or distributed. In order to manage the potential dilution impact of the 2013 LTIP, the Committee required that at least 20%40% of the payout be in the form of cash. All stock awards under the 2013 LTIP were made in the form of rights to receive shares of Class A Common Stock, except for the CEO whose award was made in the form of rights to receive shares of Class B Common Stock because the Committee took into consideration the potential benefits to the Company previously expressed by the Board of Directors of the continuity of share ownership and control of the Hovnanian family. The following describes the target multiple of base salary and form of irrevocable payout election for each NEO:
Target Multiple | |||||
of | Payout Method | ||||
CEO | 3.00 | 40% cash / | |||
CFO | 2.00 | 40% cash / | |||
COO | 2.00 | 40% cash / | |||
Other NEOs | 1.00 | 40% cash / |
Although the Committee views both the stock and cash portions of the 2013 LTIP as multi-year incentive plan awards, they are reported differently for purposes of the Summary Compensation Table.Table under “Executive Compensation” below. The share payout portions are reflected as “Stock Awards” in fiscal 20102013 at their grant date fair value under Financial Accounting Standards Board ("FASB"(“FASB”) Accounting Standards Codification Topic 718, Compensation – Stock Compensation ("(“ASC Topic 718"718”), which was based on the probable outcome as of the Grant Date.grant date. Conversely, the actual amounts earned on the cash payout portions, if any, will be reflected in the Summary Compensation Table as “Non-Equity Incentive Plan Compensation” in fiscal 20132015 (which coincides with the end of the performance period) or, if participants achieve a minimum performance payment during an earlier fiscal year, even though such payment remains subject to subsequent vesting restrictions, then such minimum payment would be reflected in that earlier fiscal year. At the end of fiscal 2012, the Company did not reach breakeven or positive Pre-tax Profit (as defined below), so no minimum payment was achieved for this year.
For purposes of the 2013 LTIP, “Pre-tax Profit”“pre-tax profit” is defined as earnings (loss) before income tax paymentsexpense as reflected on our audited financial statements, excluding the impact of any items deemed to be extraordinary items for financial reporting purposes. “Homebuildingpurposes and excluding losses from land impairments and losses from debt repurchases/debt retirement such as call premiums, above par purchase prices and related issuance costs. “Existing Homebuilding Debt” is defined as total (recourse) notes payable excluding accrued interest, as reflected on our consolidated audited balance sheet as of January 31, 2013 (the most current balance sheet at the time the 2013 LTIP was adopted), less any debt issued after January 2010 that has an equity component such as debt convertible into sharesequity, tangible equity units and/or exchangeable notes. To qualify under the 2013 LTIP as a refinancing of stock.
The following table illustrates the percent of the target award that can be achieved at each performance level. Awards will be interpolated on a linear basis between performance levels but will not be extrapolated above the maximum performance levels listed below.
Homebuilding Debt as of 10/31/2013 (in billions) | |||||||
Greater than $1.70 | $1.65 | $1.60 | $1.55 | $1.50 | $1.40 or less | ||
$100 or more | 100% of target award | 125% of target award | 150% of target award | 175% of target award | 200% of target award | 250% of target award | |
$75 | 75% of target award | 100% of target award | 125% of target award | 150% of target award | 175% of target award | 225% of target award | |
FY 2013 Pre-tax Profit (in millions) | $50 | 50% of target award | 75% of target award | 100% of target award | 125% of target award | 150% of target award | 200% of target award |
$25 | 25% of target award | 50% of target award | 75% of target award | 100% of target award | 125% of target award | 175% of target award | |
Less than $0 | 0% of target award | 25% of target award | 50% of target award | 75% of target award | 100% of target award | 150% of target award |
|
| Refinancings of Existing Homebuilding Debt Between 3/11/2013 and 10/31/2015 and/or Reductions of Existing Homebuilding Debt Between 11/01/2013* and 10/31/2015 (in millions) | |||||
|
| $125 or less | $165 | $205 | $245 | $285 | $325 or more |
| $200 or more | 100% | 125% | 150% | 175% | 200% | 250% |
FY 2015 Pre-tax | $150 | 75% | 100% | 125% | 150% | 175% | 225% |
Profit | $100 | 50% | 75% | 100% | 125% | 150% | 200% |
| $50 or less | 0% | 15% | 30% | 45% | 60% | 90% |
*This date was chosento avoid overlap with the Company reached breakeven or positive Pre-tax Profit for either of fiscal 2011 or 2012, a participant was eligibleperformance period for a minimum payment equal to 50% ofsimilar metric in the target award, provided that he met the vesting requirements described below. This minimum payment would have been inclusive of and not incremental to any other award granted to the participant under the LTIP and would not have exceeded 50% of target award if the Company achieved breakeven or positive Pre-tax Profit in both fiscal 2011 and 2012. No minimum payout was achieved in either fiscal 2011 or fiscal 2012.
As a condition of earning each portion of the award, and as a retention inducement, following the performance period, a participant must also be employed through the vesting dates outlined below (other than in cases of death, disability or qualified retirement, or in the case of Messrs. O’Connor and Valiaveedan, specified termination following a change in control of the Company). The vesting percentages relate to the earned award value as of October 31, 2013.
1. |
20% of the award will become vested on October 31, 2015 and would be payable in January |
2. | 30% of the award will become vested on October 31, 2016 and would be payable in January 2017; and |
3. | 50% of the award will become vested on October 31, 2017 and would be payable in January 2018; |
with the cash portion of the earned award value becoming vested and payable before any share portion of the earned award value becomes vested and payable.
Other Employee Benefits
The Company maintains additional employee benefits that the Committee believes enhance executive safety, efficiency and time that the executive is able to devote to Company affairs.
We do not believe that special perquisites or other personal benefits should play a major role in our executive compensation program. However, some NEOs are provided one or more of the following items:
● | Auto allowance, including car maintenance and fuel expense; |
● | Personal use of the Company’s automobiles (including driver’s compensation) and a fractional share in an aircraft; |
● | Executive term life insurance; |
● | Annual Executive Physical Exam Program; |
● | Golf membership or country club fee reimbursement; and |
● | Personal income tax preparation |
The Committee annually reviews the elements and level of executive perquisites for the NEOs. In particular, in evaluating the appropriateness of these benefits for the CEO, the Committee tooktakes into consideration the degree to which the CEO is required to travel to various Company locations and business functions on a daily basis. Based on its review, the Committee has requested that the CEO use Company-provided transportation to enhance the efficient use of his time.
The Company’s contributions to the NEOs’ 401(k) plan and executive deferred compensation plan (“EDCP”) accounts were suspended on February 20, 2009 and continued to be suspended throughout fiscal 2012. However, in2009. In fiscal 2012, a one-time employer non-elective contribution funded by the use of the amount of forfeitures account was made to all eligible participants’ 401(k) plan accounts for the 2011 calendar year, in accordance with the terms of the 401(k) plan. Beginning with the January 11, 2013 pay period, however, the Company will reinstatereinstated its 401(k) match of employee contributions, but at 50% of the level it matched prior to its suspension in February 2009. This will applyThe reinstated match was up to 3% of eligible employee compensation, based on tenure. Beginning with the January 10, 2014 pay period, the Company reinstated its 401(k) match of employee contributions at 100% of the level it matched prior to its suspension in February 2009. The reinstated match is up to 6% of eligible employee compensation, based on tenure. The reinstatement applies to all participants in the 401(k) plan, including the NEOs.
Consistent with the partial reinstatement of the 401(k) match in January 2013, the Committee approved the partial reinstatement of the EDCP contribution for the NEOs and certain other executives of the Company to provide up to 3% of earnings above the annual 401(k) limit for calendar 2013, based on tenure. Consistent with the full reinstatement of the 401(k) match in January 2014, the Committee approved the full reinstatement of the EDCP contribution for the NEOs and certain other executives of the Company to provide up to 6% of earnings above the annual 401(k) limit for calendar 2014, based on tenure. Calendar year contributions are credited in the subsequent fiscal year and reflected in the proxy statement for that year.
Specific benefits and the incremental costs of such benefits are described in detail in the footnotes to the Summary Compensation Table. The Company does not offer any defined benefit pension plans to its employees.
5. ACTIONS FOR FISCAL 2013
The Committee approved a base salary increase to $600,000 for Mr. Pellerito, effective in December 2012, to move him closer to the Peer Group median. Messrs. O’Connor and Valiaveedan each received a 3% base salary increase, also effective in December 2012,20, 2014, for each of Messrs. Hovnanian, Sorsby, Pellerito and O’Connor, in consideration of their individual performance and in line with the Company’s ordinary course merit-based salary and cost of living increase practices. The increase for Mr. Hovnanian was his first base salary increase in nine years. For Mr. Valiaveedan, the Committee maintainedapproved a 7.3% base salary increase, effective December 20, 2014, in consideration of internal pay relationships and in recognition of his efforts to improve the base salaries of the CEO and CFO at their fiscal 2012 amounts, which amounts have not changed since December 2005 for the CEO and January 2010 for the CFO.
The Committee determined that for fiscal 2015, the fiscal 2013 EBITDAPre-tax Profit component of the bonus formulas for the CEO, CFO and COO will be based on achieving targetedwould remain the same as in fiscal 2014, except that the formulas would provide for increased bonus opportunities for greater levels of improvement in Pre-tax Profit in fiscal 2015 compared to fiscal 2014. To further emphasize liquidity and strengthen the Company’s adjusted EBITDA for fiscal 2013, which levels have been set in reference to fiscal 2012 adjusted EBITDA. Thebalance sheet, the Committee also determined thatraised the fiscal 2013minimum liquidity threshold under the Liquidity balances component of the bonus formulas for the CEO, CFO and COO will includefrom $170 million to $200 million and increased the CEO, CFO and COO’s bonus potential under that component of their respective bonus formulas. Finally, to incentivize the CEO, CFO and COO to further improve financial performance through actions that increase top line growth, the Committee added a liquiditytotal revenue growth component in addition to the EBITDA component. In recognitiontheir respective bonus formulas for fiscal 2015. As a result, this portion of the Company’s improvements in operating trends beginning inCEO, CFO and COO’s fiscal 2015 bonus formulas will be the second quartersum of the Pre-tax Profit, Liquidity balances and total revenue growth factors. The ROACE portion of the fiscal 2012 and to further incent future improvements, the Committee increased the overall maximum2015 bonus opportunityformulas for the CEO, CFO and COO, to $1,500,000, $575,000 and $575,000, respectively. The fiscal 2013if applicable, will remain the same as the ROACE portion of their bonus formulas for such NEOs will otherwise remain the same except that the COO’s bonus formula will not include the Pre-tax Profit in Third and Fourth Fiscal Quartersfiscal 2014. The total revenue growth component of histhe 2015 bonus formulas will measure total consolidated revenues for fiscal 2012 bonus formula.
The Committee determined that the fiscal 20132015 bonus formulas for Messrs. O’Connor and Valiaveedan will remain the same as those in fiscal 2012 except that, for the reasons discussed above with respect to the CEO, CFO and COO, if the Company’s fiscal 2013 Pre-tax Profit is greater than zero, the maximum amounts these NEOs could receive under the personal objectives component of their respective bonus formulas will no longer be reduced by 50%.2014. In addition, the personal objectives for Messrs. O’Connor and Valiaveedan were updated to reflect key goals for fiscal 2013.
6. TAX DEDUCTIBILITY AND ACCOUNTING IMPLICATIONS
As a general matter, the Committee always takes into account the various tax and accounting implications of compensation. When determining amounts of equity grants to executives and employees, the Committee also examines the accounting cost associated with the grants.
Certain of the Company’s annual bonus and stock optionincentive compensation programs are intended to allow the Company to make awards to executive officers that are deductible under Section 162(m) of the Internal Revenue Code,, which provision otherwise sets limits on the tax deductibility of compensation paid to a company’s most highly compensated executive officers (with the exception of the Company’s CFO). The Committee will continue to seek ways to limit the impact of Section 162(m) of the Internal Revenue Code.. However, the Committee believes that the tax deduction limitation should not compromise the Company’s ability to establish and implement compensation and incentive programs that support the compensation objectives discussed above. Accordingly, achieving these objectives and maintaining required flexibility in this regard may result in compensation that is not deductible for federal income tax purposes. The bonus formulas approved by the Committee for fiscal 20122014 were, however, intended to be established in accordance with the requirements for deductibility as performance-based compensation under Section 162(m) of the Internal Revenue Code.
7. TIMING AND PRICING OF STOCK OPTIONS
For fiscal 2012,2014, stock options and MSUs were granted on the second Friday in June for all eligible employees, consistent with our practice of granting equity awards annually on the second Friday in June. The Company’s practice of setting “fixed” equity award grant dates is designed to avoid the possibility that the Company could grant stock awards prior to the release of material, non-public information that is likely to result in an increase in its stock price, or delay the grant of stock awardsuntil after the release of material, non-public information that is likely to result in a decrease in the Company’s stock price. Other than with respect to the CEO’s, CFO’s, and COO’s stock option grants in fiscal 2012, exerciseExercise prices of stock options were set at the closing trading price per share of the Company’s Class A Common Stock on the NYSE on the date the options were granted. TheNo stock options were granted to the CEO, CFO andor COO in fiscal 2012 were granted with an exercise price 33 1/3% above the closing stock price on the grant date. See “Stock Grants – Fiscal 2012 Stock Option Awards” above.2014.
8. STOCK OWNERSHIP GUIDELINES
The Board of Directors has adopted stock ownership guidelines, recommended by the Committee, which set forth recommended minimum amounts of stock ownership, directly or beneficially, for the CEO, CFO, COO and non-employee Directors because they have the most long-term strategic impact for shareholders.Directors. The Corporate Governance and Nominating Committee reviews adherence to the Company’s stock ownership guidelines on an annual basis, which guidelines are incorporated into the Company’s Corporate Governance Guidelines. The Company believes these guidelines further enhance the Company’s commitment to aligning the interests of our non-employee Directors and senior management with those of itsour shareholders.
Under the Committee determined that,terms of the ownership guidelines, once the stock ownership guidelines wereare met, they would beare deemed satisfied for subsequent annual review periods, regardless of decreases in the Company’s stock price on the New York Stock Exchange, so long as the executive or non-employee Director does not sell any portion of the share amounts which were originally included in determining that the recommended thresholds were met. The Committee reviewed this determination in fiscal 2012 and maintained this policy.
Senior Executive Officers
The guidelines provide that the following senior executive officers of the Company are requested to achieve and maintain minimum stock ownership amounts as follows:
CEO – 6x6 times current base salary
CFO – 2x3 times current base salary
COO – 2x3 times current base salary
The CEO, CFO and COO currently meet their respective stock ownership guidelines.
See “Non-Employee Director Compensation” for information on the stock ownership guidelines for non-employee Directors.
EXECUTIVE COMPENSATION
1. SUMMARY COMPENSATION TABLE
The following table summarizes the compensation for the fiscal years ended October 31, 2012,2014, October 31, 2011,2013, and October 31, 20102012 of the chief executive officer, the chief financial officer, and the next three most highly compensated executive officerspersons serving as executive officers as of October 31, 2012.2014. These five individuals compose our named executive officers or “NEOs.”
