SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
(Amendment No. _____)
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
Dominion Homes, 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):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
____________________________________________________________________
(2) Aggregate number of securities to which transaction applies:
____________________________________________________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:____________________
(5) Total fee paid:_____________________________________________________
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ____________________________________________
(2) Form, Schedule or Registration Statement No.: ______________________
(3) Filing Party: ______________________________________________________
(4) Date Filed: ________________________________________________________
DOMINION HOMES, INC.
5501 Frantz Road
P. O. Box 7166
Dublin, Ohio 43017-0766
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 6, 2003
Notice is hereby given that the 2003 Annual Meeting of Shareholders
("Annual Meeting") of Dominion Homes, Inc. (the "Company") will be held at the
Embassy Suites Hotel at 5100 Upper Metro Place, Dublin, Ohio, 43017, on Tuesday,
May 6, 2003, at 10:00 a.m. local time, for the following purposes, all of which
are more completely set forth in the accompanying Proxy Statement:
1. To elect five directors. The nominees of the Board of Directors to
serve as Class I directors are Douglas G. Borror, Jon M. Donnell,
Zuheir Sofia and C. Ronald Tilley. The nominee of the Board to serve
as a Class II director is Carl A. Nelson, Jr.
2. To act on a proposal to adopt the Dominion Homes, Inc. 2003 Stock
Option and Incentive Equity Plan.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on March 21, 2003,
as the record date for the determination of the shareholders entitled to notice
of and to vote at the Annual Meeting and at any adjournments or postponements
thereof.
You are cordially invited to attend the Annual Meeting. Whether or not you
plan to attend the Annual Meeting, you may ensure your representation by
completing, signing, dating and promptly returning the enclosed proxy card. A
return envelope, which requires no postage if mailed in the United States, has
been provided for your use. If you attend the Annual Meeting and inform the
Secretary of the Company in writing that you wish to vote your shares in person,
your proxy will not be used.
If your shares are held of record by a broker, bank or other nominee and
you wish to attend the Annual Meeting, you must obtain a letter from the broker,
bank or other nominee confirming your beneficial ownership of the shares and
bring it to the Annual Meeting. In order to vote your shares at the Annual
Meeting, you must obtain from the record holder a proxy issued in your name.
Regardless of how many shares you own, your vote is very important. Please
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD TODAY.
By Order of the Board of Directors
Robert A. Meyer, Jr.
Secretary
Dublin, Ohio
April 4, 2003
DOMINION HOMES, INC.
PROXY STATEMENT
This Proxy Statement and the accompanying form of Proxy and Notice of
Annual Meeting of Shareholders are furnished to holders of common shares,
without par value (the "Common Shares"), of Dominion Homes, Inc. (the "Company,"
"we," "us," or "our") in connection with the solicitation by our Board of
Directors (the "Board") of proxies to be used at the 2003 Annual Meeting of
Shareholders (the "Annual Meeting") and at any postponements or adjournments
thereof. The Annual Meeting will be held on Tuesday, May 6, 2003, at 10:00 a.m.,
local time, at the Embassy Suites Hotel at 5100 Upper Metro Place, Dublin, Ohio,
43017. This Proxy Statement, the accompanying form of Proxy and the Notice of
Annual Meeting of Shareholders, together with our Annual Report to Shareholders
for the fiscal year ended December 31, 2002, are first being mailed to
shareholders on or about April 4, 2003.
The Annual Meeting is being held for the following purposes:
1. To elect five directors. The nominees of the Board of Directors to
serve as Class I directors are Douglas G. Borror, Jon M. Donnell,
Zuheir Sofia and C. Ronald Tilley. The nominee of the Board to serve
as a Class II director is Carl A. Nelson, Jr.
2. To act on a proposal to adopt the Dominion Homes, Inc. 2003 Stock
Option and Incentive Equity Plan.
3. To transact such other business as may properly come before the
Annual Meeting or any adjournments thereof.
The close of business on March 21, 2003 has been fixed as the record date
for the determination of our shareholders entitled to notice of and to vote at
the Annual Meeting. As of the record date, we had 8,061,191 Common Shares issued
and outstanding. Holders of Common Shares as of the record date are entitled to
one vote per share for the election of directors, upon each of the proposals
described above and upon any other matters that may properly be brought before
the Annual Meeting. The presence, in person or by proxy, of the holders of a
majority of the Common Shares issued and outstanding as of the record date is
necessary to constitute a quorum at the Annual Meeting.
The address of our principal executive offices is 5501 Frantz Road,
Dublin, Ohio 43017.
-1-
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Certain Beneficial Owners
The following table sets forth, as of March 21, 2003, certain information
with respect to persons known to us to be the beneficial owners of more than
five percent (5%) of the outstanding Common Shares.
Number of Common Shares Beneficially Owned
------------------------------------------
Sole Voting
and Shared Voting Shared
Name and Address of Investment and Investment Sole Voting Investment Percent
Beneficial Owner Power Power Power Only Power Only Total of Class (1)
- ------------------------------------------------------------------------------------------------------------------------
Donald A. Borror (2) 30,000 3,920,424 (4) -- 37,547 (5) 3,987,971 49.5%
Douglas G. Borror (2) 77,000 (3) 3,920,424 (4) -- 11,443 (5) 4,008,867 49.7%
David S. Borror (2) 11,040 3,920,424 (4) -- -- 3,931,464 48.8%
Terry E. George (2) 23,000 3,920,424 (4) -- -- 3,943,424 48.9%
BRC Properties Inc. 3,920,424 (4) -- -- -- 3,920,424 48.6%
5501 Frantz Rd.
Dublin, Ohio 43017
BRC Properties Inc. -- 3,920,424 (4) -- -- 3,920,424 48.6%
Donald A. Borror
Douglas G. Borror,
David S. Borror and
Terry E. George, as
a group
FMR Corp. -- -- -- 812,900 (6) 812,900 10.1%
82 Devonshire Street
Boston, MA 02109
Fidelity Low Priced -- -- 812,900 (6) -- 812,900 10.1%
Stock Fund
82 Devonshire Street
Boston, MA 02109
- ----------
(1) Percent of class is based upon the sum of 8,061,191 Common Shares
outstanding as of March 21, 2003, and the number of Common Shares as to
which the person has the right to acquire beneficial ownership upon the
exercise of options exercisable within sixty (60) days of March 21, 2003.
(2) These individuals may be contacted at our address, 5501 Frantz Road, P.O.
Box 7166, Dublin, Ohio 43017-0766.
(3) Includes 30,000 restricted Common Shares awarded October 22, 2002, which
restricted Common Shares shall vest, if at all, upon the lapse of a period
of five (5) years from the date of award, the Company having shareholders'
equity of not less than $175,000,000, and Mr. Borror continuing to be an
employee of the Company as of such date.
(4) Share total is based on information provided to us by BRC Properties Inc.
("BRC"). By virtue of their ownership and/or control of BRC, each of
Donald A. Borror Douglas G. Borror, David S. Borror and Terry E. George
may be deemed to beneficially own the Common Shares owned by BRC, but each
has disclaimed beneficial ownership of the Common Shares owned by BRC. See
"Certain Relationships and Related Transactions-Description and Ownership
of BRC."
(5) Consists of Common Shares held by The Principal Group, as trustee of the
Dominion Homes, Inc. Retirement Plan and Trust (the "Retirement Plan and
Trust"), which Common Shares are voted by the trustee.
(6) Information is based on an Amended Schedule 13G filed with the Securities
and Exchange Commission on February 14, 2003. According to the Schedule
13G, Fidelity Management & Research Company
-2-
("Fidelity") is a wholly-owned subsidiary of FMR Corp. ("FMR") and an
investment adviser under the Investment Advisers Act of 1940. Fidelity is
an investment adviser to Fidelity Low Priced Stock Fund (the "Fund"),
which is the reported owner of the 812,900 Common Shares listed above.
Edward C. Johnson 3d (Chairman of FMR), FMR (through its control of
Fidelity) and the Fund each has the power to dispose of the 812,900 Common
Shares. Neither FMR nor Edward C. Johnson 3d has the sole power to vote or
direct the voting of the Common Shares, which power resides with the Fund.
Fidelity carries out the voting of the Common Shares under written
guidelines established by the Fund. Members of the Edward C. Johnson 3d
family (including Edward C. Johnson 3d and Abigail Johnson) may be deemed
under the Investment Company Act of 1940 to form a controlling group with
respect to FMR Corp.
Management
The following table sets forth, as of March 21, 2003, certain information
with respect to the number of Common Shares beneficially owned by each of our
directors (including nominees) and executive officers and by all of our
directors (including nominees) and executive officers as a group:
Number of Common Shares Beneficially Owned
------------------------------------------
Sole Voting Shared Voting Shared
Name and Address of and Investment and Investment Investment Percent
Beneficial Owner Power Power Power Only Total of Class (1)
- ----------------------------------------------------------------------------------------------------------------------
Donald A. Borror (2) 30,000(5) 3,924,424 (4) 37,547 3,987,971 (4) 49.5%
Douglas G. Borror (2) 77,000 (3) 3,924,424 (4) 11,443 (5) 4,008,867 (4) 49.7%
David S. Borror (2) 11,040 3,924,424 (4) -- 3,931,464 (4) 48.8%
Terry E. George (2) 23,000 3,924,424 (4) -- 3,943,424 (4) 48.9%
Pete A. Klisares 13,486 (6) -- -- 10,000 *
1660 Northwest
Professional Plaza
Suite C
Columbus, OH 43220
Gerald E. Mayo 11,000 (6) -- -- 11,000 *
51 Brams Point Road
Hilton Head, SC 29926
Carl A. Nelson, Jr. -- -- -- -- 0.0%
1740 Arlington Avenue
Columbus, OH 43212
Zuheir Sofia -- -- -- -- 0.0%
41 South High Street
Suite 2330
Columbus, OH 43215
C. Ronald Tilley 16,617 (6) -- -- 13,500 *
900 Gatehouse Lane
Worthington, OH 43235
Jon M. Donnell (2) 131,772 (7)(8) -- -- 131,772 1.6%
Robert A. Meyer, Jr. (2) 49,451 (9) -- -- 49,451 *
Peter J. O'Hanlon (2) 19,303 (10) -- -- 19,303 *
All directors and 382,669 3,920,424 (4) 48,990 4,352,083 53.8%
executive officers as
a group (12 persons) (11)
- ----------
*Represents less than 1% of class.
(1) Percent of class is based upon the sum of 8,061,191 Common Shares
outstanding as of March 21, 2003, and the number of Common Shares as to
which the person has the right to acquire beneficial ownership upon the
exercise of options exercisable within sixty (60) days of March 21, 2003.
(2) These individuals may be contacted at our address, 5501 Frantz Road, P.O.
Box 7166, Dublin, Ohio 43017-0766.