Summary Compensation Table
Name and Principal Position | Year | Salary (1) | Bonus (2) | Stock Awards (3) | Option Awards (4) | Non-Equity Incentive Plan Compensa-tion (5) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensa-tion (6) | Total (7) | ||||||||||||||||||||||||
Ara K. Hovnanian, (8) | 2012 | $ | 1,092,606 | — | $ | — | $ | 1,032,000 | $ | 949,500 | — | $ | 181,582 | $ | 3,255,688 | ||||||||||||||||||
President, Chief | 2011 | $ | 1,092,606 | — | $ | 24,125 | $ | 529,875 | $ | 949,500 | — | $ | 170,049 | $ | 2,766,155 | ||||||||||||||||||
Executive Officer and Chairman of the Board | 2010 | $ | 1,092,606 | — | $ | 2,622,255 | $ | 1,413,750 | $ | 949,500 | — | $ | 188,189 | $ | 6,266,300 | ||||||||||||||||||
J. Larry Sorsby, | 2012 | $ | 600,000 | — | $ | — | $ | 206,400 | $ | 350,000 | — | $ | 50,433 | $ | 1,206,833 | ||||||||||||||||||
Executive | 2011 | $ | 600,000 | — | $ | 4,825 | $ | 105,975 | $ | 350,000 | — | $ | 48,259 | $ | 1,109,059 | ||||||||||||||||||
Vice President and Chief Financial Officer | 2010 | $ | 572,308 | — | $ | 960,001 | $ | 282,750 | $ | 350,000 | — | $ | 52,229 | $ | 2,217,288 | ||||||||||||||||||
Thomas J. Pellerito, | 2012 | $ | 538,462 | — | $ | — | $ | 137,600 | $ | 250,000 | — | $ | 46,406 | $ | 972,468 | ||||||||||||||||||
Chief Operating | 2011 | $ | 500,000 | — | $ | 3,217 | $ | 70,650 | $ | 250,000 | — | $ | 42,913 | $ | 866,780 | ||||||||||||||||||
Officer | 2010 | $ | 468,870 | $ | 28,750 | $ | 799,999 | $ | 188,500 | $ | 203,548 | — | $ | 38,276 | $ | 1,727,943 | |||||||||||||||||
Brad G. O’Connor, | 2012 | $ | 308,029 | $ | 50,000 | $ | — | $ | 35,600 | $ | 93,000 | — | $ | 28,303 | $ | 514,932 | |||||||||||||||||
Vice President — Chief Accounting Officer and Corporate Controller | 2011 | $ | 284,523 | — | $ | 965 | $ | 21,195 | $ | 85,680 | — | $ | 27,401 | $ | 419,764 | ||||||||||||||||||
David G. Valiaveedan, | 2012 | $ | 288,821 | $ | 50,000 | $ | — | $ | 26,700 | $ | 72,500 | — | $ | 28,269 | $ | 466,290 | |||||||||||||||||
Vice President — | 2011 | $ | 274,361 | $ | — | $ | 2,413 | $ | 17,663 | $ | 68,850 | — | $ | 27,357 | $ | 390,644 | |||||||||||||||||
Finance and Treasurer | 2010 | $ | 270,000 | $ | — | $ | 221,913 | $ | 42,413 | $ | 67,500 | — | $ | 24,696 | $ | 626,522 |
Name and Principal Position | Year | Salary | Bonus | Stock Awards | Option Awards | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compen- sation | Total | ||||||||||||||||||||||||
Ara K. Hovnanian, | 2014 | 1,092,606 | — | 3,433,500 | — | 1,140,293 | — | 250,220 | 5,916,619 | ||||||||||||||||||||||||
President, Chief Executive | 2013 | 1,092,606 | — | 1,966,692 | 3,084,000 | 2,534,152 | — | 185,619 | 8,863,069 | ||||||||||||||||||||||||
Officer and Chairman of theBoard | 2012 | 1,092,606 | — | — | 1,032,000 | 949,500 | — | 181,582 | 3,255,688 | ||||||||||||||||||||||||
J. Larry Sorsby, | 2014 | 617,885 | — | 686,700 | — | 443,108 | — | 61,698 | 1,809,391 | ||||||||||||||||||||||||
Executive Vice President | 2013 | 600,000 | — | 719,999 | 616,800 | 953,600 | — | 49,897 | 2,940,296 | ||||||||||||||||||||||||
and Chief Financial Officer | 2012 | 600,000 | — | — | 206,400 | 350,000 | — | 50,433 | 1,206,833 | ||||||||||||||||||||||||
Thomas J. Pellerito, | 2014 | 617,885 | — | 457,800 | — | 443,108 | — | 64,150 | 1,582,943 | ||||||||||||||||||||||||
Chief OperatingOfficer | 2013 | 590,385 | — | 719,999 | 411,200 | 890,500 | — | 41,823 | 2,653,907 | ||||||||||||||||||||||||
2012 | 538,462 | — | — | 137,600 | 250,000 | — | 46,406 | 972,468 | |||||||||||||||||||||||||
Brad G. O’Connor, | 2014 | 328,818 | — | — | 61,200 | 197,327 | — | 32,299 | 619,644 | ||||||||||||||||||||||||
Vice President — Chief | 2013 | 317,512 | — | 191,583 | 102,800 | 279,920 | — | 16,626 | 908,441 | ||||||||||||||||||||||||
Accounting Officer and | 2012 | 308,029 | 50,000 | — | 35,600 | 93,000 | — | 28,303 | 514,932 | ||||||||||||||||||||||||
CorporateController | |||||||||||||||||||||||||||||||||
David G. Valiaveedan, | 2014 | 307,603 | — | — | 61,200 | 153,831 | — | 28,072 | 550,706 | ||||||||||||||||||||||||
Vice President — Finance | 2013 | 297,027 | — | 179,222 | 77,100 | 234,535 | — | 16,622 | 804,506 | ||||||||||||||||||||||||
and Treasurer | 2012 | 288,821 | 50,000 | — | 26,700 | 72,500 | — | 28,269 | 466,290 |
(1) | “Salary” Column |
(2) |
|
(3) |
|
(4) |
|
(5) | “Non-Equity Incentive Plan Compensation” Column. This column represents the |
(6) | “All Other Compensation” Column. This column discloses all other compensation for the fiscal year indicated, including reportable perquisites and other personal benefits. |
For fiscal 2012,2014, total perquisites and other personal benefits, and those that exceeded the greater of $25,000 or 10% of total perquisites and other personal benefits for each NEO, were as follows:
Fiscal 2012 Perquisites (Supplemental Table) | |||||||||||||||||
Total Perquisites and Description | Fiscal 2012 Perquisites that Exceeded the Greater of $25,000 or 10% of Total Perquisites | ||||||||||||||||
Name | Total Fiscal 2012 Perquisites | Types of Perquisites (a) | Personal Use of Company’s Fractional Aircraft Share | Personal Use of Company’s Automobiles (c) | Personal Income Tax Preparation (d) | ||||||||||||
Ara K. Hovnanian | $ | 180,230 | (1) (2) (4) (5) (6) (7) (8) | (b) | $ | 86,658 | $ | 30,843 | |||||||||
J. Larry Sorsby | $ | 49,081 | (3) (4) (5) | N/A | N/A | N/A | |||||||||||
Thomas J. Pellerito | $ | 45,054 | (3) (4) (5) | N/A | N/A | N/A | |||||||||||
Brad G. O’Connor | $ | 26,954 | (3) (4) (5) | N/A | N/A | N/A | |||||||||||
David G. Valiaveedan | $ | 26,934 | (3) (4) (5) | N/A | N/A | N/A |
|
| Total Perquisites and Description |
| Fiscal 2014 Perquisites that Exceeded the Greater of $25,000 or 10% of Total Perquisites | |||||||||||
Name |
| Total Fiscal 2014 Perquisites |
| Types of Perquisites |
| Personal Use of the Company’s Fractional Aircraft Share ($) (b) |
|
| Personal Use of Company’s Automobiles | Personal Income Tax Preparation | |||||
Ara K. Hovnanian |
| 207,264 |
| (1) (2) (4) (5) (6) (7) |
| 59,211 |
|
| 103,084 | 25,056 | |||||
J. Larry Sorsby |
| 33,932 |
| (3) (4) (5) |
| N/A |
|
| N/A | N/A | |||||
Thomas J. Pellerito |
| 35,705 |
| (3) (4) (5) |
| N/A |
|
| N/A | N/A | |||||
Brad G. O’Connor |
| 14,527 |
| (3) (4) (5) |
| N/A |
|
| N/A | N/A | |||||
David G. Valiaveedan |
| 14,527 |
| (3) (4) (5) |
| N/A |
|
| N/A | N/A |
(a) | (1) Personal use of the Company’s fractional aircraft share; (2) Personal use of the Company’s automobiles; (3) |
(b) | The incremental costs of |
(c) | The incremental costs of personal use of the Company’s automobiles are calculated as the allocable share of all costs of the automobiles for the fiscal year (including depreciation and, for the CEO, the Company's driver's salary and benefits) based upon the percentage of total miles driven during the fiscal year represented by personal trips. |
(d) | Reflects the Company’s reimbursement of actual tax preparation expenses incurred by Mr. Hovnanian. |
In addition to the perquisites and other personal benefits listed above, the NEOs received the following other compensation in fiscal 2012:
Fiscal 20122014 All Other Compensation Other Than Perquisites (Supplemental Table)
Name | Term Life Insurance Premiums | Company Contributions to the Executive’s Retirement Plan (401(k)) (a) | Company Contributions to the Executive Deferred Compensation Plan (“EDCP”) | ||||||
Ara K. Hovnanian | $427 | $925 | — | ||||||
J. Larry Sorsby | $427 | $925 | — | ||||||
Thomas J. Pellerito | $427 | $925 | — | ||||||
Brad G. O’Connor | $423 | $925 | — | ||||||
David G. Valiaveedan | $410 | $925 | — |
Name | Term Life Insurance Premiums | Company Contributions to the Executive’s Retirement Plan (401(k)) | Company Contributions to the Executive Deferred Compensation Plan (EDCP) |
Ara K. Hovnanian | 1,713 | 15,600 | 25,643 |
J. Larry Sorsby | 1,713 | 15,600 | 10,453 |
Thomas J. Pellerito | 2,267 | 15,600 | 10,578 |
Brad G. O’Connor | 708 | 15,600 | 1,464 |
David G. Valiaveedan | 860 | 11,541 | 1,144 |
(a) | Beginning with the |
(7) | “Total” Compensation Column.This column reflects the sum of all the columns other than the Change in Pension Value and Nonqualified Deferred Compensation Earnings column (the Salary, Bonus, Stock Awards, Option Awards, Non-Equity Incentive Plan Compensation |
Fiscal |
The table below is intended to provide additional, supplemental compensation disclosure and not as a replacement for the Summary Compensation Table.
Fiscal 20122014 Total Compensation (Supplemental Table)
Name | Fiscal 2012 Salary | Cash Awards of Fiscal 2012 Bonus | Stock Awards (a) | Intrinsic Expense Value of Outstanding Options in Fiscal 2012 (b) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation in Fiscal 2012 | Total of All Columns of Supplemental Table | |||||||||||||||||||||
Ara K. Hovnanian | $ | 1,092,606 | $ | 949,500 | — | — | — | $ | 181,582 | $ | 2,223,688 | |||||||||||||||||
J. Larry Sorsby | $ | 600,000 | $ | 350,000 | — | — | — | $ | 50,433 | $ | 1,000,433 | |||||||||||||||||
Thomas J. Pellerito | $ | 538,462 | $ | 250,000 | $ | 1,851 | — | — | $ | 46,406 | $ | 836,719 | ||||||||||||||||
Brad G. O’Connor | $ | 308,029 | $ | 143,000 | $ | 5,083 | — | — | $ | 28,303 | $ | 484,415 | ||||||||||||||||
David G. Valiaveedan | $ | 288,821 | $ | 122,500 | $ | 5,180 | — | — | $ | 28,269 | $ | 444,770 |
Name | Fiscal 2014 Salary | Fiscal 2014 Cash Bonus | Fiscal 2014 Stock Vested (excluding LTIP) | Intrinsic Value of Options Granted in Fiscal 2014 | 2010 LTIP Stock Realized | Change in Pension Value and Nonqualified Deferred Compensation Earnings | Fiscal 2014 All Other Compensation | Total of All Columns of Supplemental Table | ||||||||||||||||||||||||||||
Ara K. Hovnanian | 1,092,606 | 1,140,293 | 14,313 | N/A | 1,217,029 | — | 250,220 | 3,714,461 | ||||||||||||||||||||||||||||
J. Larry Sorsby | 617,885 | 443,108 | 2,863 | N/A | 445,552 | — | 61,698 | 1,571,106 | ||||||||||||||||||||||||||||
Thomas J. Pellerito | 617,885 | 443,108 | 1,910 | N/A | 371,292 | — | 64,150 | 1,498,345 | ||||||||||||||||||||||||||||
Brad G. O’Connor | 328,818 | 197,327 | 573 | — | 103,964 | — | 32,299 | 662,981 | ||||||||||||||||||||||||||||
David G. Valiaveedan | 307,603 | 153,831 | 4,445 | — | 100,249 | — | 28,072 | 594,200 |
(a) | “Fiscal 2014 Stock |
(b) | ||
The “Intrinsic |
(c) | Reflects the stock portion of the 2010 LTIP awards that were realized in fiscal |
2. GRANTS OF PLAN-BASED AWARDS IN FISCAL 2012
The following table summarizes both:
(1) The potential equity and non-equity incentive plan awards that could have been or could be earned by each of the NEOs at the defined levels of “Threshold,” “Target” and “Maximum” based on the performance-based awards granted to the NEOs in fiscal 2012;2014; and
(2) All other plan-based awards, such as stock options and non-performance-based RSUs, granted in fiscal 2012.
Each of the following columns is described in the footnotes below the table.
Grants of Plan-Based Awards in Fiscal 2012
Grant | Estimated Possible Payouts Under Non-Equity Incentive Plan Awards | Estimated Future Payouts Under Equity Incentive Plan Awards (#) | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options (#) | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | ||||||||||||||||||||||||||||||||||
Name | Date | Threshold | Target | Maximum | Threshold | Target | Maximum | (#) | (4) | (5) | (6) | |||||||||||||||||||||||||||||
Ara K. | (1) | $0 | — | $949,500 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
Hovnanian | 02/10/2012 | (2) | 0 | 337,500 | 337,500 | $1.93 | $0 | |||||||||||||||||||||||||||||||||
06/08/2012 | (3) | 600,000 | $2.88 | $1,032,000 | ||||||||||||||||||||||||||||||||||||
J. Larry | (1) | $0 | $350,000 | $350,000 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
Sorsby | 02/10/2012 | (2) | 0 | 67,500 | 67,500 | $1.93 | $0 | |||||||||||||||||||||||||||||||||
06/08/2012 | (3) | 120,000 | $2.88 | $206,400 | ||||||||||||||||||||||||||||||||||||
Thomas J. | (1) | $0 | $225,000 | $350,000 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
Pellerito | 06/08/2012 | (3) | 80,000 | $2.88 | $137,600 | |||||||||||||||||||||||||||||||||||
Brad G. | (1) | $62,000 | $93,000 | $93,000 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
O’Connor | 06/08/2012 | (3) | 20,000 | $2.16 | $35,600 | |||||||||||||||||||||||||||||||||||
David G. | (1) | $72,500 | $72,500 | $72,500 | N/A | N/A | N/A | N/A | ||||||||||||||||||||||||||||||||
Valiaveedan | 06/08/2012 | (3) | 15,000 | $2.16 | $26,700 |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards ($) | Estimated Future Payouts Under Equity Incentive Plan Awards (#) | All Other Stock Awards: Number of Shares of Stock or Units | All Other Option Awards: Number of Securities Underlying Options | Exercise or Base Price of Option Awards ($/Sh) | Grant Date Fair Value of Stock and Option Awards | |||||||||
Name | GrantDate |
| Threshold | Target | Maximum | Threshold | Target | Maximum | (#) | (#) (5) | (6) | ($) (7) | ||
Ara K. | (1) | 0 | — | 2,500,000 | N/A | N/A | N/A |
| ||||||
Hovnanian | 6/13/2014 | (2) | 150,000 | 300,000 | 525,000 | 1,705,500 | ||||||||
6/13/2014 | (3) | 0 | 300,000 | 525,000 | 1,728,000 | |||||||||
J. Larry | (1) | 0 | 950,000 | 950,000 | N/A | N/A | N/A |
| ||||||
Sorsby | 6/13/2014 | (2) |
|
|
| 30,000 | 60,000 | 105,000 |
| 341,100 | ||||
6/13/2014 | (3) | 0 | 60,000 | 105,000 | 345,600 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||
Thomas J. | (1) | 0 | 525,000 | 950,000 | N/A | N/A | N/A |
| ||||||
Pellerito | 6/13/2014 | (2) |
|
|
| 20,000 | 40,000 | 70,000 |
| 227,400 | ||||
6/13/2014 | (3) | 0 | 40,000 | 70,000 | 230,400 | |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Brad G. | (1) | 65,776 | 197,327 | 197,327 | N/A | N/A | N/A |
| ||||||
O’Connor | 6/13/2014 | (4) |
|
|
|
| 20,000 | 4.41 | 61,200 | |||||
David G. | (1) | 76,915 | 153,831 | 153,831 | N/A | N/A | N/A |
| ||||||
Valiaveedan | 6/13/2014 | (4) |
|
|
|
| 20,000 | 4.41 | 61,200 |
(1) | Regular Bonuses for CEO and CFO. As stated above under “Regular Bonuses” in the Compensation Discussion and Analysis, the fiscal For purposes of the above table presentation, bonuses earned at the “target” levels for the CEO and the CFO would be equal to the greater of (a) the ROACE calculation method assuming a “target” ROACE percentage of 15% in accordance with the respective bonus formula tables |
The maximum cash bonuses that could be earned by Messrs. Hovnanian and Sorsby for fiscal Regular Bonus for COO. As For purposes of the above table presentation, the bonus earned at the “target” level for the COO would be the amount that could be earned under the $525,000. This is based on a 20% change in Pre-tax Profit between fiscal 2013 and fiscal 2014, which would earn $425,000, plus $100,000 earned for three quarter-ends at or above the target liquidity amount under the Liquidity measure. The maximum cash bonus that could be earned by Mr. Pellerito for fiscal capped at $950,000. Regular Bonuses for the Vice President — Chief Accounting Officer and Corporate Controller and the Vice President — Finance and Treasurer. As stated above under “Regular Bonuses” of the Compensation Discussion and Analysis, the fiscal For purposes of the above table presentation, the “threshold” level is defined as when the ROACE percentage For purposes of for Messrs. O’Connor and Valiaveedan, respectively, would result in bonuses of $197,327 and $153,831, respectively. For purposes of this table presentation, the “maximum” level is defined as when the Company achieves positive Pre-tax Profit and when the maximum award earned under the ROACE calculation method and the maximum award if all or an “outstanding” percentage of the personal objectives established for Messrs. O’Connor and Valiaveedan at the beginning of the fiscal year are achieved. The maximum bonus payable under the ROACE calculation is capped at a 20% ROACE level for Messrs. O’Connor and Valiaveedan. Since the payouts based on the maximum level would exceed |
(2) | MSU Awards Not Subject to Financial Performance Conditions.Represents the portion ofthe MSU awards for Messrs. Hovnanian, Sorsby and Pellerito that is not subject to performance conditions in addition to the stock price performance condition applicable to all MSU awards.Mr.Hovnanian’sMSUaward was granted in the form of rights to receive shares of Class B Common Stock and theMSU awards forMessrs. Sorsby and Pellerito were granted in the form of rights to receive shares of Class A Common Stock. For purposes of the above table presentation, the “threshold” level is defined asthe level at |
(3) | Financial Performance-BasedMSU Awards.Represents the portion ofthe MSU awards for Messrs. Hovnanian, Sorsby and Pellerito that is subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSU awards.Mr.Hovnanian’sMSU award was granted in the form of rights to receive shares of Class B Common Stock and theMSU awards forMessrs. Sorsby and Pellerito were granted in the form of rights to receive shares of Class A Common Stock. For purposes of the above table presentation, the “threshold” level is defined as when fiscal 2016 total revenue growth compared to fiscal 2014 total revenue is 0% andthe average closing trading price of the Company’sClass A Common Stock on theNYSE over the 60 calendar day period ending on the vesting date is equal to 50% of the average closing trading price of the Company’s Class A Common Stock on the NYSE over the 60 calendar day period ending on the grant date.The “target” level is defined as when fiscal 2016 total revenue growth compared to fiscal 2014 total revenue is 12.5% andthe average closing trading price of the Company’sClass A Common Stock on theNYSE over the 60 calendar day period ending onthe vesting date is equal to the average closing trading price of the Company’s Class A Common Stock on the NYSE over the 60 calendar day period ending on the grant date.The “maximum” level is defined as whenfiscal 2016 total revenue growth compared to fiscal 2014 total revenue is 25% or greater andthe average closing trading price of the Company’sClass A Common Stock on theNYSE over the 60 calendar day period ending on the vesting date is greater than or equal to 175% of the average closing trading price of the Company’s Class A Common Stock on the NYSE over the 60 calendar day period ending on the grant date. Because payout calculations of the “threshold” level would be |
(4) | Stock Option Awards.These rows represent the number of stock options |
(5) | “All Other Option Awards: Number of Securities Underlying Options” Column. This column discloses the number of stock options (not tied to any financial or personal objectives performance measure) awarded to an NEO in fiscal |
(6) | “Exercise or Base Price of Option Awards” Column. |
(7) | “Grant Date Fair Value of Stock and Option Awards” Column.The grant date fair value of the stock option grants was computed in accordance with FASB ASC Topic 718. Assumptions used in the calculation of these amounts are set forth in Footnotes 3 and |
3. OUTSTANDING EQUITY AWARDS AT FISCAL 20122014 YEAR-END
The following table shows all unexercised stock options, unvested deferred shares, unvested RSUs, unearned and unvested restricted stock unitsMSUs, unvested share portions of the 2010 LTIP and unearned and unvested share portions of the 2013 LTIP held at the end of fiscal 20122014 by the NEOs.
Outstanding Equity Awards at Fiscal 20122014 Year-End
OPTION AWARDS | STOCK AWARDS | |||||||||||||||||||||||||||||||||||||
Name | Grant Date (1) | Number of Securities Underlying Unexercised Options # Exercisable | Number of Securities Underlying Unexercised Options # Unexercisable | Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options # | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that have not vested (#) | Market Value of Shares or Units of Stock that have not vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares or other Rights that have not vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or other Rights that have not vested ($) | ||||||||||||||||||||||||||||
Ara Hovnanian (4) | 06/13/08 | 281,250 | 93,750 | — | $ | 6.46 | 06/12/18 | — | $ | — | — | $ | — | |||||||||||||||||||||||||
06/12/09 | 375,000 | (2 | ) | 375,000 | (2 | ) | — | $ | 2.55 | 06/11/19 | — | $ | — | — | $ | — | ||||||||||||||||||||||
06/11/10 | 93,750 | 281,250 | — | $ | 4.73 | 06/10/20 | — | $ | — | 1,385,970 | (3 | ) | $ | 5,959,671 | (3 | ) | ||||||||||||||||||||||
06/10/11 | — | — | 337,500 | (5 | ) | $ | 1.93 | 06/09/21 | — | $ | — | 12,500 | (5 | ) | $ | 53,750 | ||||||||||||||||||||||
06/08/12 | — | 600,000 | — | $ | 2.88 | 06/07/22 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
J. Larry Sorsby (4) | 06/13/08 | 56,250 | 18,750 | — | $ | 6.46 | 06/12/18 | — | $ | — | — | $ | — | |||||||||||||||||||||||||
06/12/09 | 75,000 | (2 | ) | 75,000 | (2 | ) | — | $ | 2.55 | 06/11/19 | — | $ | — | — | $ | — | ||||||||||||||||||||||
06/11/10 | 18,750 | 56,250 | — | $ | 4.73 | 06/10/20 | — | $ | — | 507,400 | (3 | ) | $ | 2,181,820 | (3 | ) | ||||||||||||||||||||||
06/10/11 | — | — | 67,500 | (5 | ) | $ | 1.93 | 06/09/21 | — | $ | — | 2,500 | (5 | ) | $ | 10,750 | ||||||||||||||||||||||
06/08/12 | — | 120,000 | — | $ | 2.88 | 06/07/22 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
Thomas J. Pellerito | 01/23/03 | 20,000 | — | — | $ | 15.95 | 01/22/13 | — | $ | — | — | $ | — | |||||||||||||||||||||||||
06/13/08 | 10,000 | — | — | $ | 6.46 | 06/12/18 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
06/12/09 | 35,000 | — | — | $ | 2.55 | 06/11/19 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
06/11/10 | 50,000 | — | — | $ | 4.73 | 06/10/20 | — | $ | — | 422,833 | (3 | ) | $ | 1,818,182 | (3 | ) | ||||||||||||||||||||||
06/10/11 | 45,000 | — | — | $ | 1.93 | 06/09/21 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
06/08/12 | 80,000 | — | — | $ | 2.88 | 06/07/22 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
Brad G. O’Connor | 06/13/08 | 11,250 | 3,750 | — | $ | 6.46 | 06/12/18 | — | $ | — | — | $ | — | |||||||||||||||||||||||||
10/31/08 | — | — | — | $ | — | — | — | $ | — | 2,621 | $ | 11,270 | ||||||||||||||||||||||||||
06/12/09 | 12,500 | 12,500 | — | $ | 2.55 | 06/11/19 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
06/11/10 | 3,750 | 11,250 | — | $ | 4.73 | 06/10/20 | — | $ | — | 118,393 | (3 | ) | $ | 509,090 | (3 | ) | ||||||||||||||||||||||
06/10/11 | — | 13,500 | — | $ | 1.93 | 06/09/21 | 500 | $ | 2,150 | — | $ | — | ||||||||||||||||||||||||||
06/08/12 | — | 20,000 | — | $ | 2.16 | 06/07/22 | — | $ | — | — | $ | — | ||||||||||||||||||||||||||
David G. Valiaveedan | 06/13/08 | 5,625 | 1,875 | — | $ | 6.46 | 06/12/18 | 206 | $ | 886 | — | $ | — | |||||||||||||||||||||||||
10/31/08 | — | — | — | $ | — | — | — | $ | — | 1,844 | $ | 7,929 | ||||||||||||||||||||||||||
06/12/09 | 6,564 | 6,561 | — | $ | 2.55 | 06/11/19 | 728 | $ | 3,130 | — | $ | — | ||||||||||||||||||||||||||
06/11/10 | 2,813 | 8,437 | — | $ | 4.73 | 06/10/20 | 937 | $ | 4,029 | 114,165 | (3 | ) | $ | 490,910 | (3 | ) | ||||||||||||||||||||||
06/10/11 | — | 11,250 | — | $ | 1.93 | 06/09/21 | 1,250 | $ | 5,375 | — | $ | — | ||||||||||||||||||||||||||
06/08/12 | — | 15,000 | — | $ | 2.16 | 06/07/22 | — | $ | — | — | $ | — |
|
|
| OPTION AWARDS |
|
| STOCK AWARDS |
| ||||||||||||||||||||||||
Name | Grant Date (1) |
| Number of Securities Underlying Unexercised Options Exercisable |
|
| Number of Securities Underlying Unexercised Options Unexercisable |
|
| Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options |
|
| Option Exercise Price |
|
| Option Expiration Date |
|
| Number of Shares or Units of Stock that have not vested |
|
| Market Value of Shares or Units of Stock that have not vested |
|
| Equity Incentive Plan Awards: Number of Unearned Shares or other Rights that have not vested |
|
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares or other Rights that have not vested |
| |||
Ara | 06/13/08 |
| 375,000 |
|
| — |
|
| — |
|
| 6.46 |
|
| 06/12/18 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
Hovnanian | 06/12/09 |
| 750,000 | (2) |
|
| — |
|
| — |
|
| 2.55 |
|
| 06/11/19 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||
| 06/11/10 |
| 281,250 |
|
| 93,750 |
|
| — |
|
| 4.73 |
|
| 06/10/20 |
|
| 215,784 | (3) |
| 811,348 | (3) |
| — |
|
| — |
| |||
| 06/10/11 |
| 168,750 | (4) |
|
| 168,750 |
|
| — |
|
| 1.93 |
|
| 06/09/21 |
|
| 6,250 | (4) |
| 23,500 |
|
| — |
|
| — |
| ||
| 06/08/12 |
| 150,000 |
|
| 450,000 |
|
| — |
|
| 2.88 |
|
| 06/07/22 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 03/11/13 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 331,093 | (5) |
| 1,244,910 | (5) | |||
| 06/14/13 |
| — |
|
| 300,000 |
|
| 300,000 | (6) |
|
| 6.28 |
|
| 06/13/23 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||
06/13/14 | — | — | — | — | — | — | — | 300,000 | (7) | 1,128,000 | (7) | ||||||||||||||||||||
06/13/14 | — | — | — | — | — | — | — | 0 | (8) | 0 | (8) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
J. Larry | 06/13/08 |
| 75,000 |
|
| — |
|
| — |
|
| 6.46 |
|
| 06/12/18 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
Sorsby | 06/12/09 |
| 150,000 | (2) |
|
| — |
|
| — |
|
| 2.55 |
|
| 06/11/19 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||
| 06/11/10 |
| 75,000 |
|
| — |
|
| — |
|
| 4.73 |
|
| 06/10/20 |