-3-
(3) Includes 30,000 restricted Common Shares awarded October 22, 2002, which
restricted Common Shares shall vest, if at all, upon the lapse of a period
of five (5) years from the date of award, the Company having shareholders'
equity of not less than $175,000,000, and Mr. Borror continuing to be an
employee of the Company as of such date.
(4) Share total is based on information provided to us by BRC. By virtue of
their ownership and/or control of BRC, each of Donald A. Borror, Douglas
G. Borror, David S. Borror and Terry E. George may be deemed to
beneficially own the Common Shares owned by BRC, but each has disclaimed
beneficial ownership of the Common Shares owned by BRC. See "Certain
Relationships and Related Transactions-Description and Ownership of BRC."
(5) Consists of Common Shares held by The Principal Group, as trustee of the
Retirement Plan and Trust, which Common Shares are voted by the trustee.
(6) Includes, in the case of Messrs. Klisares, Mayo and Tilley, 10,000, 2,500
and 12,500 Common Shares, respectively, which can be acquired upon the
exercise of options which are exercisable within sixty (60) days of March
21, 2003.
(7) Includes 25,000 restricted Common Shares awarded October 22, 2002, which
restricted Common Shares shall vest, if at all, upon the lapse of a period
of five (5) years from the date of award, the Company having shareholders'
equity of not less than $175,000,000, and Mr. Donnell continuing to be an
employee of the Company as of such date.
(8) Includes 4,000 Common Shares which can be acquired upon the exercise of
options which are exercisable within sixty (60) days of March 21, 2003.
(9) Includes 1,500 Common Shares which can be acquired upon the exercise of
options which are exercisable within sixty (60) days of March 21, 2003
(10) Includes 15,000 restricted Common Shares awarded October 22, 2002, which
restricted Common Shares shall vest, if at all, upon the lapse of a period
of five (5) years from the date of award, the Company having shareholders'
equity of not less than $175,000,000, and Mr. O'Hanlon continuing to be an
employee of the Company as of such date.
(11) In computing the aggregate number of Common Shares held by the group, the
same Common Shares were not counted more than once.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Executive Compensation
The following table sets forth, for the three years ended December 31,
2002, cash and non-cash compensation we paid to our Chief Executive Officer and
to each of our other four most highly compensated executive officers who served
as such during 2002 (collectively, the "Named Executive Officers") for services
rendered in all capacities by such persons:
Summary Compensation Table
Annual Compensation Long Term Compensation
----------------------------------------------------------------------------------
Other Annual Restricted All Other
Name and Salary Bonus (1) Compensation (2) Stock Awards Compensation
Principal Position Year ($) ($) ($) ($) ($)
- -----------------------------------------------------------------------------------------------------------------------------
Donald A. Borror 2002 $250,000 $ 275,000 $ 53,639 (3) $ 816 (4)
Chairman Emeritus 2001 $250,000 $ 275,000 $ 816 (4)
2000 $250,000 $ 260,000 $ 2,781
Douglas G. Borror 2002 $525,000 $1,450,000 (5) $165,966 (7) $453,000 (10) $161,925 (11)
Chairman and CEO 2001 $480,000 $1,000,000 (5) $130,770 (7) $153,641 (12)
2000 $440,000 $ 700,000 $105,370 (7) $153,160 (13)
-4-
Jon M. Donnell (11) 2002 $420,000 $1,105,000 (6) $128,012 (8) $377,500 (10) $ 96,760 (11)
President and COO 2001 $400,000 $ 725,000 (6) $ 64,572 (8) $ 91,547 (12)
2000 $360,000 $ 500,000 $ 90,840 (13)
David S. Borror 2002 $250,000 $ 417,000 $102,127 (9) $ 42,760 (11)
Executive VP 2001 $240,000 $ 330,000 $ 56,559 (9) $ 40,649 (12)
2000 $225,000 $ 275,000 $ 39,690 (13)
Robert A. Meyer, Jr. 2002 $175,000 $ 267,000 $ 36,760 (11)
Sr. V.P., General 2001 $175,000 $ 200,000 $ 34,774 (12)
Counsel and Secretary 2000 $160,000 $ 150,000 $ 33,960 (13)
- ----------
(1) Includes amounts deferred by the Named Executive Officer pursuant to the
Amended and Restated Dominion Homes, Inc. Executive Deferred Compensation
Plan (the "Executive Deferred Compensation Plan").
(2) Perquisites and other personal benefits did not exceed applicable
thresholds except as specifically set forth.
(3) Includes $25,798 attributable to personal use of our property.
(4) Includes for 2002 and 2001, $816 paid by us for coverage under our Group
Life Insurance Program for all employees.
(5) For 2002, includes Mr. Borror's 2002 bonus of $1,450,000, all of which
will be paid in 2003. For 2001, includes Mr. Borror's 2001 bonus of
$1,000,000 of which $400,000 was paid in 2002.
(6) For 2002, includes Mr. Donnell's 2002 bonus of $1,105,000, all of which
was paid in 2002. For 2001, includes Mr. Donnell's 2001 bonus of $725,000,
of which $275,000 was paid in 2002.
(7) Includes $100,466 for 2002, $49,302 for 2001 and $47,002 for 2000,
attributable to personal use of Company property. Also includes $32,434
for 2002 and $47,138 for 2001, attributable to payment of personal
expenses of Mr. Borror on business related trips.
(8) Includes $95,823 for 2002, $45,045 for 2001 and $40,320 for 2000,
attributable to personal use of Company property.
(9) Includes $78,196 for 2002 and $42,312 for 2001, attributable to personal
use of Company property.
(10) On October 22, 2002, Mr. Borror was granted 30,000 restricted Common
Shares and Mr. Donnell was granted 25,000 restricted Common Shares. The
restricted Common Shares were valued at $15.10, the closing price of the
shares on October 21, 2002. The Common Shares are restricted until we meet
certain adjusted shareholders' equity requirements and the employees meet
certain employment requirements.
(11) Includes for 2002, the value of premiums paid for split-dollar life
insurance coverage under our Split Dollar Plan (the "Split Dollar Plan")
(Mr. Douglas Borror: $150,000, Mr. Donnell: $85,000, Mr. David Borror:
$31,000 and Mr. Meyer: $25,000). Does not include reimbursements made to
the executive officers pursuant to the Company's discontinuation of the
split dollar plan arrangement. The Split Dollar Plan is discussed in
greater detail under "Report of Compensation Committee on Executive
Compensation- Long-Term Incentive Compensation-Split Dollar Plan." Also
includes for 2002, amounts we paid for coverage under our Group Life
Insurance Program for all employees of $1,260 for each of the Named
Executive Officers, our matching contributions under the Retirement Plan
and Trust of $8,000 for each of the Named Executive Officers and our
matching contributions under the Executive Deferred Compensation Plan of
$2,500 for each of the Named Executive Officers.
(12) Includes for 2001, the value of premiums paid for split-dollar life
insurance coverage under the Split Dollar Plan (Mr. Douglas Borror:
$143,081, Mr. Donnell: $80,987, Mr. David Borror: $30,089 and Mr. Meyer
$24,214). Also includes for 2001, amounts we paid for coverage under the
Company's Group Life Insurance Program for all employees of $1,260 for
each of the Named Executive Officers, our matching contributions under the
Retirement Plan and Trust of $6,800 for each of the Named Executive
Officers and
-5-
our matching contributions under the Executive Deferred Compensation Plan
of $2,500 for each of the Named Executive Officers.
(13) Includes for 2000, the value of premiums paid for split-dollar life
insurance coverage under the Split Dollar Plan (Mr. Douglas Borror:
$143,500, Mr. Donnell: $81,300, Mr. David Borror: $30,450 and Mr. Meyer:
$24,300).
Change in Control
Various of our benefit plans and arrangements include provisions that
become effective upon a "change in control." Under these plans and arrangements,
a "change in control" will be deemed to have occurred upon the occurrence of any
of the following events:
1) Douglas Borror and David Borror both cease to be members of the
Board; or
2) Any direct or indirect acquisition by a person or group, directly or
indirectly, of our securities representing more than 40 percent of
the combined voting power of our then outstanding securities;
provided, however, that a "person" or "group" will not include:
a) the Company;
b) any entity under common control with the Company;
c) BRC or any of its shareholders or members of the family of
Donald A. Borror; or
d) any employee benefit plan of any entity described above;
3) The adoption or authorization by our shareholders of a definitive
agreement for the merger or other business combination of the
Company in which our shareholders will own less than 50 percent of
the voting power in the surviving entity or for the sale or other
disposition of all or substantially all of our assets; or
4) The adoption by our shareholders of a plan relating to the
liquidation or dissolution of the Company.
Incentive Growth Plan
At the 2002 annual meeting of shareholders, our shareholders approved the
adoption of the Incentive Growth Plan (the "Incentive Growth Plan"). As a result
of such approval, we are permitted to deduct, for federal income tax purposes,
performance based compensation payable to eligible executives under the
Incentive Growth Plan. We anticipate to be able to deduct performance based
compensation earned by Douglas G. Borror and Jon M. Donnell under the Incentive
Growth Plan in 2002. The Incentive Growth Plan includes provisions that become
effective upon a "change in control." The Incentive Growth Plan is discussed in
further detail below under "Report of the Compensation Committee - Incentive
Bonus."
Employment Agreements
We have employment agreements with certain of our officers, including the
following executive officers--Jon M. Donnell, our President and Chief Operating
Officer, Robert A. Meyer, Jr., our Senior Vice President, General Counsel and
Secretary, and Peter J. O'Hanlon,
-6-
our Senior Vice President of Finance--that became effective as of January 1,
2001. Each employment agreement is for a term of three years, and provides for
renewal annually for a three-year term unless we provide notice to the executive
of our intention not to renew. We have not provided any such notice to Mr.
Donnell, Mr. Meyer or Mr. O'Hanlon. Each employment agreement provides for a
lump sum payment, and payment of 12 months' salary (or 18 months in the case of
Mr. Donnell's agreement) payable through our ordinary payroll process, to the
executive if we terminate his employment without cause or if the executive
terminates his employment with good reason. Each employment agreement includes
non-competition covenants effective for one year after termination. Each
employment agreement includes provisions that become effective upon a "change in
control."
Upon a change in control, certain employee benefit rights vest. In
addition, if within two years following a change in control, the employment of
the executive is terminated without cause, or if the executive terminates his
employment with good reason, he would be entitled to certain benefits, including
a lump sum payment equivalent to two years' salary, the payments he otherwise
would have been entitled to receive had we terminated his employment without
cause and without a change in control, and certain outplacement services.
Split Dollar Plan
Beginning in January of 1999 until December of 2002, we maintained a Split
Dollar Plan, in which certain of our key employees, including all Named
Executive Officers other than Donald A. Borror, were participants. The purpose
of the Split Dollar Plan was to provide additional incentive for participating
employees to remain with us and contribute to our success.