|
| — | (3) |
| — | (3) |
| — |
|
| — |
| |||
| 06/10/11 |
| 67,500 | (4) |
|
| — |
|
| — |
|
| 1.93 |
|
| 06/09/21 |
|
| 1,250 | (4) |
| 4,700 |
|
| — |
|
| — |
| ||
| 06/08/12 |
| 120,000 |
|
| — |
|
| — |
|
| 2.88 |
|
| 06/07/22 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 03/11/13 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 121,212 | (5) |
| 455,757 | (5) | |||
| 06/14/13 |
| 60,000 |
|
| — |
|
| 60,000 | (6) |
|
| 6.28 |
|
| 06/13/23 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||
06/13/14 | — | — | — | — | — | — | — | 60,000 | (7) | 225,600 | (7) | ||||||||||||||||||||
06/13/14 | — | — | — | — | — | — | — | 0 | (8) | 0 | (8) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Thomas J. | 06/13/08 |
| 10,000 |
|
| — |
|
| — |
|
| 6.46 |
|
| 06/12/18 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
Pellerito | 06/12/09 |
| 35,000 |
|
| — |
|
| — |
|
| 2.55 |
|
| 06/11/19 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 06/11/10 |
| 50,000 |
|
| — |
|
| — |
|
| 4.73 |
|
| 06/10/20 |
|
| — | (3) |
| — | (3) |
| — |
|
| — |
| |||
| 06/10/11 |
| 45,000 |
|
| — |
|
| — |
|
| 1.93 |
|
| 06/09/21 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 06/08/12 |
| 80,000 |
|
| — |
|
| — |
|
| 2.88 |
|
| 06/07/22 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 03/11/13 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 121,212 | (5) |
| 455,757 | (5) | |||
| 06/14/13 |
| 40,000 |
|
| — |
|
| 40,000 | (6) |
|
| 6.28 |
|
| 06/13/23 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||
06/13/14 | — | — | — | — | — | — | — | 40,000 | (7) | 150,400 | (7) | ||||||||||||||||||||
06/13/14 | — | — | — | — | — | — | — | 0 | (8) | 0 | (8) | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Brad G. | 06/13/08 |
| 15,000 |
|
| — |
|
| — |
|
| 6.46 |
|
| 06/12/18 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
O’Connor | 06/12/09 |
| 25,000 |
|
| — |
|
| — |
|
| 2.55 |
|
| 06/11/19 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 06/11/10 |
| 11,250 |
|
| 3,750 |
|
| — |
|
| 4.73 |
|
| 06/10/20 |
|
| 18,432 | (3) |
| 69,304 | (3) |
| — |
|
| — |
| |||
| 06/10/11 |
| 6,750 |
|
| 6,750 |
|
| — |
|
| 1.93 |
|
| 06/09/21 |
|
| 250 |
|
| 940 |
|
| — |
|
| — |
| |||
| 06/08/12 |
| 5,000 |
|
| 15,000 |
|
| — |
|
| 2.16 |
|
| 06/07/22 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 03/11/13 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 32,253 | (5) |
| 121,271 | (5) | |||
| 06/14/13 |
| — |
|
| 20,000 |
|
| — |
|
| 6.28 |
|
| 06/13/23 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
06/13/14 | — | 20,000 | — | 4.41 | 06/12/24 | — | — | — | — | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
David G. | 06/13/08 |
| 7,500 |
|
| — |
|
| — |
|
| 6.46 |
|
| 06/12/18 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
Valiaveedan | 06/12/09 |
| 13,125 |
|
| — |
|
| — |
|
| 2.55 |
|
| 06/11/19 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 06/11/10 |
| 8,439 |
|
| 2,811 |
|
| — |
|
| 4.73 |
|
| 06/10/20 |
|
| 18,085 | (3) |
| 68,000 | (3) |
| — |
|
| — |
| |||
| 06/10/11 |
| 5,626 |
|
| 5,624 |
|
| — |
|
| 1.93 |
|
| 06/09/21 |
|
| 624 |
|
| 2,346 |
|
| — |
|
| — |
| |||
| 06/08/12 |
| 3,750 |
|
| 11,250 |
|
| — |
|
| 2.16 |
|
| 06/07/22 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
| 03/11/13 |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 30,172 | (5) |
| 113,447 | (5) | |||
| 06/14/13 |
| — |
|
| 15,000 |
|
| — |
|
| 6.28 |
|
| 06/13/23 |
|
| — |
|
| — |
|
| — |
|
| — |
| |||
06/13/14 | — | 20,000 | — | 4.41 | 06/12/24 | — | — | — | — |
(1) | The options represented in the table (except as discussed in footnotes (2), (4) and |
(2) | Included in these numbers are 375,000 and 75,000 performance-based options for Mr. Hovnanian and Mr. Sorsby, respectively (50% of the options reflected |
(3) | Represents the number and value of shares underlying the share portion of the 2010 LTIP awards granted on June 11, |
(4) |
In February 2012, these awards were amended to require that, as a condition of vesting, the Company’s Adjusted EBITDA must exceed “fiscal 2011 actual EBITDA” for two consecutive fiscal years, in the case of options, during the option term and, in the case of RSUs, prior to the tenth anniversary of the grant date. Regardless of when the performance criteria are met, vesting will not occur sooner than 25% per year beginning on the second anniversary of the grant date. For this purpose, “fiscal 2011 actual EBITDA” is defined as the |
(5) | Represents the number and value of the shares underlying the share portion of the 2013 LTIP awards granted on March 11, 2013. Because performance through the end of fiscal 2014 was between the threshold and target levels, the number and value of shares underlying the awards are based on target performance. |
(6) | In fiscal 2013, the Committee determined that 50% of the stock options granted in June 2013 to the CEO, CFO and COO would be subject to performance conditions. These performance-based options vest in four equal annual installments, commencing on the second anniversary date of the grant, except that no portion of the award will vest unless the Committee determines that the Company achieved $100 million in pre-tax profit in at least one of fiscal 2014, fiscal 2015 or fiscal 2016. For this purpose, “pre-tax profit” is defined as earnings (losses) before income tax expense as reflected on our audited financial statements, excluding the impact of any items deemed by the Committee to be extraordinary items (for example, losses from land impairments and losses from debt repurchases/debt retirement such as call premiums, above par purchase prices and related issuance costs or gains from debt repurchases). As of the end of fiscal 2014, the performance criteria had not been met. |
(7) | Represents the number and value of the shares underlying the portion of the MSU awards granted on June 13, 2014 that is not subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSU awards. Based onthe average closing trading price of the Company’sClass A Common Stock on theNYSE over the 60 calendar day period ending on October 31, 2014, stock price performance was between the threshold and target levels, therefore the number and value of shares underlying the awards are based on target stock price performance. |
(8) | Represents the number and value of the shares underlying the MSU awards granted on June 13, 2014 that is subject to financial performance conditions in addition to the stock price performance conditions applicable to all MSU awards. Because the performance period will commence on November 1, 2015, which is after the date of this table, the number and value of shares underlying the awards are based on threshold performance. At threshold performance, no shares would be paid out to the NEOs. |
The following table shows the total value of all unexercised stock options (exercisable and unexercisable) that each of the NEOs held at the end of fiscal 2012:
Value of Outstanding Option Awards at Fiscal 20122014 Year-End (Supplemental Table)
Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable (#) | Value of Unexercised In The Money Options Exercisable ($) (a) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Value of Unexercised In The Money Options Unexercisable ($) (a) | ||||||||||||
Ara Hovnanian | 06/13/08 | 281,250 | $ | 0 | 93,750 | $ | 0 | ||||||||||
06/12/09 | 375,000 | $ | 656,250 | 375,000 | $ | 656,250 | |||||||||||
06/11/10 | 93,750 | $ | 0 | 281,250 | $ | 0 | |||||||||||
06/10/11 | — | $ | 0 | 337,500 | $ | 799,875 | |||||||||||
06/08/12 | — | $ | 0 | 600,000 | $ | 852,000 | |||||||||||
J. Larry Sorsby | 06/13/08 | 56,250 | $ | 0 | 18,750 | $ | 0 | ||||||||||
06/12/09 | 75,000 | $ | 131,250 | 75,000 | $ | 131,250 | |||||||||||
06/11/10 | 18,750 | $ | 0 | 56,250 | $ | 0 | |||||||||||
06/10/11 | — | $ | 0 | 67,500 | $ | 159,975 | |||||||||||
06/08/12 | — | $ | 0 | 120,000 | $ | 170,400 | |||||||||||
Thomas J. Pellerito | 01/23/03 | 20,000 | $ | 0 | — | $ | 0 | ||||||||||
06/13/08 | 10,000 | $ | 0 | — | $ | 0 | |||||||||||
06/12/09 | 35,000 | $ | 61,250 | — | $ | 0 | |||||||||||
06/11/10 | 50,000 | $ | 0 | — | $ | 0 | |||||||||||
06/10/11 | 45,000 | $ | 106,650 | — | $ | 0 | |||||||||||
06/08/12 | 80,000 | $ | 113,600 | — | $ | 0 | |||||||||||
Brad G. O’Connor | 06/13/08 | 11,250 | $ | 0 | 3,750 | $ | 0 | ||||||||||
06/12/09 | 12,500 | $ | 21,875 | 12,500 | $ | 21,875 | |||||||||||
06/11/10 | 3,750 | $ | 0 | 11,250 | $ | 0 | |||||||||||
06/10/11 | — | $ | 0 | 13,500 | $ | 31,995 | |||||||||||
06/08/12 | — | $ | 0 | 20,000 | $ | 42,800 | |||||||||||
David G. Valiaveedan | 06/13/08 | 5,625 | $ | 0 | 1,875 | $ | 0 | ||||||||||
06/12/09 | 6,564 | $ | 11,487 | 6,561 | $ | 11,482 | |||||||||||
06/11/10 | 2,813 | $ | 0 | 8,437 | $ | 0 | |||||||||||
06/10/11 | — | $ | 0 | 11,250 | $ | 26,663 | |||||||||||
06/08/12 | — | $ | 0 | 15,000 | $ | 32,100 |
Name | Grant Date |
| Number of Securities Underlying Unexercised Options Exercisable |
|
| Value of Unexercised In The Money Options Exercisable ($) (a) |
|
| Number of Securities Underlying Unexercised Options Unexercisable |
|
| Value of Unexercised In The Money Options Unexercisable |
|
Ara Hovnanian | 06/13/08 |
| 375,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/12/09 |
| 750,000 |
|
| 907,500 |
|
| — |
|
| — |
|
| 06/11/10 |
| 281,250 |
|
| 0 |
|
| 93,750 |
|
| 0 |
|
| 06/10/11 |
| 168,750 |
|
| 308,813 |
|
| 168,750 |
|
| 308,813 |
|
| 06/08/12 |
| 150,000 |
|
| 132,000 |
|
| 450,000 |
|
| 396,000 |
|
| 06/14/13 |
| — |
|
| — |
|
| 600,000 |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
J. Larry Sorsby | 06/13/08 |
| 75,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/12/09 |
| 150,000 |
|
| 181,500 |
|
| — |
|
| — |
|
| 06/11/10 |
| 75,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/10/11 |
| 67,500 |
|
| 123,525 |
|
| — |
|
| — |
|
| 06/08/12 |
| 120,000 |
|
| 105,600 |
|
| — |
|
| — |
|
| 06/14/13 |
| 60,000 |
|
| 0 |
|
| 60,000 |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Thomas J. Pellerito | 06/13/08 |
| 10,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/12/09 |
| 35,000 |
|
| 42,350 |
|
| — |
|
| — |
|
| 06/11/10 |
| 50,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/10/11 |
| 45,000 |
|
| 82,350 |
|
| — |
|
| — |
|
| 06/08/12 |
| 80,000 |
|
| 70,400 |
|
| — |
|
| — |
|
| 06/14/13 |
| 40,000 |
|
| 0 |
|
| 40,000 |
|
| 0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Brad G. O’Connor | 06/13/08 |
| 15,000 |
|
| 0 |
|
| — |
|
| — |
|
| 06/12/09 |
| 25,000 |
|
| 30,250 |
|
| — |
|
| — |
|
| 06/11/10 |
| 11,250 |
|
| 0 |
|
| 3,750 |
|
| 0 |
|
| 06/10/11 |
| 6,750 |
|
| 12,353 |
|
| 6,750 |
|
| 12,353 |
|
| 06/08/12 |
| 5,000 |
|
| 8,000 |
|
| 15,000 |
|
| 24,000 |
|
| 06/14/13 |
| — |
|
| — |
|
| 20,000 |
|
| 0 |
|
06/13/14 | — | — | 20,000 | 0 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| |
David G. Valiaveedan | 06/13/08 |
| 7,500 |
|
| 0 |
|
| — |
|
| — |
|
| 06/12/09 |
| 13,125 |
|
| 15,881 |
|
| — |
|
| — |
|
| 06/11/10 |
| 8,439 |
|
| 0 |
|
| 2,811 |
|
| 0 |
|
| 06/10/11 |
| 5,626 |
|
| 10,296 |
|
| 5,624 |
|
| 10,292 |
|
| 06/08/12 |
| 3,750 |
|
| 6,000 |
|
| 11,250 |
|
| 18,000 |
|
| 06/14/13 |
| — |
|
| — |
|
| 15,000 |
|
| 0 |
|
06/13/14 | — | — | 20,000 | 0 |
(a) | Based on the difference between the closing |
4. OPTION EXERCISES AND STOCK VESTED IN FISCAL 2012
The following table discloses information with respect to stock options exercised by the NEOs in fiscal 20122014 and stock awards held by them that vested in fiscal 2012:
Option Awards | Stock Awards | |||||||||||||||
Number of Shares Acquired on Exercise | Value Realized on Exercise | Number of Shares Acquired on Vesting | Value Realized on Vesting | |||||||||||||
Name | (#) | ($) | (#) | ($) | ||||||||||||
Ara K. Hovnanian | — | — | — | — | ||||||||||||
J. Larry Sorsby | — | — | — | — | ||||||||||||
Thomas J. Pellerito | — | — | 1,667 | $3,517 | (1) | |||||||||||
Brad G, O’Connor | — | — | 3,779 | $5,083 | (2) | |||||||||||
David G. Valiaveedan | — | — | 3,365 | $5,180 | (2) |
Option Exercises and Stock Vested in Fiscal 2014 |
| |||||||||||||
|
|
|
|
|
|
| ||||||||
|
| Option Awards |
|
| Stock Awards |
| ||||||||
|
| Number of Shares Acquired on Exercise |
|
| Value Realized on Exercise |
|
| Number of Shares Acquired on Vesting |
|
| Value Realized on Vesting |
| ||
Name |
| (#) |
|
| ($) |
|
| (#) |
|
| ($) (1) |
| ||
Ara K. Hovnanian |
| — |
|
| — |
|
| 326,803 |
|
| 1,231,342 | (2) |
| |
J. Larry Sorsby |
| — |
|
| — |
|
| 625 |
|
| 2,863 | (3) |
| |
Thomas J. Pellerito |
| — |
|
| — |
|
| — |
|
| — | |||
Brad G. O’Connor |
| — |
|
| — |
|
| 27,775 |
|
| 104,537 | (4) |
| |
David G. Valiaveedan |
| — |
|
| — |
|
| 27,651 |
|
| 104,694 | (5) |
|
(1) |
Based on the closing |
(2) | Represents 323,678 shares from the 2010 LTIP award and 3,125 shares from June 10, 2011 RSU grant that vested during fiscal 2014. |
(3) | Represents 625 shares from June 10, 2011 RSU grant that vested during fiscal 2014. |
(4) | Represents 27,650 shares from the 2010 LTIP award and 125 shares from June 10, 2011 RSU grant that vested during fiscal 2014. |
(5) | Represents26,662 shares from the 2010 LTIP award and 363, 313 and 313 shares from June 12, 2009, June 11, 2010 and June 10, 2011 RSU grants, respectively, that vested during fiscal 2014. |
5. NONQUALIFIED DEFERRED COMPENSATION FOR FISCAL 2012
The following table provides a summary of the NEOs’ participation in the Company’s nonqualified executive deferred compensation plan (“EDCP”)(EDCP) during fiscal 2012. No deferrals2014. Executives may defer both salary and performance and non-performance based bonus awards under the EDCP were permitted in fiscal 2012. Messrs. O’Connor and Valiaveedan are not eligible to participate in the EDCP. For Mr. Pellerito, theThe table also provides (1) for Mr. Pellerito, information regarding RSUs that were considered to have vested in a prior fiscal year due to his “retirement eligibility” because of age and/or years of service, but upon which the underlying shares of Class A Common Stock have not yet been delivered, and (2) for Messrs. Sorsby and Pellerito, information regarding the share portion of their 2010 LTIP awards that were considered to have vested in fiscal 2014 due to their “retirement eligibility” because of age and/or years of service, but upon which the underlying shares of Class A Common Stock have not yet been delivered.
Nonqualified Deferred Compensation for Fiscal 2012
Name | Executive Contributions in Last Fiscal Year | Registrant Contributions in Last Fiscal Year (1) | Aggregate Earnings in Last Fiscal Year (2) | Aggregate Withdrawals/ Distributions (3) | Aggregate Balance at Last Fiscal Year (4) | |||||||||||||||
Ara K. Hovnanian | $ | — | $ | — | $ | 990,293 | $ | 181,968 | $ | 1,469,486 | ||||||||||
J. Larry Sorsby | $ | — | $ | — | $ | 550,270 | $ | — | $ | 827,329 | ||||||||||
Thomas J. Pellerito | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
$ | — | $ | 3,517 | $ | 6,678 | $ | 1,851 | $ | 10,741 | |||||||||||
Brad G. O’Connor | $ | — | $ | — | $ | — | $ | — | $ | — | ||||||||||
David G. Valiaveedan | $ | — | $ | — | $ | — | $ | — | $ | — |
Name |
| Executive Contributions in Last Fiscal Year ($) |
|
| Registrant Contributions in Last Fiscal Year |
| Aggregate Earningsin Last FiscalYear |
| Aggregate Withdrawals/ Distributions ($) (3) |
| Aggregate Balance at Last FiscalYear |
| ||||
Ara K. Hovnanian |
| — |
|
| 25,643 |
| (443,244) |
| — |
| 1,311,609 |
| ||||
J. Larry Sorsby |
| — |
|
| 10,453 |
| (249,707) |
| — |
| 734,300 |
| ||||
|
| — |
|
| — |
| (67,826) |
| 809,648 |
| 742,581 |
| ||||
Thomas J. Pellerito |
| — |
|
| 10,578 |
| 421 |
| — |
| 10,999 |
| ||||
|
| — |
|
| — |
| (57,805) |
| 676,615 |
| 621,949 |
| ||||
Brad G. O’Connor |
| — |
|
| 1,464 |
| 58 |
| — |
| 1,522 |
| ||||
David G. Valiaveedan |
| — |
|
| 1,144 |
| 45 |
| — |
| 1,189 |
|
(1) | “Registrant Contributions in Last Fiscal Year” Column. This column represents, in the first or only row for each NEO, the Company’s contributions to |
(2) | “Aggregate Earnings in Last Fiscal Year” Column.This column represents, in the first or only row for each NEO, both realized and unrealized earnings/(losses) of the EDCP’s total account balance. For |
(3) | “Aggregate Withdrawals/Distribution” Column.This column represents, in the first or only row for each NEO, the payouts or distributions to the NEOs of vested amounts of deferred compensation pursuant to their elections. For |
(4) | “Aggregate Balance at Last Fiscal Year” Column. This column represents, in the first or only row for each NEO, the net balance of the NEOs’ EDCP accounts based on an aggregation of all sub-accounts (discussed below). The majority of such balances reflects executive and Company contributions that were included in Summary Compensation tables in previous years. For |
Narrative to the Nonqualified Deferred Compensation for Fiscal 20122014 Table
The EDCP’s total account balance is equal to the sum of (1) the “Deferred Share Deferral Account” balance and (2) the “Company Contribution Account” balance. The “Deferred Share Deferral Account” balance includes the value of vested stock awarded under any Company stock incentive plan for which shares may have been deferred under the EDCP. The “Company Contribution Account” balance consists of the annual company “make-whole” contribution amounts under the plan. Upon a termination of employment before retirement, EDCP account balances generally are paid in a lump sum during the 60-day period immediately following the last day of the calendar quarter of termination. Upon a termination of employment due to retirement, EDCP account balances for Messrs. Hovnanian and Sorsby will be paid in a lump sum no earlier than six months after the date of retirement or in installments over 2two to 15 years. In the event of Mr. Sorsby’s or Mr. Pellerito’s termination of employment for any reason, including death, disability or qualified retirement, all undelivered shares of Class A Common Stock underlying their 2010 LTIP awards and, in the case of Mr. Pellerito, his RSUs, that have been considered vested will be delivered.delivered in accordance with the terms of these awards. See footnote (4) to the “Nonqualified Deferred Compensation for Fiscal 2012”2014” table above.
6. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE-IN-CONTROL TABLE
The following table summarizes payments and benefits that would be payable to each of the NEOs in the event of their termination of employment or upon the occurrence of a change-in-control (“triggering event”). For purposes of this table, the effective date of termination is assumed to be October 31, 2012,2014, the last business day of fiscal 2012.2014. The table does not include any payments that are described in the “Nonqualified Deferred Compensation for Fiscal 2012”2014” table above.
Potential Payments Upon Termination Or Change-In-Control Table
Named Executive Officer | Voluntary Termination | Involuntary Termination | Change in Control (5) | |||||||||||||||||||||||||
Form of Compensation | With or Without Good Reason | Normal Retirement | Without Cause | With Cause | Death or Disability | Without Termination | With Involuntary Termination Other Than for Cause or Termination with Good Reason | |||||||||||||||||||||
Ara K. Hovnanian | ||||||||||||||||||||||||||||
Accelerated vesting of annual bonus awards (1) | — | — | $ | 949,500 | — | $ | 949,500 | — | — | |||||||||||||||||||
Accelerated vesting of equity awards (2) | — | — | — | — | $ | 2,361,875 | — | — | ||||||||||||||||||||
Accelerated vesting of LTIP awards (3) | — | — | — | — | $ | 2,634,177 | — | — | ||||||||||||||||||||
Contractual disability/death payment (4) | — | — | — | — | $ | 10,000,000 | — | |||||||||||||||||||||
Cash severance payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Accrued and unpaid vacation (6) | — | — | — | — | — | — | — | |||||||||||||||||||||
Total | — | — | $ | 949,500 | — | $ | 15,945,552 | — | — | |||||||||||||||||||
J. Larry Sorsby | ||||||||||||||||||||||||||||
Accelerated vesting of annual bonus awards (1) | — | — | $ | 350,000 | — | $ | 350,000 | — | — | |||||||||||||||||||
Accelerated vesting of equity awards (2) | — | — | — | — | $ | 472,375 | — | — | ||||||||||||||||||||
Accelerated vesting of LTIP awards (3) | — | — | — | — | $ | 964.370 | — | — | ||||||||||||||||||||
Contractual disability/death payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Cash severance payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Accrued and unpaid vacation (6) | $ | 93,569 | $ | 93,569 | $ | 93,569 | $ | 93,569 | $ | 93,569 | — | $ | 93,569 | |||||||||||||||
Total | $ | 93,569 | $ | 93,569 | $ | 443,569 | $ | 93,569 | $ | 1,880,314 | — | $ | 93,569 | |||||||||||||||
Thomas J. Pellerito | ||||||||||||||||||||||||||||
Accelerated vesting of annual bonus awards (1) | $ | 250,000 | $ | 250,000 | $ | 250,000 | — | $ | 250,000 | — | — | |||||||||||||||||
Accelerated vesting of equity awards (2) | — | — | — | — | — | — | — | |||||||||||||||||||||
Accelerated vesting of LTIP awards (3) | — | — | — | — | $ | 803,640 | — | — | ||||||||||||||||||||
Contractual disability/death payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Cash severance payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Accrued and unpaid vacation (6) | $ | 32,682 | $ | 32,682 | $ | 32,682 | $ | 32,682 | $ | 32,682 | — | $ | 32,682 | |||||||||||||||
Total | $ | 282,682 | $ | 282,682 | $ | 282,682 | $ | 32,682 | $ | 1,086,322 | — | $ | 32,682 | |||||||||||||||
Brad G. O’Connor | ||||||||||||||||||||||||||||
Accelerated vesting of annual bonus awards (1) | — | — | $ | 93,000 | — | $ | 93,000 | — | — | |||||||||||||||||||
Accelerated vesting of equity awards (2) | — | — | — | — | $ | 110,090 | — | $ | 110,090 | |||||||||||||||||||
Accelerated vesting of LTIP awards (3) | — | — | — | — | $ | 225,023 | — | — | ||||||||||||||||||||
Contractual disability/death payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Cash severance payment | — | — | — | — | — | — | $ | 397,560 | ||||||||||||||||||||
Accrued and unpaid vacation (6) | $ | 16,526 | $ | 16,526 | $ | 16,526 | $ | 16,526 | $ | 16,526 | — | $ | 16,526 | |||||||||||||||
Total | $ | 16,526 | $ | 16,526 | $ | 109,526 | $ | 16,526 | $ | 444,639 | — | $ | 524,176 | |||||||||||||||
David G. Valiaveedan | ||||||||||||||||||||||||||||
Accelerated vesting of annual bonus awards (1) | — | — | $ | 72,500 | — | $ | 72,500 | — | — | |||||||||||||||||||
Accelerated vesting of equity awards (2) | — | — | — | — | $ | 91,595 | — | $ | 91,595 | |||||||||||||||||||
Accelerated vesting of LTIP awards (3) | — | — | — | — | $ | 216,985 | — | — | ||||||||||||||||||||
Contractual disability/death payment | — | — | — | — | — | — | — | |||||||||||||||||||||
Cash severance payment | — | — | — | — | — | — | $ | 359,617 | ||||||||||||||||||||
Accrued and unpaid vacation (6) | $ | 19,920 | $ | 19,920 | $ | 19,920 | $ | 19,920 | $ | 19,920 | — | $ | 19,920 | |||||||||||||||
Total | $ | 19,920 | $ | 19,920 | $ | 92,420 | $ | 19,920 | $ | 401,001 | — | $ | 471,132 |
Named Executive Officer |
| Voluntary Termination |
|
| Involuntary Termination |
|
| Change in Control |
| ||||||||||||
Form of Compensation |
| With or Without Good Reason |
|
| Qualified Retirement |
|
| Without Cause |
|
| With Cause |
|
| Death or Disability |
|
| Without Termination |
|
| With Involuntary Termination Other Than for Cause or Termination with Good Reason |
|
Ara K. Hovnanian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of annual bonusawards (1) |
| — |
|
| — |
|
| — |
|
| — |
|
| 1,140,293 |
|
| — |
|
| — |
|
Accelerated vesting of equity awards (2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,635,700 |
|
| — |
|
| 1,907,388 |
|
Accelerated vesting of LTIP awards (3) |
| — |
|
| — |
|
| — |
|
| — |
|
| 958,219 |
|
| — |
|
| — |
|
Contractual disability/death payment (4) |
| — |
|
| — |
|
| — |
|
| — |
|
| 10,000,000 |
|
| — |
|
| — |
|
Cash severance payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Accrued and unpaid vacation (6) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Total |
| — |
|
| — |
|
| — |
|
| — |
|
| 14,734,212 |
|
| — |
|
| 1,907,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Larry Sorsby |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of annual bonusawards (1) |
| 443,108 |
|
| 443,108 |
|
| — |
|
| — |
|
| 443,108 |
|
| — |
|
| — |
|
Accelerated vesting of equity awards (2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 386,175 |
|
| — |
|
| 381,475 |
|
Accelerated vesting of LTIP awards (3) |
| — |
|
| — |
|
| — |
|
| — |
|
| 53,769 |
|
| — |
|
| — |
|
Contractual disability/death payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Cash severance payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Accrued and unpaid vacation (6) |
| 94,332 |
|
| 94,332 |
|
| 94,332 |
|
| 94,332 |
|
| 94,332 |
|
| — |
|
| 94,332 |
|
Total |
| 537,440 |
|
| 537,440 |
|
| 94,332 |
|
| 94,332 |
|
| 977,384 |
|
| — |
|
| 475,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas J. Pellerito |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of annual bonusawards (1) |
| 443,108 |
|
| 443,108 |
|
| — |
|
| — |
|
| 443,108 |
|
| — |
|
| — |
|
Accelerated vesting of equity awards (2) |
| — |
|
| — |
|
| — |
|
| — |
|
| 254,319 |
|
| — |
|
| 254,319 |
|
Accelerated vesting of LTIP awards (3) |
| — |
|
| — |
|
| — |
|
| — |
|
| 53,769 |
|
| — |
|
| — |
|
Contractual disability/death payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Cash severance payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Accrued and unpaid vacation (6) |
| 55,680 |
|
| 55,680 |
|
| 55,680 |
|
| 55,680 |
|
| 55,680 |
|
| — |
|
| 55,680 |
|
Total |
| 498,788 |
|
| 498,788 |
|
| 55,680 |
|
| 55,680 |
|
| 806,876 |
|
| — |
|
| 309,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brad G. O’Connor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of annual bonusawards (1) |
| — |
|
| — |
|
| — |
|
| — |
|
| 197,327 |
|
| — |
|
| — |
|
Accelerated vesting of equity awards (2) (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| 37,293 |
|
| — |
|
| 37,293 |
|
Accelerated vesting of LTIP awards (3) (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| 83,610 |
|
| — |
|
| 69,304 |
|
Contractual disability/death payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Cash severance payment (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 489,515 |
|
Accrued and unpaid vacation (6) |
| 15,039 |
|
| 15,039 |
|
| 15,039 |
|
| 15,039 |
|
| 15,039 |
|
| — |
|
| 15,039 |
|
Total |
| 15,039 |
|
| 15,039 |
|
| 15,039 |
|
| 15,039 |
|
| 333,269 |
|
| — |
|
| 611,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David G. Valiaveedan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of annual bonusawards (1) |
| — |
|
| — |
|
| — |
|
| — |
|
| 153,831 |
|
| — |
|
| — |
|
Accelerated vesting of equity awards (2) (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| 31,808 |
|
| — |
|
| 31,808 |
|
Accelerated vesting of LTIP awards (3) (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| 80,215 |
|
| — |
|
| 66,830 |
|
Contractual disability/death payment |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
Cash severance payment (5) |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 432,888 |
|
Accrued and unpaid vacation (6) |
| 18,802 |
|
| 18,802 |
|
| 18,802 |
|
| 18,802 |
|
| 18,802 |
|
| — |
|
| 18,802 |
|
Total |
| 18,802 |
|
| 18,802 |
|
| 18,802 |
|
| 18,802 |
|
| 284,656 |
|
| — |
|
| 550,328 |
|
For purposes of this table presentation, consideration of the forms of compensation or additional payments or benefits to an NEO in the event of a triggering event includes:
(1) | Accelerated vesting of annual bonus awards.According to the Company’s bonus program’s policies and procedures, the fiscal |
(2) | Accelerated vesting of equity awards.Under circumstances other than death, disability or qualified retirement, or, for fiscal 2014 awards,in connection with a qualifying termination in case of change in control, any unvested stock options, MSUs and RSUs are cancelled in accordance with the Company’s stock option, MSU and RSU agreements. |
(3) | Accelerated vesting of LTIP awards. 2010 LTIP:Except in the case of death, disability or qualified retirement, 2010 LTIP participants who terminate prior to the date of vesting forfeit their unvested 2010 LTIP awards. Therefore, no amounts are shown under “Voluntary Termination.” Similarly, no amounts are shown under “Involuntary Termination” except in the case of death or disability. In the case of death following the end of the performance period, the participant is eligible to receive the unpaid portion within 75 days. In the case of disability or qualified retirement, the participant is eligible to receive the remaining 20% of the 2010 LTIP awards in January 2016. The values in the “Death or Disability” column represent the unvested portion (20%) of the NEOs’ LTIP award based on actual results and the closing trading price of the Company’s stock on October 31, |
2013 LTIP: Except in the case of death or disability, 2013 LTIP participants who terminate prior to the end of the performance period (October 31, |
(4) | Contractual Disability and Death Payment.The Company has an agreement with Mr. Hovnanian which provides that in the event of his disability or death during his employment with the Company he (or his designated beneficiary, estate or legal representative) will be entitled to receive a lump sum payment of $10 million. |
(5) | Change in Control.Following the end of fiscal 2011, the Company entered into change in control agreements with Messrs. O’Connor and Valiaveedan. Such agreements provide that if, within two years of the occurrence of a change in control, the NEO is involuntarily terminated other than for cause or the NEO terminates for good reason (a material reduction in duties, title or responsibilities or any reduction in base salary), the NEO, upon execution of the Company’s standard release, would receive a lump sum cash payment equal to one year’s annual base salary plus the average of the last three year’s bonuses and become 100% vested in all outstanding stock options, RSUs and deferred shares granted prior to the change in control, to the extent not previously vested. In addition, if the change in control occurs following the end of |
(6) | Accrued and Unpaid Vacation.Represents accrued but unpaid vacation payable upon termination for any reason. Mr. Hovnanian does not accrue vacation. |
For purposes of this table, the following programs were also considered.