Under the Split Dollar Plan, participating employees were provided with a
death benefit during employment, together with a deferred compensation benefit
upon termination at or after age 55 (or, if sooner, upon a "change in control"),
provided (a) the employee had then completed ten years of service with us
following implementation of the Split Dollar Plan, (b) we had attained adjusted
shareholders' equity of $100 million, and (c) the employee had complied with the
provisions of the noncompetition covenant for one year following termination.
Under the terms of the Split Dollar Plan, each participating employee paid
a portion of the policy premiums; we paid the remainder of the premiums in cash.
In December of 2002, we discontinued the split dollar arrangement and purchased
each participating employees' interest in the policy after which each
participating employee assigned all of his or her interest in his or her life
insurance policy to us. We own and continue to maintain these life insurance
policies which will be used to provide a death benefit to each participating
employee who dies while actively employed by us. The amount of the death benefit
payable varies amongst participating employees but always is equal to the
policy's stated death benefit less the premiums that we paid to maintain the
policies. The policies' cash value is an asset that we own and may use for any
purpose.
For more information on the Split Dollar Plan, see "Report of the
Compensation Committee - Split Dollar Plan."
-7-
Supplemental Executive Retirement Plan
Effective January 1, 2003, we adopted a Supplemental Employee Retirement
Plan (the "SERP"), in which certain of our key employees, including all Named
Executive Officers other than Donald A. Borror, are participants. The purpose of
the SERP is to provide additional incentive for participating employees to
remain with us and contribute to our success.
Under the SERP, participating employees will be eligible for retirement
benefits if the participant satisfies certain criteria as are set forth in each
employees notice of participation. Each current participant's notice of
participation states that in order for an employee to qualify for retirement
benefits under the SERP, our adjusted shareholders' equity must exceed $100
million and the participating employee must (a) have participated in the plan
for at least ten years; (b) retire after age 55; or (c) either be terminated by
us without cause or terminate his employment with good reason. In addition,
participating employees will be eligible for their retirement benefit upon a
"change in control."
For more information on the SERP, see "Report of the Compensation
Committee - Supplemental Executive Retirement Plan."
1994 Incentive Stock Plan
We do not have any compensation plans (including any individual
compensation arrangements) under which we are authorized to issue Common Shares,
other than our 1994 Incentive Stock Plan (the "1994 Incentive Stock Plan"). All
outstanding stock options and awards of restricted shares were made pursuant to
the 1994 Incentive Stock Plan.
By its terms, the 1994 Incentive Stock Plan will expire on December 31,
2003. The Board has adopted, subject to shareholder approval, the Dominion
Homes, Inc. 2003 Stock Option and Incentive Equity Plan (the "2003 Incentive
Stock Plan"). Upon shareholder approval of the 2003 Incentive Stock Plan, the
1994 Incentive Stock Plan will terminate. The 2003 Incentive Stock Plan is
discussed in further detail in "Proposal 2 - Approval of the Dominion Homes,
Inc. 2003 Stock Option and Incentive Equity Plan."
No stock options, SARs, or long-term incentive plan awards were granted to
any Named Executive Officer during 2002. On October 22, 2002, the Compensation
Committee of the Board awarded 30,000 and 25,000 restricted Common Shares to
Douglas G. Borror, Chairman and Chief Executive Officer, and Jon M. Donnell,
President and Chief Operating Officer, respectively. The restricted Common
Shares shall vest, if at all, upon the lapse of a period of five (5) years from
the date of award, the Company having shareholders' equity of not less than
$175,000,000, and Mr. Borror or Mr. Donnell, as the case may be, continuing to
be an employee of the Company as of such date.
The following table sets forth information concerning the number and value
of Common Shares acquired upon the exercise of options by each Named Executive
who exercised options during 2002. In addition, the table sets forth the number
of Common Shares underlying unexercised options and the value of the unexercised
options held by each Named Executive
-8-
Officer who held options as of December 31, 2002. All options were granted
pursuant to the 1994 Incentive Stock Plan.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Number of Common Shares Value of Unexercised
Underlying Unexercised In-The-Money
Options/SARs at Options/SARs at
Fiscal-Year-End (#) Fiscal-Year-End ($)(1)
---------------------------- ------------------------------
Common Shares
acquired on Value
Name exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
Jon M. Donnell 76,000 $1,084,500 4,000 0 $38,000 0
Robert A. Meyer, Jr. 46,000 $650,750 1,500 0 $14,250 0
- ----------
(1) The Value of Unexercised In-The-Money Options equals the difference
between the aggregate fair market value at December 31, 2002, of the
Common Shares underlying the options and the aggregate exercise price of
the options.
The following table sets forth information, as of December 31, 2002,
concerning the aggregate number of Common Shares that are subject to issuance
upon exercise of outstanding options, warrants or rights under our equity
compensation plans; the weighted-average exercise price of such options,
warrants and rights; and the number of Common Shares remaining available for
issuance under our equity compensation plans.
Equity Compensation Plan Information
Number of Common Shares
to be issued upon
exercise of outstanding Weighted-average exercise Number of Common Shares
options, warrants and price of outstanding remaining available for
rights(1) options, warrants and rights future issuance (2)
- -------------------------------------------------------------------------------------------------------------------------------
Equity Compensation Plans Approved 170,100 $5.83 92,589
by Shareholders (3)
Equity Compensation Plans Not -- -- --
Approved by Shareholders
------- ----- ------
Total 170,100 $5.83 92,589
- ----------
(1) All outstanding options, warrants and rights were issued under the 1994
Incentive Stock Plan.
(2) Excludes Common Shares listed in the first column as Common Shares to be
issued upon exercise of outstanding options, warrants and rights. If the
shareholders approve the Dominion Homes, Inc. 2003 Stock Option and
Incentive Equity Plan, this number will be 500,000 Common Shares. See
"Proposal 2, Approval of Dominion Homes, Inc. 2003 Stock Option and
Incentive Equity Plan."
(3) Does not include shares subject to the Executive Deferred Compensation
Plan. See "Executive Deferred Compensation Plan" below.
-9-
Executive Deferred Compensation Plan
The Executive Deferred Compensation Plan permits executive officers and
directors to elect to defer receipt of a portion of their annual compensation
(20% of total base and bonus for employees and 100% of directors' fees). The
Executive Deferred Compensation Plan also provides for us to make a matching
contribution for each participant equal to 25% of the amount deferred, but not
to exceed $2,500 in any year. Our matching contribution vests in 20% increments
over a five-year period, subject to accelerated vesting upon a "change in
control." The contribution and match amounts are used by the trustee of a rabbi
trust to acquire Common Shares in the open market. These Common Shares are held
and voted by the trustee pursuant to the rabbi trust agreement.
The following table sets forth information concerning the aggregate
deferral contributions by participating directors and executive officers and
corresponding aggregate Company-matching contributions through December 31,
2002, expressed as the number of Common Shares held by the trustee as of such
date, with respect to each director and executive officer participating in the
Executive Deferred Compensation Plan.
Vested Unvested
Deferral Company-Matching Company-Matching
Contributions Contributions Contributions
Payable as Common Payable as Common Payable as Common
Shares Shares Shares Total
- ---------------------------------------------------------------------------------------------------------------
Douglas G. Borror 13,433 3,337 0 16,770
David S. Borror 4,966 579 674 6,219
Pete A. Klisares 12,070 1,340 0 13,410
C. Ronald Tilley 9,912 1,333 0 11,245
Terry E. George 5,939 1,496 0 7,435
Jon M. Donnell 5,958 822 675 7,455
Robert A. Meyer, Jr. 5,942 823 674 7,439
Peter J. O'Hanlon 4,962 577 675 6,214
- ---------------------------------------------------------------------------------------------------------------
Total 63,182 10,306 2,699 76,187
Financial Planning Reimbursement Plan
The Financial Planning Reimbursement Plan provides reimbursement for
expenses (up to $10,000 in any calendar year for our Chairman, President and any
Executive Vice President and up to $5,000 in any calendar year for our outside
directors, Senior Vice Presidents and Vice Presidents) incurred in personal
financial planning. The Financial Planning Reimbursement Plan has been in effect
since January 1, 2001.
Director Compensation
During 2002, directors who were not our employees received fees of $4,000
per quarter, $1,500 per Board meeting and $750 per committee meeting attended
($1,500 per committee
-10-
meeting for committees of which the director serves as chairman or for Executive
Committee meetings). Directors may defer the receipt of those fees and receive
matching contributions from us with respect to those deferred fees through
participation in the Executive Deferred Compensation Plan. As set forth above,
directors were also eligible to participate in the Financial Planning
Reimbursement Plan.
Effective January 1, 2003, directors who are not our employees will
receive fees of $5,000 per quarter and $2,000 per Board meeting. Non-employee
directors who serve on the Audit Committee will receive an annual fee of $2,500
($5,000 in the case of the Audit Committee Chairman). In addition, non-employee
directors shall receive the following fees for attending meetings of committees
on which the director serves: Compensation Committee: $750 ($1,500 in the case
of the Chairman); Affiliated Transaction Review Committee: $750 ($1,500 in the
case of the Chairman); Audit Committee: $1,250 ($2,500 in the case of the
Chairman); and Executive Committee: $1,500. Directors may defer the receipt of
those fees through participation in the Executive Deferred Compensation Plan and
receive a matching contribution from us of 25% with respect to those deferred
fees, not to exceed $2,500 in any year. Directors also will be entitled to
participate in the Financial Planning Reimbursement Plan.
Additionally, under the Incentive Stock Plan, non-employee directors
receive, on the first business day after each annual meeting of shareholders,
provided that the director continues to serve on the Board on such date, a grant
of a non-qualified stock option to purchase 2,500 Common Shares at an exercise
price equal to the fair market value of the Common Shares on the date of grant.
A director option is exercisable from the date of grant until the earlier of (i)
the tenth anniversary of the date of grant or (ii) generally three months (one
year in the case of a director who becomes disabled or dies) after the date the
director ceases to be a director. If shareholders approve the 2003 Incentive
Equity Plan, the same number of options will continue to be issued through the
2003 Incentive Equity Plan. For further detail, see "Proposal 2, Approval of
Dominion Homes, Inc. 2003 Incentive Equity Plan."
We do not pay any separate remuneration to our employees who serve as
directors. Messrs. Klisares, Mayo and Tilley were the directors who were not our
employees in 2002.
Compensation Committee Interlocks and Insider Participation
During 2002, no member of the Compensation Committee was a current or
former executive officer or had a reportable business relationship with the
Company.
-11-
REPORT OF COMPENSATION COMMITTEE
ON EXECUTIVE COMPENSATION
The following Report of Compensation Committee on Executive Compensation
does not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filings under the Securities
Act of 1933 or the Securities Exchange Act of 1934, except to the extent that
the Company specifically incorporates this Report by reference in such filing.
The Company has vested in the Compensation Committee of the Board of
Directors the authority to determine and administer the compensation program for
the Company's executive officers and other key employees. The Compensation
Committee during 2002 was composed of three outside, independent directors: Pete
A. Klisares, Gerald E. Mayo and C. Ronald Tilley. Mr. Klisares chairs the
Compensation Committee.
Compensation Philosophy
The Company's executive compensation philosophy seeks to promote the
following key objectives:
o Align the interests of executive officers and other key employees
with the interests of shareholders by linking a significant
percentage of their total compensation to Company financial
performance.
o Reward individual contribution and achievement.
o Allow the Company to continue to attract and retain outstanding
executive officers and other key employees and to compete with
industry competitors and other businesses for executive talent.
Implementation of this philosophy is an ongoing process, and the Compensation
Committee expects, as in previous years, to continue to refine the Company's
executive compensation program during 2003.
There are two primary components to the Company's executive compensation
program: annual cash compensation and long-term incentive compensation. Annual
cash compensation consists of a base salary and an incentive bonus. Long-term
incentive compensation consists of stock options, restricted shares, and other
awards under the 1994 Incentive Stock Plan (or the 2003 Incentive Equity Plan,
if that plan is approved by shareholders). The Company's executive compensation
program also allows executives to defer a portion of their compensation, and to
augment the deferred amounts by Company matches, through their optional
participation in the Executive Deferred Compensation Plan. The Company also has
a Supplemental Executive Retirement Plan, which was adopted by the Board in
December of 2002. The Supplemental Executive Retirement Plan provides deferred
compensation benefits to participating executives if certain vesting conditions
are met and further if the participating executive does not leave employment
with the Company prior to age 55. See "Supplemental Executive Retirement Plan"
below.
-12-
Annual Cash Compensation
General. It is the Company's objective to achieve continuous revenue and
earnings growth with a long-term objective of performing in the leading group of
companies in the homebuilding industry in revenue growth and profitability. The
Compensation Committee believes that, in order to achieve this objective, the
Company must be able to attract and retain exceptional executive talent.
Accordingly, the Compensation Committee's intent is that the total cash
compensation received by the Company's executive officers would place them in
the upper range of the total cash compensation received by the executive
officers of homebuilding companies in general. In determining compensation for
the Company's executive officers, the Compensation Committee annually reviews a
nationally-compiled database of compensation by other homebuilding companies for
various executive positions, including data specific to public homebuilding
companies, homebuilding companies of a size comparable to the Company and
homebuilding companies operating in the Midwest. The Compensation Committee also
considers the performance of the Company in relation to other homebuilding
companies based on several measures of economic performance.
Base Salary. The Compensation Committee recognizes that the homebuilding
business is cyclical and that the Company's financial performance depends, in
large part, on whether the homebuilding business is in a favorable or
unfavorable cycle. The Compensation Committee attempts to set the base salaries
of the Company's executive officers at levels sufficient to attract and retain
executive talent in all business cycles.
In setting the base salary of an executive officer, the Compensation
Committee subjectively analyzes the executive's responsibilities, performance
and value to the Company, but gives no fixed weighting to any of such factors.
The Compensation Committee also considers market salary ranges for comparable
positions. The Compensation Committee reviews annually the base salary of each
executive officer and makes adjustments as it believes is warranted.
Incentive Bonus. The Compensation Committee believes that a significant portion
of the total compensation of the Company's executive officers should consist of
variable, performance-based components, such as awards of incentive bonuses and
grants of stock options, which the Compensation Committee can adjust to reflect
changes in Company and individual performance. These compensation components are
intended to reinforce the Company's commitment to increasing Company
profitability and shareholder value.
In 2002, the shareholders adopted the Dominion Homes, Inc. Incentive
Growth Plan (the "Incentive Growth Plan") to provide tax-deductible incentive
compensation to the Company's Chief Executive Officer and its President and
Chief Operating Officer. Currently, the only employees participating in this
program are Douglas G. Borror, the Chairman of the Board and Chief Executive
Officer of the Company, and Jon M. Donnell, the President and Chief Operating
Officer of the Company.
-13-
Incentive compensation is paid under the Incentive Growth Plan only if
specified performance criteria are met over the course of a performance cycle.
The Incentive Growth Plan is administered by the Company's Compensation
Committee which is responsible for establishing for each plan participant (1) a
target bonus and (2) the performance criteria used to determine the portion of
the target bonus that the participant will receive at the end of any given
performance cycle. Performance criteria are established (and communicated to
participants in writing) no later than the earlier of (1) ninety (90) days after
the beginning of the applicable performance cycle; or (2) the expiration of 25%
of the applicable performance cycle.
In establishing each participant's performance criteria, the Compensation
Committee considers the relevance of each participant's assigned duties and
responsibilities to factors that preserve and increase the Company's value.
These factors may include:
o increasing sales;
o developing new products and lines of revenue;
o reducing operating expenses;
o increasing customer satisfaction;
o developing new markets and increasing the Company's share of
existing markets;
o meeting completion schedules;
o increasing standardized pricing;
o developing and managing relationships with regulatory and
other governmental agencies;
o managing cash;
o managing claims against the Company, including litigation;
o identifying and completing strategic acquisitions; and
o increasing the Company's book value.
During 2002, the Compensation Committee used the Company's net income and
a measure of the Company's customer satisfaction as the performance criteria
which would determine the participant's bonus. At the end of each performance
cycle, the Compensation Committee certifies to the Board the extent to which
each participant has or has not met his or her performance criteria and the
portion, if any, of the target bonus that is to be paid to each participant. If
the Board approves, this amount is distributed in a single cash payment within
90 days after the end of the performance cycle unless the participant has made
an irrevocable election to defer all or part of his or her incentive
compensation into the Executive Deferred Compensation Plan. If this election is
made, the deferred incentive compensation will be credited to the participant's
Executive Deferred Compensation Plan account and distributed under the terms of
that plan.
-14-
Subject to any contrary agreement between the Company and the participant,
a participant who terminates employment before the end of a performance cycle
will forfeit all right to receive any amount under the Incentive Growth Plan
(other than any amounts earned during any performance cycle that ended before
his or her termination which will be paid). A participant who retires, dies or
becomes disabled during a performance cycle will receive a prorated distribution
at the end of the performance cycle during which he or she retired, died or
became disabled, calculated in accordance with the proration formula set forth
in the Incentive Growth Plan.
Within sixty days of a "change in control" of the Company, the Company
will distribute to each Incentive Growth Plan participant the participant's
target bonus for the year in which the change in control occurred. The Company
will make the distribution whether or not the performance criteria for that
period have been met and whether or not the pending performance cycle has been
completed. If, however, the sum of all payments made upon a change in control as
described in the Incentive Growth Plan, and those provided under all other
plans, programs or agreements between the participant and the Company and its
subsidiaries, constitute "excess parachute payments," then the Company will
either (1) reimburse the participant for specified amounts owed as excise taxes,
as described in the Incentive Growth Plan, or (2) reduce the amounts paid to the
participant under the Incentive Growth Plan so that the participant's total
payments would be $1.00 less than the amount that would be considered an "excess
parachute payment." The Company will use the procedure which provides the
affected participant with the greatest after-tax benefit.
With respect to the remaining officers, the Compensation Committee takes
into account various quantitative measures and qualitative indicators of Company
and individual performance in determining the level of incentive bonuses to be
awarded to the Company's executive officers, including contributions to
attaining corporate goals and objectives and achievements with respect to
individual goals and performance measures. Although historically the
Compensation Committee has tended to give more weight to quantitative measures
of Company financial performance, it does not apply any specific formula. In
making such compensation decisions, the Compensation Committee recognizes and
takes into account that the homebuilding business is cyclical and that Company
financial performance can be greatly affected by factors, such as interest rates
and weather, that are beyond the control of the Company's executive officers.
The Compensation Committee considers such quantitative Company financial
performance measures as revenue growth, profitability, earnings per share and
return on shareholders' equity in determining the level of incentive bonuses.
The Compensation Committee also considers the Company's performance with respect
to its customer satisfaction ratings as a factor in determining incentive
bonuses for all executive officers. During 2002, the Company achieved its target
goal of customer satisfaction, but fell short of its highest target, and the
incentive bonuses for each executive officer was determined accordingly.
The Compensation Committee also understands the importance of individual
contributions and achievements that may be difficult to quantify and,
accordingly, recognizes qualitative indicators such as successful supervision of
major corporate projects, demonstrated leadership and the ability to respond to
difficult business cycles.
-15-
Long-Term Incentive Compensation
Stock Options. No stock options were awarded to any Named Executive
Officer in 2002. Although no grants were made in 2002, the Compensation
Committee intends to make grants on a periodic basis under the 2003 Incentive
Stock Plan (if that plan is approved by shareholders) to the Company's executive
officers and other key employees. In making such grants, the Compensation
Committee will consider the subjective factors identified above, as well as the
number of options granted in prior years.
Restricted Stock Grants. During 2002, the Company awarded 30,000 and
25,000 restricted shares to Douglas G. Borror, Chairman and Chief Executive
Officer, and Jon M. Donnell, President and Chief Operating Officer,
respectively. The restricted Common Shares shall vest, if at all, upon the lapse
of a period of five (5) years from the date of award, the Company having
shareholders' equity of not less than $175,000,000, and Mr. Borror or Mr.
Donnell, as the case may be, continuing to be an employee of the Company as of
such date. The grants were made in recognition of the contributions made by Mr.
Borror and Mr. Donnell and to incentivize further exemplary contributions by
them and their continued employment with the Company in the future. No other
grants of restricted shares were made to any Named Executive Officer in 2002.
Split Dollar Plan. Beginning in January of 1999 until December of 2002,
the Company maintained a Split Dollar Plan, in which certain key employees of
the Company, including all Named Executive Officers other than Donald A. Borror,
were participants. The purpose of the Split Dollar Plan was to provide
additional incentive for participating employees to remain with the Company and
contribute to its success.
Under the Split Dollar Plan, participating employees were provided with a
death benefit during employment, together with a retirement benefit upon
retirement at or after age 55 (or, if sooner, upon a "change in control" of the
Company), provided (a) the employee shall have then completed ten years of
service with the Company following implementation of the Split Dollar Plan, (b)
the Company shall have attained adjusted shareholders' equity of $100 million,
and (c) the employee shall have complied with the provisions of the
noncompetition covenant for one year following retirement.
Under the terms of the Split Dollar Plan, each participating employee paid
a portion of the policy premiums; the remainder of the premiums were paid by the
Company in cash. In December of 2002, the Company discontinued the split dollar
plan arrangement and each of the participating employees assigned all of his or
her interest in the employee's life insurance policy to the Company in exchange
for the Company's agreement to provide the employee with an equivalent death
benefit should the employee die during the course of his or her employment and a
payment in cash equivalent to the portion of the premiums which the participants
had personally paid ($19,344 in the case of Douglas G. Borror, $11,318 in the
case of Jon M. Donnell, $3,537 in the case of David S. Borror and $2,971 in the
case of Robert A. Meyer, Jr.).