● | Base salary continuation plan payments.The Company does not maintain such plans. |
● | Contractual disability/death payments.Only Mr. Hovnanian has this arrangement, which is described under footnote (4) above. |
● | Other perquisites and benefits.Except as noted above, there are no existing severance arrangements or policies which would extend perquisites or other benefits to the NEOs upon a triggering event that would not otherwise be also available to any employee of the Company. |
NON-EMPLOYEE DIRECTOR COMPENSATION
The Committee annually reviews the compensation program for directorsDirectors who are not employees of the Company and makes recommendations to the Board of Directors for their approval. The Committee has periodically engaged PM&Pengages a consultant to conduct independent, comprehensive reviews of non-employee Directordirector compensation, including a review of Directordirector compensation for the Peer Group which PM&P last conducted in 2010.Group. After consideration of the compensation philosophy, the historical and marketplace compensation values and practices for Director directorcompensation, as well as the anticipated Director time commitments and value added activities for fiscal 2012,2014, the Committee recommended, and the Board of Directors approved the continuation for fiscal 20122014 of the annual retainers and meeting fees at the same levels as fiscal 2011.2013. These retainer and meeting fee levels have remain unchanged since fiscal 2005.
In May 2012, the Committee reviewed and determined the level of annual and committee equity grants. The Committee considered the grant date fair value of equity grants in comparison with historical grant values, information on general industry and Peer Group director compensation levels and practices, including a comprehensive review of non-employee Directordirector compensation for the Peer Group prepared by the Company’s compensation department, and the added value and guidance the non-employee Directors provided in the strategic decisions concerning the Company’s capital structure and refinancing of the Company’s debt. Based on these factors, the Committee recommended and the Board of Directors approved for fiscal 2012, the adoption of a fixed value approach for Director equity awards, which is described below. The fixed value approach is a majority practice among general industry companies and is intended to avoid significant fluctuations in non-employee Director compensation from year-to-year. The Committee continued this approach in fiscal 2014. The total value of non-employee Director stock and stock option awards for fiscal 20122014 was near the median of the Peer Group.
In May 2012, the Committee also authorized the amendment of the Executive Deferred Compensation Plan (“EDCP”)(EDCP) to allow for Director deferrals of retainers, meeting fees and restricted share units,RSUs, including a choice to defer such compensation until termination from the Board of Directors. Deferrals of stock retainers had been previously authorized under the EDCP.
Below is a summary of non-employee Director compensation for fiscal 2012:
● | Annual board retainer of $40,000 with an additional retainer of $20,000 for each committee on which a Director serves, |
● | Annual |
● | Meeting fees of $3,000 per board meeting held in person, $2,000 per telephonic board meeting, $5,000 per committee meeting held in person and $2,500 per telephonic committee meeting. |
For fiscal 2013,2015, the Committee determined that the amounts of the annual and committee retainer payments to non-employee DirectorsDirector compensation would remain the same butas that at each non-employee Director’s election, such payments may be made either 50% in cash and 50% in stock or 100% in cash. The Committee also determined that meeting fees would remain the same for fiscal 2013. In addition, the Committee determined that, for fiscal 2013, each Director would receive an annual fixed value restricted share unit award valued at $50,000 plus an additional $15,000 for each committee on which the Director serves, based on the closing stock price on the date of grant, provided that, Directors will be given the opportunity to elect prior to the grant date to receive an equivalent value of stock options in lieu of restricted share units.
For additional information related to non-employee Director compensation, please also refer to the “Director Compensation for Fiscal 2012”2014” table below.
In conjunction with promoting high ethical standards for the distribution of equity-based incentives, the Committee also established the second Friday in January of each year as the date for payment of the non-employee Director annual and committee retainers and the date for establishment of the stock price for purposes of calculation of theany stock portion of the non-employee Director annual and committee retainers. The Committee also established the second Friday in June as the date of the annual stock option and RSU grants for all non-employee Directors of the Company (other than newly elected Directors), which is the same as the grant date for all employees. The Company’s practice of setting “fixed” equity award grant dates is designed to avoid the possibility that the Company could grant stock awards prior to the release of material, non-public information that is likely to result in an increase in its stock price, or delay the grant of stock awards until after the release of material, non-public information that is likely to result in a decrease in the Company’s stock price. Exercise prices of stock options granted to non-employee Directors were set at the closing trading price per share of the Company’s Class A Common Stock on the NYSE on the date the options were granted.
The Board of Directors of the Company has adopted stock ownership guidelines, recommended by the Committee, which set forth recommended minimum amounts of stock ownership, directly or beneficially, for the Company’s non-employee Directors. The guidelines provide that non-employee Directors are requested to achieve and maintain stock ownership amounts which equal 2xthree times the total value of their annual retainer, exclusive of any committee retainers, (which represents $80,000$120,000 in total) within 5five years after they become subject to the guidelines. Under the policy, once the stock ownership guidelines are met, they are deemed satisfied for subsequent annual review periods, regardless of decreases in the Company’s stock price on the New York Stock Exchange, so long as the non-employee Director does not sell any portion of the share amounts which were originally included in determining that the recommended thresholds were met.
The Corporate Governance and Nominating Committee reviews adherence to the Company’s stock ownership guidelines which are incorporated into the Company’s Corporate Governance Guidelines.on an annual basis. The Company believes these ownership guidelines further enhance the Company’s commitment to aligning the interests of non-employee Directors with those of its stockholders. As of November 1, 2012,January 9, 2015, all incumbent, non-employee Directors were in compliance with these stock ownership guidelines.
The following table summarizes the compensation of the Company’s non-employee Directors related to their servicesservice in fiscal 2012.
Director Compensation for Fiscal 2012
Name | Fees Earned or Paid in Cash (1) | Stock Awards (2) | Option Awards (3) | Non-Equity Incentive Plan Compensation | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation | Total | |||||||||||||||||||||
Robert B. Coutts | $ | 94,000 | $ | 65,001 | $ | — | — | — | — | $ | 159,001 | |||||||||||||||||
Edward A. Kangas | $ | 201,500 | $ | 94,999 | $ | — | — | — | — | $ | 296,499 | |||||||||||||||||
Joseph A. Marengi | $ | 89,000 | $ | 65,001 | $ | — | — | — | — | $ | 154,001 | |||||||||||||||||
John J. Robbins | $ | 134,000 | $ | — | $ | 74,991 | — | — | — | $ | 208,991 | |||||||||||||||||
Stephen D. Weinroth | $ | 206,500 | $ | — | $ | 109,600 | — | — | — | $ | 316,100 |
Name |
| Fees Earned or Paid in Cash |
| Stock Awards ($) (2) |
| Option Awards ($) (3) |
| Non-Equity Incentive Plan Compensation |
| Change in Pension Value and Nonqualified Deferred Compensation Earnings |
| All Other Compensation ($) |
| Total |
| ||||
Robert B. Coutts |
| 156,000 |
| 80,002 |
| — |
| — |
| — |
| — |
| 236,002 |
| ||||
Edward A. Kangas |
| 191,000 |
| 95,000 |
| — |
| — |
| — |
| — |
| 286,000 |
| ||||
Joseph A. Marengi |
| 128,500 |
| 80,002 |
| — |
| — |
| — |
| — |
| 208,502 |
| ||||
Vincent Pagano |
| 121,000 |
| 39,999 |
| 40,000 |
| — |
| — |
| — |
| 200,999 |
| ||||
Stephen D. Weinroth |
| 153,500 |
| 80,002 |
| — |
| — |
| — |
| — |
| 233,502 |
|
(1) | “Fees Earned or Paid in Cash” Column.The amounts in this column represent, as shown below, the combined value of the fiscal |
Total Fees Earned andor Paid in Cash (Supplemental Table)
Name | FY12 Meeting Fees (a) | FY12 Annual Retainer Fees Cash Payment (represents 100% of the total Annual Retainer Fees) | Cash Total | |||||||||
Robert B. Coutts | $ | 34,000 | $ | 60,000 | $ | 94,000 | ||||||
Edward A. Kangas | $ | 101,500 | $ | 100,000 | $ | 201,500 | ||||||
Joseph A. Marengi | $ | 29,000 | $ | 60,000 | $ | 89,000 | ||||||
John J. Robbins | $ | 74,000 | $ | 60,000 | $ | 134,000 | ||||||
Stephen D. Weinroth | $ | 106,500 | $ | 100,000 | $ | 206,500 |
Name | FY14 Fees | FY14 Annual Retainer Fees | Total Fees Earned or Paid in Cash | ||
Robert B. Coutts | 76,000 | 80,000 | 156,000 | ||
Edward A. Kangas | 91,000 | 100,000 | 191,000 | ||
Joseph A. Marengi | 48,500 | 80,000 | 128,500 | ||
Vincent Pagano (a) | 51,000 | 70,000 | 121,000 | ||
Stephen D. Weinroth | 73,500 | 80,000 | 153,500 |
(a) | Mr. Pagano received 50% of the annual committee retainer for his service on the Audit Committee |
Total Annual Retainer (Supplemental Table)
Name | FY14 Annual Retainer Fees Stock Payment ($) (a) (b) | Number of Shares Represented | FY14 Annual Retainer Fees Cash Payment ($) (b) | Total FY14 Annual Retainer Fees | ||||||||||||||||
Robert B. Coutts | 40,000 | 6,400 | 40,000 | 80,000 | ||||||||||||||||
Edward A. Kangas | 50,000 | 8,000 | 50,000 | 100,000 | ||||||||||||||||
Joseph A. Marengi | — | — | 80,000 | 80,000 | ||||||||||||||||
Vincent Pagano (c) | 35,000 | 5,839 | 35,000 | 70,000 | ||||||||||||||||
Stephen D. Weinroth | 20,000 | 3,200 | 60,000 | 80,000 |
(a) | Non-employee Director stock awards for the Annual Retainer Fees have no vesting restrictions and are valued as of the closing trading price of the Company's Class A Common Stock on the NYSE on the date of grant. |
(b) | Subject to rounding. |
(c) | Mr. Pagano deferred 50% of the cash portion of his annual retainer under the EDCP. |
(2) | “Stock Awards” Column.The amounts in this column represent the |
Grant Date Fair Value for the Total RSUs Granted to Non-Employee Directors in Fiscal 2012 (Supplemental2014
(Supplemental Table)
Name | Grant Date | Number of RSUs Granted (a) | Total Grant Date Fair Value of RSUs | ||||||||||
Robert B. Coutts | 06/08/2012 | 30,093 | $ | 65,001 | |||||||||
Edward A. Kangas | 06/08/2012 | 43,981 | $ | 94,999 | |||||||||
Joseph A. Marengi | 06/08/2012 | 30,093 | $ | 65,001 | |||||||||
John J. Robbins | — | — | $ | — | |||||||||
Stephen D. Weinroth | — | — | $ | — |
Name | Grant Date | Number of RSUs Granted | Total Grant Date Fair Value of RSUs | ||||||||
Robert B. Coutts | 06/13/2014 | 18,141 | 80,002 | ||||||||
Edward A. Kangas | 06/13/2014 | 21,542 | 95,000 | ||||||||
Joseph A. Marengi | 06/13/2014 | 18,141 | 80,002 | ||||||||
Vincent Pagano | 06/13/2014 | 9,070 | 39,999 | ||||||||
Stephen D. Weinroth | 06/13/2014 | 18,141 | 80,002 |
(a) | For fiscal |
(3) | “Option Awards” Column. |
Grant Date Fair Value for the Total Stock Options Granted to Non-Employee Directors in Fiscal 2012
(Supplemental Table)
Name | Grant Date | Number of Options Granted (a) | Total Grant Date Fair Value of Options | ||||||||||
Robert B. Coutts | — | — | $ | — | |||||||||
Edward A. Kangas | — | — | $ | — | |||||||||
Joseph A. Marengi | — | — | $ | — | |||||||||
John J. Robbins | 06/08/2012 | 42,130 | $ | 74,991 | |||||||||
Stephen D. Weinroth | 06/08/2012 | 61,573 | $ | 109,600 |
Name |
| Grant Date | Number of Options Granted | Total Grant Date Fair Value of Options |
| ||||||
Robert B. Coutts |
| — |
|
| — |
| — |
| |||
Edward A. Kangas |
| — |
|
| — |
| — |
| |||
Joseph A. Marengi |
| — |
|
| — |
| — |
| |||
Vincent Pagano |
| 06/13/2014 |
|
| 13,072 |
| 40,000 |
| |||
Stephen D. Weinroth |
| — |
|
| — |
| — |
|
(a) | For fiscal |
The following table shows all unexercised stock options and unvested RSUs that each of the non-employee directorsDirectors held at the end of fiscal 2012:
Outstanding Non-Employee Director Equity Awards at Fiscal 20122014 Year-End (Supplemental Table)
OPTION AWARDS | STOCK AWARDS | ||||||||||||||||||||||||||||||
Name | Grant Date (a) | Number of Securities Underlying Unexercised Options Exercisable (#) | Value of Unexercised In The Money Options Exercisable ($) (b) | Number of Securities Underlying Unexercised Options Unexercisable (#) | Value of Unexercised In The Money Options Unexercisable ($) (b) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock that have not vested (#) | Market Value of Shares or Units of Stock that have not vested ($) | ||||||||||||||||||||||
Robert B. Coutts | 06/13/08 | 7,000 | $ | 0 | — | $ | 0 | $ | 6.46 | 06/12/18 | — | $ | — | ||||||||||||||||||
06/12/09 | 21,000 | $ | 36,750 | — | $ | 0 | $ | 2.55 | 06/11/19 | — | $ | — | |||||||||||||||||||
06/11/10 | 21,000 | $ | 0 | — | $ | 0 | $ | 4.73 | 06/10/20 | — | $ | — | |||||||||||||||||||