Supplemental Executive Retirement Plan. Effective January 1, 2003, the
Company adopted a Supplemental Employee Retirement Plan (the "SERP"), in which
certain key employees of the Company, including all Named Executive Officers
other than Donald A.
-16-
Borror, are participants. The purpose of the SERP is to provide additional
incentive for participating employees to remain with the Company and contribute
to its success.
Under the SERP, participating employees will be eligible for retirement
benefits if the participant satisfies certain criteria as are set forth in each
employee's notice of participation. Each current participant's notice of
participation states that in order for an employee to qualify for retirement
benefits under the SERP, the Company's adjusted shareholders' equity must exceed
$100 million and the participating employee must (a) have participated in the
plan for at least ten years; (b) retire after age 55; or (c) either be
terminated by the Company without cause or terminate his employment with good
reason. In addition, participating employees will be eligible for their
retirement benefit upon a "change in control" in the Company.
The Compensation Committee may set forth qualifying criteria which differs
from those stated above for any future participant in the SERP. The Compensation
Committee will establish an account for each participant and otherwise
administer the SERP. Upon a participant satisfying the conditions outlined in
his notice of participation, the Company will make a lump sum distribution to
the participant in an amount equal to the value of his account. Initially, the
account shall have a value equal to the Company's contribution to the SERP as
set forth in the notice of participation. The Compensation Committee will
measure the value or the account annually by crediting any allocations made by
the Company, at the Compensation Committees discretion, and by using a
hypothetical investment of the value of the account in an investment fund of the
Compensation Committee's choosing.
Chief Executive Officer Compensation
In accordance with the executive compensation philosophy and program
described above, and primarily in recognition of the Company's improved
financial performance during 2002, the Compensation Committee awarded Douglas G.
Borror a cash incentive bonus of $1,450,000 in 2002. Mr. Borror received an
annual base salary in 2002 of $525,000 which represented a $45,000 increase from
his 2001 base salary. The Compensation Committee increased Mr. Borror's base
salary in an effort to maintain the total cash compensation received by the
Company's executive officers in the upper echelon of total cash compensation
received by executive officers of homebuilding companies in general. In
determining Mr. Borror's compensation for 2002, the Compensation Committee
relied upon the following: (i) the Company's record net income; and (ii) the
Company's achieving its customer satisfaction goal, but falling short of its
highest target. Mr. Borror did not receive an award of stock options in 2002 but
was awarded 30,000 restricted Common Shares in 2002. The restricted Common
Shares shall vest, if at all, upon the lapse of a period of five (5) years from
the date of award, the Company having shareholders' equity of not less than
$175,000,000, and Mr. Borror continuing to be an employee of the Company as of
such date.
Tax Aspects
Section 162(m) of the Internal Revenue Code of 1986, as amended, prohibits
the deduction by a publicly-held corporation of compensation paid to a "covered
employee" in excess of $1.0 million per year, subject to certain exceptions.
Generally, the Company's covered employees are those executive officers listed
under the Summary Compensation Table set forth
-17-
above. With the adoption and application of the Company's Incentive Compensation
Plan the Company believes that the portion of compensation over $1.0 million for
2002 awarded to Mr. Borror and Mr. Donnell will be deductible for federal income
tax purposes.
This report of the Compensation Committee was adopted by each of the
members of the Compensation Committee on March 11, 2003.
Members of the Compensation Committee
Pete A. Klisares Gerald E. Mayo
C. Ronald Tilley
REPORT OF AUDIT COMMITTEE
The following Report of Audit Committee does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this Report by reference in such filing.
General
The Audit Committee is composed of three directors, each of whom is
independent of the Company and management for purposes of the listing
requirements for Nasdaq National Market securities. The members of the Audit
Committee during 2002 were Pete A. Klisares, Gerald E. Mayo and C. Ronald
Tilley. Mr. Mayo chaired the Audit Committee. The Audit Committee has at least
one member, and will continue to have at least one member, whose past employment
experience in finance or accounting, requisite professional certification in
accounting or other comparable experience or background results in such members
financial sophistication for purposes of the listing requirements for Nasdaq
National Market securities.
The Audit Committee is governed by a formal written charter that is
reviewed and assessed annually (the "Charter"). The Charter was originally
adopted by the Board in 2001, and was amended and restated in March 2003. A copy
of the Charter, as amended, is attached as Appendix I to this Proxy Statement.
The Charter is intended to conform to new requirements imposed under the
Sarbanes-Oxley Act as well as the listing requirements for Nasdaq National
Market securities. In accordance with the provisions of the Charter, the Audit
Committee assists the Board in fulfilling its responsibility for oversight of
the quality and integrity of the accounting, auditing and financial reporting
practices of the Company.
In discharging its oversight responsibility as to the audit process, the
Audit Committee obtained from PricewaterhouseCoopers LLP a formal written
statement describing all relationships between PricewaterhouseCoopers LLP and
the Company that might bear on PricewaterhouseCoopers LLP's independence
consistent with Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committees, discussed with PricewaterhouseCoopers LLP any
relationships or services that may impact the objectivity and independence of
PricewaterhouseCoopers LLP and satisfied itself as to PricewaterhouseCoopers
LLP's independence. The Audit Committee also discussed with management, the
internal
-18-
auditors and PricewaterhouseCoopers LLP the adequacy and effectiveness of the
Company's internal accounting and financial controls. Prior to the filing of
each of the Company's Quarterly Reports on Form 10-Q, the Audit Committee met
with the independent auditors to discuss the results of interim reviews
including when applicable, new or changed accounting principles, critical
accounting policies unusual transactions, and estimates, judgments and
uncertainties related to such quarterly financial reports. The Audit Committee
also received written communication, and held discussions with, the independent
auditors regarding the annual audit plan including matters relating to
accounting and financial reporting, critical accounting policies, higher risk
and judgmental areas of financial reporting and industry and business issues
impacting the Company's financial reports. Prior to filing of the Company's
Annual Report on Form 10-K, the Audit Committee discussed and reviewed the
results of PricewaterhouseCoopers LLP's audit of the financial statements as of
and for the year ended December 31, 2002. This discussion and review, conducted
with and without management present, included all communications required by
Statement on Auditing Standards No. 61, Communication with Audit Committees as
well as critical accounting policies and the overall quality of the Company's
financial reporting.
The Audit Committee reviewed and discussed the audited consolidated
financial statements of the Company as of and for the year ended December 31,
2002, with management. Management has the responsibility for the preparation of
the Company's consolidated financial statements and PricewaterhouseCoopers LLP
has the responsibility for the audit of those statements. The Audit Committee
also discussed the results of the Company's internal audit.
Conclusion
Based on the reviews and on the discussions with management and
PricewaterhouseCoopers LLP noted above, the Audit Committee recommended to the
Board (and the Board approved) that the Company's audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended December 31, 2002, to be filed with the Securities and Exchange
Commission.
This report of the Audit Committee was adopted by each of the members of
the Audit Committee on March 11, 2003.
Members of the Audit Committee
Pete A. Klisares Gerald E. Mayo
C. Ronald Tilley
-19-
SELECTION OF AUDITORS
The Board has selected PricewaterhouseCoopers LLP, certified public
accountants, as independent auditors of the Company for the year ending December
31, 2003. PricewaterhouseCoopers LLP and its predecessors have audited the books
of the Company and its predecessors since 1964. Management expects that a
representative of PricewaterhouseCoopers LLP will be present at the Annual
Meeting, will have the opportunity to make a statement if he or she so desires
and will be available to respond to appropriate questions.
Audit Fees
The aggregate fees billed for professional services rendered by
PricewaterhouseCoopers LLP for the audit of the Company's annual consolidated
financial statements for 2002 and the reviews of the consolidated financial
statements included in the Company's Quarterly Reports on Form 10-Q for 2002
(the "Audit Services") were $212,370.
Financial Information Systems Design and Implementation Fees
PricewaterhouseCoopers LLP did not render during 2002 for the Company any
professional services related to the design and implementation of financial
information systems (the "Financial Information Systems Design and
Implementation Services").
All Other Fees
The aggregate fees billed for services rendered by PricewaterhouseCoopers
LLP, other than Audit Services and Financial Information Systems Design and
Implementation Services ("Other Services"), for 2002 was $249,956, which amount
included audit related services for audits to meet regulatory requirements
($32,354), income tax compliance and related tax services ($33,500), audit fees
and expenses relating to the Company's secondary offering ($160,102) and other
one-time advisory services ($24,000). The Audit Committee determined that the
provision of the Other Services was compatible with maintaining the independence
of PricewaterhouseCoopers LLP.
-20-
SHARE PRICE PERFORMANCE GRAPH
The following share performance graph does not constitute soliciting
material and should not be deemed filed or incorporated by reference into any
other Company filings under the Securities Act of 1933 or the Securities
Exchange Act of 1934, except to the extent that the Company specifically
incorporates this share performance graph by reference in such filing.
The share performance graph compares the cumulative total shareholder
return on the Common Shares from December 31, 1997, until December 31, 2002,
with the cumulative total return of (a) the NASDAQ-OTC Index Composite and (b)
the Standard and Poor's Homebuilding Index. The graph assumes the investment, on
December 31, 1997, of $100 in the Common Shares, the NASDAQ-OTC Index Composite
and the Standard and Poor's Homebuilding Index.
[LINE CHART OMITTED]
S&P
Nasdaq Homebuilding DHOM
- ------------------------------------------------------------------------------
December 31, 1997 100.00 100.00 100.00
December 31, 1998 138.71 120.91 91.67
December 31, 1999 255.38 80.72 52.08
December 31, 2000 156.29 125.50 70.32
December 31, 2001 123.39 159.39 130.00
December 31, 2002 84.49 157.79 118.75
-21-
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Description and Ownership of BRC
BRC is in the business of owning, managing and consulting on multifamily
housing, commercial real estate and undeveloped real estate. Donald A. Borror,
Douglas G. Borror, and David S. Borror, who are directors and executive officers
of the Company, and Terry E. George, who is an executive officer of the Company,
also are directors of BRC. David Borror, Douglas Borror and Terry George also
serve as President, Executive Vice President and Vice President, respectively,
of BRC. Mr. George additionally serves as Secretary and Treasurer of BRC. The
Borror family, directly and through its ownership of BRC, beneficially owns
approximately 50.7% of the outstanding Common Shares.
BRC has issued and outstanding 88,360 Class A (voting) common shares and
273,195 Class B (non-voting) common shares, all of which are beneficially owned
by the children of Donald Borror, in some cases through trusts for their
benefit, and by Terry George. Through their ownership and control of BRC, such
persons are in a position to control the Company. See "Security Ownership of
Certain Beneficial Owners and Management." The following table sets forth the
share ownership of BRC:
Percentage Percentage
Class A of Class A Class B of Class B Combined Percentage
Shareholders(1) Shares Shares Shares Shares Total of Combined
- --------------- ------ ---------- ------- ---------- -------- -----------
Douglas G. Borror, Trustee of
the Douglas G. Borror
Revocable Trust(2) ....... 43,099 48.78% 120,656 44.16% 163,755 45.29%
David S. Borror ............. 23,328 26.40% 81,874 29.97% 105,202 29.10%
David S. Borror, Trustee,
1987 Irrevocable Qualified
Subchapter S Trust(3) .... 16,114 18.24% 54,605 19.99% 70,719 19.56%
Terry E. George ............. 5,819 6.59% 16,060 5.88% 21,879 6.05%
------ ------- -------
Totals ...................... 88,360 273,195 361,555
- --------
(1) Effective December 31, 2002, the Amended and Restated Borror Corporation
Stock Trust (the "Stock Trust"), a revocable trust established by Donald Borror
pursuant to a trust agreement dated January 4, 1994 (the "Stock Trust"), sold
5,785 Class B common shares of BRC to Douglas G. Borror, Trustee u/a dated
January 18, 2001, as amended and restated September 7, 2002, and 3,698 Class B
common shares of BRC to David S. Borror. The Stock Trust gifted 1,996 Class B
common shares of BRC to each of Douglas G. Borror, Trustee of the Douglas G.
Borror Revocable Trust and David S. Borror. Additionally, BRC purchased and
redeemed the remaining 6,500 Class A common shares of BRC held by the Stock
Trust. The Stock Trust no longer owns any common shares of BRC.
(2) The Douglas G. Borror Revocable Trust is a revocable trust established by
Douglas Borror pursuant to a trust agreement dated June 18, 2001. During his
lifetime, Douglas Borror is the sole trustee and beneficiary of the Douglas G.
Borror Revocable Trust. Upon the death of Douglas Borror, David S. Borror
becomes the trustee, and Douglas Borror's children become the sole
beneficiaries, of the Douglas G. Borror Revocable Trust.
(3) The 1987 Irrevocable Qualified Subchapter-S Trust is an irrevocable trust
established by Donald Borror pursuant to a trust agreement dated June 26, 1987
(the "Irrevocable Trust"). David Borror is the trustee of the Irrevocable Trust
and Donna Myers (Donald and Joanne Borror's daughter and Douglas and David
Borror's sister) is the sole beneficiary of the Irrevocable Trust. The
Irrevocable Trust expires upon the death of Donald Borror.
-22-
BRC and its shareholders are parties to a Close Corporation Agreement (the
"BRC Agreement") that governs the operation of BRC and certain relationships
among its shareholders. The BRC Agreement provides that all the voting power of
the BRC shares is to be exercised by a majority of the directors of BRC, all of
whom will be elected by Donald Borror and Douglas Borror jointly until the death
or incapacity of either of them and, thereafter, by the other of them solely.
David Borror has the right to appoint the directors of BRC in the event Douglas
Borror and Donald Borror are both deceased or incapacitated and, in such event,
it is anticipated that David Borror will appoint an advisory committee of the
then existing members of the Executive Committee of the Company's Board to
assist him with material decisions affecting BRC, including issues involving
BRC's ownership of Common Shares of the Company.
Under the provisions of the BRC Agreement, David Borror is required to be
elected as a director of BRC as long as he continues to hold at least 10% of the
common shares of BRC, absent his removal for "cause" within the meaning of the
BRC Agreement. As long as he continues to hold at least 10% of the common shares
of BRC and as long as BRC has the ability to elect at least two directors of the
Company, BRC also is required to use its best efforts to elect David Borror as a
director of the Company. The BRC Agreement generally prohibits the transfer of
common shares of BRC to persons who are not members of the Borror family unless
certain procedures are followed. BRC is required to repurchase all of the common
shares of BRC owned by Terry George in the event of his death or incapacity and
has the right to purchase at any time the common shares of BRC owned by Terry
George. BRC also is required to purchase a certain number of common shares of
BRC from the estates of Borror family members. Under certain conditions, Borror
family members who are not employed by BRC have the right to require BRC to
repurchase common shares of BRC held by such family members. In certain
instances, the obligation of BRC to repurchase common shares of BRC maybe
assumed by certain Borror family shareholders.
Transactions with BRC and Related Persons
We have an internal policy that requires transactions with our affiliates
be on terms no less favorable to us than those reasonably available from
unrelated third parties. All material transactions with affiliates must be
reviewed for consistency with this policy, and approved, by the Affiliated
Transactions Review Committee of the Board. The Affiliated Transactions Review
Committee is comprised of three outside, independent directors: Pete A Klisares
(Chairman), Gerald E. Mayo and C. Ronald Tilley.
We lease from BRC our 40,000 square foot corporate headquarters. The lease
was effective January 1, 1998 for a term of twelve years at a rental rate of
$12.00 per square foot on a triple net basis. The lease contains two options to
renew for periods of five years each at then-current market rates. The rental
rate was established by an MAI appraiser commissioned by the Affiliated
Transactions Review Committee, and confirmed in a review for the Affiliated
Transactions Review Committee by a second MAI appraiser. We paid to BRC $451,000
under this lease during 2002. We believe that the terms of this lease are no
less favorable to us than those reasonably available from unrelated third
parties for comparable space.
We also lease from BRC an aggregate of 15,750 square feet of commercial
space which we use for our decorating studio, centralized sales office and
mortgage financing services
-23-
company. The weighted average lease rate of this space is $11.00 per square
foot. The Affiliated Transaction Review Committee approved each of the leases
after review of a report by an independent MAI appraiser. We paid to BRC an
aggregate of $237,000 under leases for this space during 2002. We believe that
the terms of these leases are no less favorable to us than those reasonably
available from unrelated third parties for comparable space.
Occasionally, our employees provide limited administrative services to
BRC, for which we receive fees. We received aggregate fees of $10,000 from BRC
for such administrative services in 2002.
We are parties to a Shareholder Agreement, dated January 20, 1994, with
BRC, pursuant to which BRC has the right, from time to time, to demand that we
register for sale Common Shares owned by BRC. Each request by BRC for a demand
registration must cover at least 10% of the Common Shares owned by BRC and at
least 5% of the then outstanding Common Shares. Without our consent (exercised
by a majority of our independent directors), we are not obligated to cause a
demand registration to be effected within 18 months after the consummation of a
prior demand registration. We and BRC are each required to pay one-half of the
expenses of each demand registration. BRC also has incidental, or piggy-back,
registration rights if we propose to register any of our equity securities
(other than registrations involving employee benefit plans) for our own account
or for the account of any of our other shareholders. BRC is required to pay all
of its own legal expenses and the first $25,000 of the other expenses of a
piggy-back registration and we are required to pay the remaining expenses of a
piggy-back registration. Both the demand and piggy-back registration rights are
subject to customary underwriting and holdback provisions and will expire on
March 9, 2004. During 2002, BRC sold 353,900 Common Shares pursuant to the
exercise of its piggy-back rights and received aggregate proceeds of $6,653,320,
net of underwriting discounts, from such sale. Pursuant to the provisions of the
Shareholder Agreement, BRC paid its own expenses and the first $25,000 of the
other expenses of such piggy-back registration.
BRC purchased from us approximately $29,000 of roof shingles, $5,000 of
which were delivered in 2003. BRC purchased the shingles at an 8% mark up from
the price we paid for them. BRC used these shingles to repair a roof on a
commercial rental property which it owns and of which we are a tenant. This
transaction was not reviewed or approved by the Affiliated Transactions Review
Committee or the Audit Committee.
Jon Donnell, our President and Chief Operating Officer, and BRC are
parties to a Stock Option Agreement, dated November 13, 1998, pursuant to which
BRC has granted to Mr. Donnell an option to purchase from BRC 100,000 of our
common shares owned by BRC at an exercise price of $5.75 per share. The option
is not currently exercisable and will not become exercisable unless and until it
vests. The option will vest, if at all, upon the first to occur of the
following: (1) we have adjusted shareholders' equity of not less than $100
million as of the last day of any fiscal quarter during the period commencing on
June 30, 2006 and terminating on June 30, 2013 and Mr. Donnell continues to be
an employee as of such date; (2) a change in control occurs; (3) we terminate
Mr. Donnell's employment other than for cause; or (4) Mr. Donnell terminates his
employment for good reason. The option will terminate and will no longer be
exercisable on June 30, 2014 or the date of our termination of Mr. Donnell for
cause, whichever is earlier. For purposes of this agreement, the terms "cause,"
"change in control" and
-24-
"good reason" have the meaning given to such terms in Mr. Donnell's employment
agreement (See "Compensation of Directors and Executive Officers--Employment
Agreement") and the term "adjusted shareholders' equity" means our consolidated
shareholders' equity, as reported in our consolidated balance sheet, as adjusted
by subtracting the net proceeds from the sale of any of our equity securities
after the date of the option agreement and by adding the fair value of any
shareholder dividends or distributions made after the date of the option
agreement.
Donald A. Borror and Richard Myers own Printing Plus, Inc., a printing
company which has provided printing services to us. Mr. Myers operates Printing
Plus, Inc. Mr. Myers is the husband of Donna Borror Myers, who is Donald A.
Borror's daughter and Douglas G. and David S. Borror's sister. In 2002, we paid
$142,651 to Printing Plus, Inc. for printing services. All of the printing
services provided to us by Printing Plus, Inc. in 2002 were pursuant to
contracts that had been competitively bid, except that one of these contracts
was competitively bid in February of 2001 and expired by its terms in February
of 2002. In 2002, we paid approximately $21,805 to Printing Plus, Inc. for
printing services without re-bidding this expired contract. None of our
transactions with Printing Plus, Inc. were reviewed or approved by the
Affiliated Transactions Review Committee or the Audit Committee of the Board.
We paid Sofia & Company, Inc. $45,000 during 2002 for providing financial
advisory services to us pursuant to a financial services agreement dated April
11, 2002 (the "Financial Services Agreement"). Zuheir Sofia is the Chairman of
Sofia & Company, Inc. and a nominee for election to the Board. In anticipation
of Mr. Sofia's nomination as member of the Board, we agreed with Sofia &
Company, Inc. to terminate the Financial Services Agreement effective December
31, 2002.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Under the federal securities laws, we are required to report in this Proxy
Statement any known failures during the 2002 year by executive officers,
directors or 10% shareholders to file on a timely basis a Form 3, 4 or 5,
relating to the beneficial ownership of the Common Shares. To the best of our
knowledge after a review of such filings, all such required forms were filed on
a timely basis, with the exception of a sale of 6,000 Common Shares by Gerald E.
Mayo, one of our non-employee directors, which was inadvertently omitted the
Form 4 which was filed on March 9, 2002. The transaction was subsequently
reported in an amended Form 4 filed on May 29, 2002.