06/10/11 | 18,900 | $ | 44,793 | — | $ | 0 | $ | 1.93 | 06/09/21 | — | $ | — | |||||||||||||||||||
06/08/12 | — | $ | 0 | — | $ | 0 | $ | 2.16 | 06/07/22 | 30,093 | $ | 129,400 | |||||||||||||||||||
Edward A. Kangas | 06/13/08 | 11,000 | $ | 0 | — | $ | 0 | $ | 6.46 | 06/12/18 | — | $ | — | ||||||||||||||||||
06/12/09 | 33,000 | $ | 57,750 | — | $ | 0 | $ | 2.55 | 06/11/19 | — | $ | — | |||||||||||||||||||
06/11/10 | 33,000 | $ | 0 | — | $ | 0 | $ | 4.73 | 06/10/20 | — | $ | — | |||||||||||||||||||
06/10/11 | 29,700 | $ | 70,389 | — | $ | 0 | $ | 1.93 | 06/09/21 | — | $ | — | |||||||||||||||||||
06/08/12 | — | $ | 0 | — | $ | 0 | $ | 2.16 | 06/07/22 | 43,981 | $ | 189,118 | |||||||||||||||||||
Joseph A. Marengi | 06/13/08 | 7,000 | $ | 0 | — | $ | 0 | $ | 6.46 | 06/12/18 | — | $ | — | ||||||||||||||||||
06/12/09 | 21,000 | $ | 36,750 | — | $ | 0 | $ | 2.55 | 06/11/19 | — | $ | — | |||||||||||||||||||
06/11/10 | 14,000 | $ | 0 | 7,000 | $ | 0 | $ | 4.73 | 06/10/20 | — | $ | — | |||||||||||||||||||
06/10/11 | 6,300 | $ | 14,931 | 12,600 | $ | 29,862 | $ | 1.93 | 06/09/21 | 466 | $ | 2,004 | |||||||||||||||||||
06/08/12 | — | $ | 0 | — | $ | 0 | $ | 2.16 | 06/07/22 | 30,093 | $ | 129,400 | |||||||||||||||||||
John J. Robbins | 06/13/08 | 7,000 | $ | 0 | — | $ | 0 | $ | 6.46 | 06/12/18 | — | $ | — | ||||||||||||||||||
06/12/09 | 21,000 | $ | 36,750 | — | $ | 0 | $ | 2.55 | 06/11/19 | — | $ | — | |||||||||||||||||||
06/11/10 | 21,000 | $ | 0 | — | $ | 0 | $ | 4.73 | 06/10/20 | — | $ | — | |||||||||||||||||||
06/10/11 | 18,900 | $ | 44,793 | — | $ | 0 | $ | 1.93 | 06/09/21 | — | $ | — | |||||||||||||||||||
06/08/12 | 42,130 | $ | 90,158 | — | $ | 0 | $ | 2.16 | 06/07/22 | — | $ | — | |||||||||||||||||||
Stephen D. Weinroth | 06/13/08 | 11,000 | $ | 0 | — | $ | 0 | $ | 6.46 | 06/12/18 | — | $ | — | ||||||||||||||||||
06/12/09 | 33,000 | $ | 57,750 | — | $ | 0 | $ | 2.55 | 06/11/19 | — | $ | — | |||||||||||||||||||
06/11/10 | 33,000 | $ | 0 | — | $ | 0 | $ | 4.73 | 06/10/20 | — | $ | — | |||||||||||||||||||
06/10/11 | 29,700 | $ | 70,389 | — | $ | 0 | $ | 1.93 | 06/09/21 | — | $ | — | |||||||||||||||||||
06/08/12 | 61,573 | $ | 131,766 | — | $ | 0 | $ | 2.16 | 06/07/22 | — | $ | — |
|
|
| OPTION AWARDS |
| STOCK AWARDS |
| ||||||||||||||||||
Name | Grant Date (a) |
| Number of Securities Underlying Unexercised Options Exercisable |
|
| Value of Unexercised In The Money Options Exercisable ($)(b) |
|
| Number of Securities Underlying Unexercised Options Unexercisable |
|
| Value of Unexercised In The Money Options Unexercisable |
|
| Option Exercise Price |
| Option Expiration Date |
| Number of Shares or Units of Stock that have not vested |
|
| Market Value of Shares or Units of Stock that have not vested |
| |
Robert B. Coutts | 06/13/08 |
| 7,000 |
|
| 0 |
|
| — |
|
| — |
|
| 6.46 |
| 06/12/18 |
| — |
|
| — |
| |
| 06/12/09 |
| 21,000 |
|
| 25,410 |
|
| — |
|
| — |
|
| 2.55 |
| 06/11/19 |
| — |
|
| — |
| |
| 06/11/10 |
| 21,000 |
|
| 0 |
|
| — |
|
| — |
|
| 4.73 |
| 06/10/20 |
| — |
|
| — |
| |
| 06/10/11 |
| 18,900 |
|
| 34,587 |
|
| — |
|
| — |
|
| 1.93 |
| 06/09/21 |
| — |
|
| — |
| |
06/13/14 | — | — | — | — | — | — | 18,141 | 68,210 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Edward A. Kangas | 06/13/08 |
| 11,000 |
|
| 0 |
|
| — |
|
| — |
|
| 6.46 |
| 06/12/18 |
| — |
|
| — |
| |
| 06/12/09 |
| 33,000 |
|
| 39,930 |
|
| — |
|
| — |
|
| 2.55 |
| 06/11/19 |
| — |
|
| — |
| |
| 06/11/10 |
| 33,000 |
|
| 0 |
|
| — |
|
| — |
|
| 4.73 |
| 06/10/20 |
| — |
|
| — |
| |
| 06/10/11 |
| 29,700 |
|
| 54,351 |
|
| — |
|
| — |
|
| 1.93 |
| 06/09/21 |
| — |
|
| — |
| |
06/13/14 | — | — | — | — | — | — | 21,542 | 80,998 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Joseph A. Marengi | 06/13/08 |
| 7,000 |
|
| 0 |
|
| — |
|
| — |
|
| 6.46 |
| 06/12/18 |
| — |
|
| — |
| |
| 06/12/09 |
| 21,000 |
|
| 25,410 |
|
| — |
|
| — |
|
| 2.55 |
| 06/11/19 |
| — |
|
| — |
| |
| 06/11/10 |
| 21,000 |
|
| 0 |
|
| — |
|
| — |
|
| 4.73 |
| 06/10/20 |
| — |
|
| — |
| |
| 06/10/11 |
| 18,900 |
|
| 34,587 |
|
| — |
|
| — |
|
| 1.93 |
| 06/09/21 |
| — |
|
| — |
| |
06/13/14 | — | — | — | — | — | — | 18,141 | 68,210 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Vincent Pagano | 06/13/14 | 13,072 | 0 | — | — | 4.41 | 06/12/24 | 9,070 | 34,103 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Stephen D. Weinroth | 06/13/08 |
| 11,000 |
|
| 0 |
|
| — |
|
| — |
|
| 6.46 |
| 06/12/18 |
| — |
|
| — |
| |
| 06/12/09 |
| 33,000 |
|
| 39,930 |
|
| — |
|
| — |
|
| 2.55 |
| 06/11/19 |
| — |
|
| — |
| |
| 06/11/10 |
| 33,000 |
|
| 0 |
|
| — |
|
| — |
|
| 4.73 |
| 06/10/20 |
| — |
|
| — |
| |
| 06/10/11 |
| 29,700 |
|
| 54,351 |
|
| — |
|
| — |
|
| 1.93 |
| 06/09/21 |
| — |
|
| — |
| |
| 06/08/12 |
| 61,573 |
|
| 98,517 |
|
| — |
|
| — |
|
| 2.16 |
| 06/07/22 |
| — |
|
| — |
| |
06/13/14 | — | — | — | — | — | — | 18,141 | 68,210 |
(a) | Stock options vest one-third per year beginning on the first anniversary of the date of grant. If, prior to the stock option termination date, the non-employee Director ceases to be a member of the Board of Directors due to death, disability or |
(b) | Based on the difference between the closing |
THE AUDIT COMMITTEE
Membership, Independence &and Qualifications
Messrs. Kangas, as Chairman, RobbinsCoutts, Pagano and Weinroth wereare the members of the Audit Committee. The Company’s Board of Directors has determined that each member of the Audit Committee is independent as required by both the rules of the NYSE and regulations of the SEC, and that Messrs. Kangas and Weinroth are each an “audit committee financial expert” in accordance with SEC regulations. With regard toIn determining that Mr. Kangas is an “audit committee financial expert,” the Board of Directors considered his significant experience, expertise and background with regard to accounting matters, including the broad perspective brought by his experience in consulting to clients in many diverse industries. With regard to Mr. Robbins, the Board of Directors considered his significant experience, expertise and background with regard to accounting matters, which includes specialization in homebuilding companies. With regard todetermination for Mr. Weinroth, the Board of Directors considered his many years of experience as a Managing Member or partner in several merchant and investment banking companies, which are very valuable to the Company as it continues to evaluate its debt profile and capital structure and various financing and refinancing alternatives.
Responsibilities of the Audit Committee &and Charter
The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors and is governed by its Charter, which is available on the Company’s public website,at www.khov.com under “Investor Relations/Corporate Governance.”
Policies &and Procedures Established Byby Audit Committee
In accordance with SEC regulations, the Audit Committee has established procedures for the appointment, compensation, retention and oversight of the independent registered public accounting firm engaged to prepare or issue an audit report or other audit, review or attest services. The Company’s independent registered public accounting firm reports directly to the Audit Committee, and the Audit Committee is responsible for the resolution of disagreements between such firm and management regarding financial reporting.
The Audit Committee has established whistle blowing procedures as required by Section 301 of the Sarbanes-Oxley Act of 2002 and Section 303A.07(c)(iii)Rule 10A-3 of the NYSE Corporate Governance Rules.Exchange Act. These procedures are discussed in the Company’s Code of Ethics (Section IV.G.) which is available on the Company’s public website at www.khov.com under “Investor Relations/Corporate Governance.”
Audit and Non-Audit Services Pre-Approval Policy
The Audit Committee has also established procedures for the pre-approval of audit and permitted non-audit services provided by an independent registered public accounting firm. The Company’s “Audit and Non-Audit Services Pre-Approval Policy” (“Pre-Approval Policy”) was most recently reviewed and approved by the Audit Committee at its meeting held on November 13, 2012.
As set forth in the Pre-Approval Policy, audit services require specific approval by the Audit Committee, except for certain services that have received general pre-approval by the Audit Committee.
In accordance with the Pre-Approval Policy, the Audit Committee annually reviews and pre-approves the services that may be provided by the independent registered public accounting firm without obtaining specific pre-approval from the Audit Committee. Prior to establishing the list of pre-approved services, the Audit Committee determines if the Company’s independent registered public accounting firm is an effective provider of services. The Audit Committee may revise the list of general pre-approved services from time to time, based on subsequent determinations. For fiscal year 2012,2014, there arewere four categories of services that have received general pre-approval by the Audit Committee: Audit, Audit-Related, Tax and All Other Services and the pre-approved dollar amount for such services may not exceed $100,000 per engagement.
The Audit Committee may delegate to one or more of its members the authority to approve in advance all significant audit or permitted non-audit services to be provided by the independent registered public accounting firm, so long as decisions are presented to the full Audit Committee at its next scheduled meeting.
THE AUDIT COMMITTEE REPORT
Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal controls over financial reporting. In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the audited financial statements for the fiscal year ended October 31, 20122014 with management. This review included a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Audit Committee has reviewed with the independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles:
● | the overall scope and plans for such accounting firm’s |
● | such accounting firm’s judgments as to the quality, not just the acceptability, of the Company’s accounting |
● | such accounting firm’s independence from management and the Company, including matters in the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Accounting Oversight Board, which we refer to as the PCAOB, concerning independence and received by the |
● | such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards and under |
The Audit Committee, under the Audit Committee Charter, reviews with management the Company’s annual audited financial statements and quarterly financial statements prior to their being filed with the SEC. The Audit Committee, in reliance on the reviews and discussions referred to above, recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2012.
AUDIT COMMITTEE
Edward A. Kangas, Chair
Robert B. Coutts
Vincent Pagano Jr.
Stephen D. Weinroth
FEES PAID TO PRINCIPAL ACCOUNTANT
Audit Fees
The aggregate fees billed by Deloitte & Touche LLP in each of fiscal 20122014 and 20112013 for professional services rendered for the audit of our consolidated financial statements, for the reviews of the unaudited condensed consolidated financial statements included in our Quarterly Reports on Form 10-Q for the quarterly periods during fiscal 20122014 and 2011,2013, the audit of the effectiveness of the Company’s internal controlcontrols over financial reporting as of October 31, 20122014 and 2011, or2013, and for services normally provided by our independent registered public accounting firm in connection with statutory or regulatory filings or engagements, including comfort and consent letters in connection with SEC filings and financing transactions, were $2,995,940$2,024,000 and $2,721,000,$2,039,000, respectively. There were no fees billed by Ernst & Young LLP in fiscal 2012 for these audit services. The aggregate fees billed by Ernst & Young LLP in fiscal 2011 for these audit services were $208,000.
Audit-Related Fees
The aggregate fees billed by Deloitte & Touche LLP in botheach of fiscal 20122014 and 20112013 for assurance and related services that were reasonably related to performance of the audit or review of the Company’s consolidated financial statements and that are not reported under “Audit Fees” above were $2,000.$2,100 and $2,500, respectively. These fees were primarily for electronic access to the Deloitte & Touche LLP Technical Library.
Tax Fees
There were no fees billed by Ernst & Young LLP in either of fiscal 2012 and 2011 for these audit-related services.
All Other Fees
There were no fees billed for products and services provided by Deloitte & Touche LLP or by Ernst & Young LLP in either of fiscal 2012 and 20112014 or 2013 other than the services described above.
Pre-Approval Policies and Procedures
All of the services covered under the captions “Audit Fees,” “Audit-Related Fees,” “Tax Fees” and “All Other Fees” were pre-approved by the Audit Committee. For a discussion of the Audit Committee’s pre-approval policies and procedures, see “The Audit Committee” above.
PRINCIPAL ACCOUNTANT INDEPENDENCE
The Audit Committee has determined that the provision of all non-audit services performed by Deloitte & Touche LLP and Ernst & Young LLP were compatible with maintaining the independence of eachsuch firm.
CORPORATE GOVERNANCE
The Corporate Governance and Nominating Committee is primarily responsible for reviewing the Company’s existing Corporate Governance Guidelines and further developing such guidelines and other policies and procedures that enhance the Company’s corporate governance.
In accordance with promoting strong corporate governance, the Company has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer, controller and all other associates of the Company, including its Directors and other officers. The Company has also adopted Corporate Governancethe Guidelines.
The Company makes available to the public various corporate governance related information on its public website (www.khov.com) under “Investor Relations/Corporate Governance” and to any shareholder who requests such information in writing. Information on the website includes the Company’s Code of Ethics, Corporate Governance Guidelines (including the Related Person Transaction Policy) and Charters of the Audit Committee, the Compensation Committee and the Corporate Governance and Nominating Committee.
Shareholders, associates of the Company and other interested parties may communicate directly with the Board of Directors by corresponding to the address below. Correspondence will be discussed at the next scheduled meeting of the Board of Directors, or as indicated by the urgency of the matter.
Attn: Board of Directors of Hovnanian Enterprises, Inc.
c/o Mr. Edward A. Kangas, Director & Chairman of the Audit Committee
Privileged & Confidential
Hovnanian Enterprises, Inc.
110 West Front Street
P.O. Box 500
Red Bank, N.J. 07701
The Company’s non-employee Directors meet without management after each regularly scheduled meeting of the Board of Directors. The presiding Director is selected to preside at these executive sessions by the directors in attendance.
Shareholders, associates of the Company and other interested parties may communicate directly with non-employee Directors as a group by corresponding to the address below. Following this Annual Meeting and, assuming the election of all the director nominees, members of the non-employee Director group will include: Messrs. Coutts, Kangas, Marengi, Pagano and Weinroth. All such non-employee Directors are “independent” in accordance with NYSE rules and as defined under the Company's Certificate of Incorporation. Mr. Kangas will report to all non-employee Directors any correspondence which is received by him as indicated by the urgency of the matter, or at the next scheduled meeting of non-employee Directors.
Attn: Non-Employee Directors of Hovnanian Enterprises, Inc.
c/o Mr. Edward A. Kangas, Director & Chairman of the Audit Committee
Privileged & Confidential
Hovnanian Enterprises, Inc.
110 West Front Street
P.O. Box 500
Red Bank, N.J. 07701
In addition, associates of the Company may anonymously report concerns or complaints via the K. Hovnanian Corporate Governance Hotline or by following the procedure discussed in the Company’s Code of Ethics.
OVERSIGHT OF RISK MANAGEMENT
The Company is exposed to a number of risks and undertakes at least annually an Enterprise Risk Management review to identify and evaluate these risks and to develop plans to manage them effectively. The Company’s Executive Vice President and Chief Financial Officer, Mr. Sorsby (who is himself a member of the Board of Directors), is directly responsible for the Company’s Enterprise Risk Management function and reports both to the President, Chief Executive Officer and Chairman and to the Audit Committee in this capacity. In fulfilling his risk management responsibilities, the CFO works closely with members ofsenior management,including the Vice President — Corporate Counsel, Vice President — Risk Management, Vice President — Human Resources, Vice President — Chief Information Officer, Vice President — Audit Services, including persons performing the functions of such officers, and others.
On behalf of the Board of Directors, the Audit Committee plays a key role in the oversight of the Company’s Enterprise Risk Management function. In that regard, the CFO meets with the Audit Committee at least four times a year to discuss the risks facing the Company, highlighting any new risks that may have arisen since they last met. The Audit Committee also reports to the Board of Directors on a regular basis to apprise them of their discussions with the CFO regarding the Company’s Enterprise Risk Management efforts. Finally,
In fiscal 2014, we systematically reviewed all of our incentive compensation programs for potential risk areas as well the CFO reports directlykey enterprise risks facing the Company and concluded that our compensation programs were not reasonably likely to have a material adverse effect on the Board of Directors on at least an annual basis to apprise them directly of the Company’s Enterprise Risk Management efforts.
By design, the Company’s compensation program for executive officers does not incentivize excessive risk-taking. Our base salary component of compensation does not encourage risk-taking because it is a fixed amount. The remaining elements of executive officer compensation have the following risk-limiting characteristics:
● | we do not provide guaranteed bonuses, nor have we awarded excessively large equity grants with unlimited upside but no downside risk; |
● | in recent years |
● | the elements of our compensation program are balanced |
● | we use a variety of performance measures |
● | we do not provide lucrative severance packages or any |
● | a large portion of our compensation program is tied to long-term and sustained company performance, and our LTIP |
● | our incentive plans are not tied to formulas that could focus executives on specific short-term outcomes to the detriment of long-term results; |
● | the Compensation Committee reserves the right to apply negative discretion to bonus amounts calculated under the bonus formulas; and |
● | our CEO, CFO and COO are subject to our stock ownership and holding guidelines, discussed on page |
LEADERSHIP STRUCTURE
From 1997 to 2009, the Company had separate individuals serving as Chairman of the Board and as Chief Executive Officer. This structure reflected the continuing strong leadership, energy and passion brought to the Board of Directors by our founder, Mr. Kevork Hovnanian, and the day-to-day management direction of the Company under Mr. Ara Hovnanian as President and CEO. Following the death of Mr. K. Hovnanian in September 2009, the Board of Directors appointed Mr. A. Hovnanian to the additional position of Chairman, believing that his more than 30 years of service to the Company, vast industry experience and close relationship with our founder uniquely qualified him for this role. The Board of Directors believes that combining these positions under Mr. A. Hovnanian’s leadership has enabled him to carry on the tradition of a strong leader that has always marked this family-controlled company and to successfully navigate the Company through the current challenging economic environment, as well as any future challenges. In the view of the Board of Directors, this leadership structure also enables the Board of Directors to better fulfill its risk oversight responsibilities, as described above under “Oversight of Risk Management.”
Although the Board of Directors has not formally designated a lead independent Director, Mr. Kangas, the chairman of the Audit Committee, serves as the Director to whom correspondence may be directed on behalf of both the Board of Directors and the non-employee Directors, as described above under “Corporate Governance” beginning on page 58.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Board of Directors has adopted a written Related Person Transaction Policy (the “Related Person Transaction Policy”) to assist it in reviewing, approving and ratifying related person transactions and to assist the Company in the preparation of related disclosures required by the SEC. This Related Person Transaction Policy supplements the Company’s other policies that may apply to transactions with related persons, such as the Company’s Corporate Governance Guidelines and its Code of Ethics.
The Related Person Transaction Policy provides that all Related Person Transactions (as defined in the Related Person Transaction Policy) covered by the Related Person Transaction Policy and involving a director, director nominees,nominee, executive officer or greater than 5% shareholder or an immediate family member of any such person are prohibited, unless approved or ratified by the disinterested members of the Board of Directors or the Corporate Governance and Nominating Committee. The Company’s employees, directors, director nominees, executive officers and their immediate family members are required to provide prompt and detailed notice of any purported Related Person Transaction to the Company’s Corporate Counsel or Chief Financial Officer, who in turn must promptly forward such notice and information to the Chairperson of the Board of Directors or the Corporate Governance and Nominating Committee and will advise the Corporate Governance and Nominating Committee or disinterested directors as to whether the Related Person Transaction will be required to be disclosed in applicable regulatory filings. The Company’s Corporate Counsel will document all non-reportable and reportable Related Person Transactions.
In reviewing Related Person Transactions for approval or ratification, the Corporate Governance and Nominating Committee or disinterested directors will consider the relevant facts and circumstances, including, without limitation:
● | the commercial reasonableness of the terms of the transaction; |
● | ||
the benefit and perceived benefit, |
● | ||
opportunity costs of alternate transactions; |
● | the materiality and character of the Company’s and related person’s direct or indirect interest, and the actual or apparent conflict of interest of the Company and related person; |
● | whether the proposed transaction would likely impair the judgment of the related person to act in the best interest of the Company; |
● | whether the proposed transaction includes any potential reputational risk issues that may arise as a result of, or in connection with, the proposed transaction; and |
● | ||
with respect to a non-employee director or nominee, whether the transaction would compromise the director’s (1) independence under the NYSE rules and |
The Corporate Governance and Nominating Committee or the disinterested directors will not approve or ratify a Related Person Transaction unless, after considering all relevant information, it has determined that the transaction is in, or is not inconsistent with, the Company’s best interests and the best interests of its shareholders.
Generally, the Related Person Transaction Policy applies to any current or proposed transaction in which:
● | the Company was or is to be a participant; |
● | ||
the amount involved exceeds $120,000; and |
● | ||
any related person had or will have a direct or indirect material interest. |
A copy of our Related Person Transaction Policy is available as part of our Corporate Governance Guidelines on our website at www.khov.com under “Investors Relations/Corporate Governance.”
Related Person Transactions
The relatedfollowing transactions discussed below were entered into prior toreviewed, approved and ratified by the adoptionBoard of Directors and by the Corporate Governance and Nominating Committee in accordance with our Related Person Transaction Policy and were approved by the Board of Directors.
During the year ended October 31, 2003, we entered into an agreement (as subsequently amended) to purchase land in California for approximately $31.4 million from an entity that is owned by Hirair Hovnanian, a family relative of our Chairman of the Board and Chief Executive Officer. AsWe took ownership of October 31, 2012, we have an option deposit of $3.0 million related to this land acquisition agreement. Inthe final lots in December 2013, and in accordance with ASC 810-10, we no longer have any balancebalances consolidated under “Consolidated inventory not owned” in the Consolidated Balance Sheets. Neither the Company nor the Chairman of the Board and Chief Executive Officer has a financial interest in the relative’s company from whom the land was purchased.
During the fiscal yearsyear ended October 31, 2012, 2011 and 2010,2014, an engineering firm owned by Tavit Najarian, a relative of our Chairman of the Board and Chief Executive Officer, provided services to the Company totaling $0.9 million, $1.0 million and $1.3 million, respectively.$1.2 million. Neither the Company nor the Chairman of the Board and Chief Executive Officer has a financial interest in the relative’s company from whom the services were provided.
Ms. Jovana Pellerito, the fiscal years ended October 31, 2011 and 2010, a real estate development firm owned by Mazin Kalian, a relative of our Chairman of the Board and Chief Executive Officer, provided consulting services to the Company totaling less than $0.1 million and $0.2 million, respectively, including significant travel related expenses. The consulting services consisted primarily of negotiations, community design and cost analysis on a potential joint venture. During the fiscal year ended October 31, 2012, there were no consulting services provided. Neither the Company nor the Chairman of the Board and Chief Executive Officer has or had a financial interest in the relative’s company from whom the services were provided.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MARCH 12, 2013
Our 20132015 proxy statement, the Company’s Annual Report to Shareholders for the year ended October 31, 20122014 (which is not deemed to be part of the official proxy soliciting materials), proxy cards (for Class A Common Stock shareholders and registered Class B Common Stock shareholders) and any amendments to the foregoing materials that are required to be furnished to shareholders are available online atwww.proxyvote.comwww.proxyvote.com.
For information on how to obtain directions to the Company’s 20132015 Annual Meeting, please call our Investor Relations department at 1-800-815-9680.
GENERAL
Solicitation
The solicitation of proxies is being made by our Board of Directors on our behalf primarily through the internet and by mail, but directors, officers, employees, and contractors retained by us may also engage in the solicitation of proxies by telephone. The cost of soliciting proxies will be borne by us. In addition, we may reimburse brokers, custodians, nominees and other record holders for their reasonable out-of-pocket expenses in forwarding proxy material to beneficial owners.
Voting
Unless otherwise directed, the persons named in the proxy card(s) intend to vote all shares represented by proxies received by them in favor of the election of the nominees to the Board of Directors of the Company named herein, in favor of the ratification of the selected independent registered public accounting firm in favor of amending the Certificate of Incorporation to increase the number of authorized shares of Class A Common Stock, in favor of amending the Certificate of Incorporation to increase the number of authorized shares of Class B Common Stock, and in favor of the compensation of the Company’s named executive officers, andin each case as recommended by the Board of Directors. All proxies will be voted as specified.
Each share of Class A Common Stock entitles the holder thereof to one vote, and each share of Class B Common Stock entitles the holder thereof to ten votes (except as provided below). Votes of Class A Common Stock and Class B Common Stock will be counted together without regard to class for proposals that require the affirmative vote of the holders of a majority of the votes cast. All votes will be certified by the Inspectors of Election, who are employees of the Company. Abstentions and broker non-votes will have no effect on the vote for proposal one and proposal fivethree, because such shares are not considered votes cast. Abstentions will have no effect on the vote for proposalsproposal two, three and four because such shares are not considered votes cast. Brokers may vote shares with respect to proposalsproposal two three and four in the absence of client instructions and thus there will be no broker non-votes with respect to proposals two, three and four.
Notwithstanding the foregoing, the Company’s Certificate of Incorporation provides that each share of Class B Common Stock held, to the extent of the Company’s knowledge, in nominee name by a stockbroker, bank or otherwise will be entitled to only one vote per share unless the Company is satisfied that such shares have been held continuously, since the date of issuance, for the benefit or account of the same named beneficial owner of such shares (as defined in the Certificate of Incorporation) or any Permitted Transferee (as defined in the Certificate of Incorporation). Beneficial owners of shares of Class B Common Stock held in nominee name wishing to cast ten votes for each share of such stock must properly complete their voting instruction card, which is specially designed for beneficial owners of Class B Common Stock. The Company has also supplied nominee holders of Class B Common Stock with instructions and specially designed proxy cards to accommodate the voting of the Class B Common Stock. In accordance with the Company’s Certificate of Incorporation, shares of Class B Common Stock held in nominee name will be entitled to ten votes per share only if the beneficial owner voting instruction card and the nominee proxy card relating to such shares is properly completed, mailed and received not less than 3three nor more than 20 business days prior to March 12, 2013.10, 2015. Proxy cards should be mailed to Vote Processing, c/o Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, N.Y. 11717.
Additional Matters
Management does not intend to present any business at the meeting other than that set forth in the accompanying Notice of Annual Meeting of Shareholders, and it has no informationis not aware that others will attempt to do so. If other matters requiring the vote of shareholders properly come before the meeting and any adjournments or postponements thereof, it is the intention of the persons named in the proxy cards to vote the shares represented by the proxies held by them in accordance with their judgment on such matters.
SHAREHOLDER PROPOSALS FOR THE 20142016 ANNUAL MEETING
Under the SEC’s rules and regulations, any stockholder desiring to submit a proposal to be included in our 20142016 proxy statement must submit such proposal to us at our principal executive offices to the attention of our Secretary no later than the close of business on September 28, 2013.
Our restated bylaws require timely notice of business to be brought before a shareholders’ meeting, including nominations of persons for election as directors. To be timely, a stockholder’s notice must be delivered to our Secretary at our principal executive offices not earlier than 120 days prior to the first anniversary of the 20132015 Annual Meeting (November 12, 2013)10, 2015) but not later than 90 days prior to such anniversary date (December 12, 2013)10, 2015), provided, however, that in the event that the date of the 20142016 annual meeting is advanced by more than 20 days, or delayed by more than 70 days, from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the tenth day following the day on which public announcement of the date of such meeting is first made. Our restated bylaws have other requirements that must be followed in connection with submitting director nominations and any other business for consideration at a shareholders’ meeting.
By Order of the Board of Directors HOVNANIAN ENTERPRISES, INC. |
Red Bank, New Jersey
January 28, 2013
65