-25-
PROPOSAL 1
ELECTION OF DIRECTORS
Number and Term of Directors
Section 2.02 of the Company's Amended and Restated Code of Regulations
(the "Regulations") provides for the directors to be divided into two classes,
designated Class I directors and Class II directors. The directors are empowered
to fix or change the number of directors, and to fill any vacancy that is
created by an increase in the number of directors, subject to the limitations
that the number of directors may not be increased to more than ten (10) nor
reduced to less than three (3).
On March 11, 2003, the Board unanimously adopted a resolution increasing
the authorized number of director from seven (7) to nine (9). The purpose of the
increase in the authorized number of directors was to create two vacancies on
the Board that would be filled at the Annual Meeting by the election of two new
independent directors, Carl A. Nelson, Jr. and Zuheir Sofia. The election of
Messrs Nelson and Sofia is intended to supplement the financial and accounting
sophistication of the Board and result in a majority of the members of the Board
being independent. The Board has designated that, upon election by the
shareholders, Mr. Sofia will serve as a Class I director and Mr. Nelson will
serve as a Class II director.
Nominees For Election at the Annual Meeting
Class I Directors
The Board proposes the election of the four (4) nominees listed in the
table below as Class I directors, to serve until the 2005 Annual Meeting of
Shareholders. The table sets forth for each nominee: his name, age, principal
occupation, occupation held during the past five years, other companies of which
he is a director (which are shown parenthetically) and the year in which he
first become a director of the Company.
Director
Name Age Principal Occupation/Past Experience Since
- ---- --- ------------------------------------ -----
Class I Directors
Douglas G. Borror 47 Chairman and Chief Executive Officer of the Company; Member of 1984
Board of Trustees of The Ohio State University (Columbia Gas of
Ohio, Inc., The Huntington National Bank and Command Alkon
Incorporated)
Jon M. Donnell 43 President and Chief Operating Officer of the Company 1997
-26-
Zuheir Sofia 58 Chairman, Sofia & Company, Inc., July 1998 to present, President, --
Chief Operating Officer and Director of Huntington Bancshares,
Incorporated, August 1984 to June 1998 (Lancaster Colony
Corporation)
C. Ronald Tilley 67 Retired Chairman and Chief Executive Officer of Columbia Gas 1996
Distribution Companies, an Ohio-based natural gas company
Class II Directors
The Board has nominated Carl A. Nelson, Jr. to fill the vacancy in the
Class II directors caused by the increase in the authorized number of directors.
Upon election, Mr. Nelson will serve on the Board for the remaining term of the
Class II directors. The table sets forth for Mr. Nelson, and for each of the
other Class II directors who will continue after the Annual Meeting to serve as
directors for a term that will expire at the 2004 Annual Meeting of
Shareholders: his name, age, principal occupation, occupation held during the
past five years, other companies of which he is a director (which are shown
parenthetically) and the year in which he first become a director of the
Company.
Director
Name Age Principal Occupation/Past Experience Since
- ---- --- ------------------------------------ -----
Nominee for
Class II Directors
Carl A. Nelson, Jr. 57 Independent business consultant and lecturer at The Ohio State -
University; retired as a partner from Arthur Andersen in February
of 2002 after spending 31 years with the firm where he was the
leader of the firm's consulting services for the products
industry in the United States and Managing Partner of the Columbus
Office.
Continuing
Class II Directors
Donald A. Borror 73 Chairman Emeritus of the Company 1978
David S. Borror 45 Executive Vice President of the Company 1985
Pete A. Klisares 67 Principal of MIGG, an-Ohio based capital investment company, 1994
October 1999 to present; President and Chief Operating Officer of
Karrington Communities, Inc.
-27-
(now Sunrise Assisted Living), an Ohio-based company engaged
in 1994 the operation and construction of assisted living
facilities, August 1997 to June 1999 (The Huntington National
Bank, Sunrise Assisted Living, MPW Industrial Services Group,
Inc. and Vistacare, Inc.)
Gerald E. Mayo 70 Retired Chairman of the Midland Life Insurance Company and Midland 1994
Financial Services, Inc. (McKessson/HBOC and Depositor Assistance
Corp.)
Family Relationships
Donald A. Borror is the father of Douglas G. Borror and David S. Borror.
There are no other family relationships among our executive officers and/or
directors.
Agreement with Respect to the Election of Directors
BRC, the holder of approximately 48.6% of the issued and outstanding
Common Shares, has agreed in a Close Corporation Agreement with its shareholders
to use its best efforts to elect David S. Borror as a director of the Company
for so long as certain contingencies are satisfied and for so long as BRC has
the ability to elect at least two (2) directors of the Company. See "Certain
Relationships and Related Transactions--Description and Ownership of BRC."
Meetings and Committees
We have a Compensation Committee, an Executive Committee, an Audit
Committee and an Affiliated Transactions Review Committee. We do not have a
standing nominating committee or other committee performing a similar function.
Nominations for directors are determined by the full Board.
The Board meets immediately following the adjournment of each annual
meeting of shareholders at which directors are elected, and holds such other
meetings as may be called from time to time by the Chairman of the Board, the
President or any two directors. During the year ended December 31, 2002, the
Board held four meetings, the Executive Committee held four meetings, the
Compensation Committee held five meetings and the Audit Committee held four
meetings. The Affiliated Transactions Review Committee did not meet during 2002.
Each director attended at least 75% of the aggregate of the number of meetings
of the Board and of all committees on which he served during the year.
The Executive Committee is authorized to act for the Board between
regularly scheduled meetings of the Board. The members of the Executive
Committee during 2002 were Douglas G. Borror (Chairman), Donald A. Borror, David
S. Borror, Jon M. Donnell and Pete A. Klisares.
The Compensation Committee determines the compensation of the Company's
executive officers. The members of the Compensation Committee during 2002 were
Pete A. Klisares (Chairman), Gerald E. Mayo and C. Ronald Tilley.
-28-
The Audit Committee oversees accounting, auditing and financial reporting
matters. The members of the Audit Committee during 2002 were Gerald E. Mayo
(Chairman), Pete A. Klisares and C. Ronald Tilley.
The Affiliated Transactions Review Committee reviews and authorizes
material transactions between the Company and its affiliates or related parties.
The members of the Affiliated Transactions Review Committee during 2002 were
Pete A. Klisares (Chairman), Gerald E. Mayo and C. Ronald Tilley.
Election Procedures
The Company has not received from any shareholder any notice of a proposed
nominee for election at the Annual Meeting. It is the intention of the persons
named as proxies in the accompanying form of Proxy to vote for the election of
the five (5) nominees named above unless a shareholder otherwise directs on a
Proxy. If, by reason of death or other unexpected occurrence, any such nominee
is unable to stand for election, each Proxy will be voted for such substitute as
the Board recommends. As of the date of this Proxy Statement, the Board knows of
no reason why any of the nominees would be unable to serve if elected. Proxies
cannot be voted for more than five (5) directors.
Recommendation and Vote
Shareholders do not have cumulative voting rights in the election of
directors. The five nominees receiving the greatest number of votes will be
elected as directors.
The Board unanimously recommends that the shareholders vote "FOR" the
election of each of its nominees.
PROPOSAL 2
APPROVAL OF DOMINION HOMES, INC.
2003 STOCK OPTION AND INCENTIVE EQUITY PLAN
On March 11, 2003 the Board of Directors (the "Board") adopted, subject to
approval by the shareholders, the Dominion Homes, Inc. 2003 Stock Option and
Incentive Equity Plan (the "2003 Incentive Equity Plan"). Set forth below is a
summary of the 2003 Incentive Equity Plan, which summary is qualified in its
entirety by reference to the 2003 Incentive Equity Plan, a copy of which is
attached hereto as Appendix II.
The 2003 Incentive Equity Plan authorizes the granting of (i) incentive
stock options ("ISOs") as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) nonstatutory stock options ("NSOs" and
together with ISOs, "Options"), (iii) performance shares, (iv) performance
units, (v) restricted shares and (vi) stock appreciation rights ("SARs")(ISOs,
NSOs, performance shares, performance units, restricted shares and SARs are
referred to collectively as "Awards"). The purpose of the 2003 Incentive Equity
Plan is to foster and promote our long-term financial success and to materially
increase shareholder value by providing employees and eligible directors
("Participants") an opportunity to acquire an ownership interest in the Company
and enabling us to attract and retain the services of
-29-
outstanding employees and directors upon whose judgment, interest and special
efforts the successful conduct of our business is largely dependent.
There will be 500,000 (subject to adjustment as described below) of our
common shares (the "Common Shares") available for issuance under the 2003
Incentive Equity Plan. However, in any year, no employee may be issued Options
affecting more than 50,000 (subject to adjustment as described below) Common
Shares and SARs affecting more than 50,000 (subject to adjustment as described
below) Common Shares. We presently maintain the Dominion Homes, Inc. Incentive
Stock Plan which was originally approved by our sole shareholder in 1994 (the
"1994 Incentive Stock Plan"). Upon the receipt of shareholder approval of the
2003 Incentive Equity Plan, the 1994 Incentive Stock Plan will terminate and the
remaining 92,589 Common Shares available under the 1994 Incentive Stock Plan as
of the date of this Proxy Statement will be cancelled and will not be awarded.
However all awards outstanding under the 1994 Incentive Stock Plan at the time
of its termination will continue to be governed by the provisions of the 1994
Incentive Stock Plan until such awards are exercised or forfeited.
Common Shares subject to the 2003 Incentive Equity Plan may either be
authorized but unissued shares or treasury shares. If any Award granted under
the 2003 Incentive Equity Plan is cancelled, terminated or otherwise settled
without the issuance of any shares, the shares reserved for such Award may again
be granted under the 2003 Incentive Equity Plan.
Other than "director options," as of the date of this Proxy Statement, no
determination has been made regarding the identity of the Participants to whom
Awards may be granted under the 2003 Incentive Equity Plan or the kinds of
Awards or numbers of shares to be subject to Awards that will be granted to such
Participants. We anticipate that, annually, each of our five non-employee
directors will be granted director options covering 2,500 Common Shares under
the 2003 Incentive Equity Plan. All of our executives will be eligible to be
granted Awards under the 2003 Incentive Equity Plan, including the executive
officers named in the Summary Compensation Table. During 2002, no stock options
were granted to our Named Executive Officers, but Douglas Borror received a
grant of 30,000 restricted Common Shares and Jon Donnell received a grant of
25,000 restricted Common Shares. During 2002, no stock options were granted to
our current executive officers or to any other employee, including current
officers who are not our executive officers. We did award 2,700 performance
shares to our employees, none of whom were officers or executive officers.
Because the granting of Awards under the 2003 Incentive Equity Plan will be made
by the Compensation Committee of the Board of Directors (the "Compensation
Committee") based (except as noted below) on a subjective determination of the
relative current and future contribution that each Participant has made or may
make to our long-term welfare, past grants may not be reflective of future
grants of Awards under the 2003 Incentive Equity Plan.
Summary of Operation of the 2003 Incentive Equity Plan
Administration of the 2003 Incentive Equity Plan
The 2003 Incentive Equity Plan will be administered by the Compensation
Committee, which has the authority to determine, among other things, the
Participants to whom Awards will be granted under the 2003 Incentive Equity
Plan, the type of Awards to be granted and the terms
-30-
and conditions of such Awards. The Compensation Committee consists of not less
than three members of the Board (i) who are "outside directors" within the
meaning of Treasury Regulation Section 1.162-27(c)(4) and the regulations and
rulings thereunder, (ii) who are "non-employee directors" within the meaning of
Rule 16b-3 under the Exchange Act, and (iii) none of whom receive payment from
us in any capacity other than as a director, except as permitted under Treasury
Regulation Sections 1.162-27(e)(3)(ii) and (iii). The plan also allows the
Compensation Committee to delegate ministerial duties and the authority to issue
some awards to employees who are not officers of the Company.
Options
Options may be granted under the 2003 Incentive Equity Plan. No ISO may be
exercised more than ten years after it is granted, and any ISO which is granted
to an individual who, on the effective date of the grant, owns stock possessing
more than 10% of the total combined voting power of all classes of our stock
then outstanding and entitled to vote, will not be exercisable more than five
years after it is granted. No person may be granted ISOs under the 2003
Incentive Equity Plan if it would cause the aggregate fair market value
(determined as of the date an ISO is granted) of the shares with respect to
which all incentive stock options held by such person are exercisable for the
first time by such option holder during any calendar year under the 2003
Incentive Equity Plan and all other stock option plans maintained by us to
exceed $100,000. ISOs may only be granted to persons who are common law
employees of the Company at the time of grant.
On the first business day after the annual meeting of our shareholders,
each non- employee director will be granted "director options", which are NSOs,
to purchase 2,500 shares.
Exercise of Options
Options will vest and be exercisable under a schedule described in each
award agreement. Although this schedule may vary, the Company expects that
options will vest and be exercisable generally within three to five years after
the date of grant. Director options will vest and be exercisable immediately
after the date of grant. Options to purchase a fraction of a share of stock will
be paid in cash equal to the fair market value of the fractional share. Unless
otherwise provided in the award agreement, no employee or director may exercise
Options for fewer than the lesser of (i) 100 shares, or (ii) the full number of
shares for which Options are then exercisable.
Option Exercise Price
The exercise price of each Option will be specified by the Compensation
Committee in the award agreement. For ISOs, the exercise price may not be less
than the fair market value of a Common Share on the date of the grant. The fair
market value of a Common Share on a particular date will be the closing sale
price as shown on the Nasdaq National Market on the most recent trading day. As
of the close of trading on March 21, 2003, the fair market value of a Common
Share was $14.59 per share. In the case of any ISO granted to an individual who,
on the effective date of the grant, owns shares possessing more than 10% of the
total combined
-31-
voting power of all classes of our stock, the exercise price per share must be
at least 110% of the fair market value of a Common Share on the effective date
of the ISO grant.
Payment of Option Exercise Price and Tax Withholding
Unless otherwise specified in the award agreement, payment of the exercise
price must be made in cash. The Compensation Committee may, however, in its
discretion and in accordance with applicable law, develop other procedures to
permit Participants to pay, including by attesting or tendering shares having a
fair market value equal to the exercise price of the Option. We will make
appropriate arrangements for the satisfaction of all tax withholding
requirements applicable to the exercise of such Option. If the Participant has
not paid to us any required taxes, we may withhold from the value of the Award
any amount necessary to comply with applicable law. The Compensation Committee
may elect, in its sole discretion, to permit the Participant to pay applicable
taxes by cash or personal check, by having shares otherwise issuable under the
2003 Incentive Equity Plan withheld by us, by surrendering previously acquired
Common Shares that the Participant has held for at least six months or by a
combination thereof.
Restricted Shares
Restricted shares consists of Common Shares granted to employees, without
payment therefore, which are subject to restrictions during a restriction
period. These awards are additional compensation for services to us or one of
our subsidiaries, and are subject to such terms and conditions as the
Compensation Committee determines appropriate. Restricted shares may not be
sold, assigned or otherwise transferred during the restriction period,
throughout which the Compensation Committee will determine if the employee has
met the conditions placed on the restricted shares. Subject to such other
restrictions as are imposed by the Compensation Committee, we will normally hold
the shares covered by a restricted share award in escrow pursuant to a stock
power during the restriction period. Alternatively, restricted shares may
instead be issued to the recipient with a legend evidencing the applicable
restrictions. If all restrictions have been met by the end of the restriction
period, the shares will be released from escrow (or any restrictions placed on
the certificate removed) after the restriction period. If the restrictions have
not been satisfied, the shares will be forfeited and will again become available
for grants under the 2003 Incentive Equity Plan.
During the restriction period, the employee to whom the restricted share
award is made may exercise full voting rights associated with the restricted
shares and we will hold all dividends or other distributions in escrow for the
employee. At the end of the restriction period, such dividends or distributions
will be forfeited or distributed as discussed above.
Performance Shares and Performance Units
The Compensation Committee may also issue performance shares and
performance units to employees based on the employee's performance and overall
contribution to preserve and increase our value. Based upon criteria set forth
in the 2003 Incentive Equity Plan, which will be applied to the Company's Chief
Executive Officer and any other employee whose compensation is affected by
Section 162(m) of the Code, the Compensation Committee may establish performance
goals for an employee for a particular performance period. Any such goals must
be
-32-
communicated to the affected employee no later than 90 days after the beginning
of, or the expiration of 25% of, the performance period. The Compensation
Committee will adjust performance goals to reflect any substantive changes in
the employee's description or duties and, to the extent such goals are based on
Common Shares, to reflect any changes in our capitalization. At the end of the
performance period, the employee's performance will be assessed and performance
shares or units will be either (i) forfeited, to the extent the goals have not
been met, or (ii) valued and distributed, in a lump sum payment in the form of
cash, stock or both, to the extent applicable goals have been met. Unless the
award agreement specifies otherwise, during the performance period key employees
may not exercise full voting rights associated with their performance shares or
units, and all dividends or other distributions pertaining to the performance
shares or units will be held by the company in escrow and will be either
distributed or forfeited as discussed above.
Performance shares also may be issued to employees who have contributed to
the success of the Company without regard to specific performance standards.
Stock Appreciation Rights
The Compensation Committee may, in its discretion, grant an SAR to an
employee. SARs may be granted either alone or affiliated with or in tandem with
any Option granted under the 2003 Incentive Equity Plan. Upon the exercise of an
SAR granted in tandem with an Option, the Option to which the SAR relates (or
the corresponding portion thereof) will be forfeited upon payment of the
exercised SAR. Upon the exercise of an Option granted in tandem with an SAR, the
SAR to which the Option relates (or the corresponding portion thereof) will be
forfeited. A tandem SAR will expire, unless previously exercised, no later than
the expiration of the related Option. The exercise price of a tandem SAR may not
be less than the exercise price of the related Option (or portion thereof)
surrendered by the option holder, and the value of the payout for the tandem SAR
will not be more than 100% of the difference between the exercise price of the
related Option and the fair market value of a Common Share subject to the
related Option at the time the SAR is exercised. A tandem SAR may only be
exercised if the fair market value of the shares subject to the related Option
is larger than the exercise price of the related Option.
An affiliated SAR will be deemed to be exercised at the time the
affiliated Option is exercised, and will expire no later than the date on which
the affiliated Option expires. The value of the payout for an affiliated SAR
will not be more than the exercise price of the affiliated Option and an
affiliated SAR may only be exercised if the fair market value of the shares
subject to the affiliated Option is larger than the exercise price of the
affiliated Option.
SARs may also be issued on a freestanding basis subject to the terms
specified in the award agreement. The exercise price of a freestanding SAR may
not be less than fair market value of a Common Share on the date of the grant.
Freestanding SARs are not tied to a specific Option and when exercised do not
result in the forfeiture of any Options. In its discretion the Compensation
Committee may provide for the payment of an SAR in cash, shares or a combination
of both.
-33-
Exercise of Awards; Expiration and Termination
If exercisable by their terms, Awards generally must be exercised before
the earlier of 90 days after the date of termination of service (unless the
option holder continues to provide regular services to the Company as a director
or, in the Committee's discretion, as a consultant), the fixed expiration date
or ten years from the date of grant in the case of a director's option, NSOs or
ISOs (5 years in the case of an ISO held by a 10% shareholder). If a
Participant's employment is terminated for cause (as such term is defined in the
2003 Incentive Equity Plan), each of the Participant's outstanding Awards will
be forfeited. In the event of the death or disability (as such term is defined
in the 2003 Incentive Equity Plan) of a Participant while in the employment of
or while serving as a director on the Board, each of the Participant's
unexercised Awards will become immediately exercisable by his or her estate and
will expire on the earlier of (i) the fixed expiration date, or (ii) 12 months
after the date of termination due to death or disability. In the case of
retirement (as such term is defined in the 2003 Incentive Equity Plan), the
Participant's unexercised Awards will expire on the earlier of (i) the fixed
expiration date or (ii) 12 months after the termination of employment due to
retirement (three months in the case of an ISO). If a Participant fails to
comply with certain requirements of the 2003 Incentive Equity Plan, such as
obtaining the Company's written consent before engaging in certain activities
that may be adverse to its interests, he or she will forfeit all outstanding
awards. These activities are set forth in the 2003 Incentive Equity Plan.
Repricing
The Plan also allows the Compensation Committee to "reprice" outstanding
awards, to the extent it believes this to be necessary to meet the purposes of
the plan. Repricing means that the Compensation Committee may change any term of
an outstanding award (such as its exercise price or exercise period) or may
exchange an award for another award. The plan also allows the Company to
repurchase any outstanding award for cash at a value established, in good faith,
by the Compensation Committee (such as application of the Black Scholes
valuation model or similar model).
Change in Control
A "change in control" will be deemed to have occurred upon the occurrence
of any of the following events:
1. Douglas Borror and David Borror both cease to be members of the
Board; or
2. Any direct or indirect acquisition by a person or group, directly or
indirectly, of our securities representing more than 40 percent of
the combined voting power of our then outstanding securities;
provided, however, that a "person" or "group" will not include:
a. the Company;
b. any entity under common control with the Company;
c. BRC Properties Inc. or any of its shareholders or
members of the family of Donald A. Borror; or
-34-
d. any employee benefit plan of any entity described in
Section a, b and/or c above; or
3. The adoption or authorization by our shareholders of a definitive
agreement for the merger or other business combination of the
Company in which our shareholders will own less than 50 percent of
the voting power in the surviving entity or for the sale or other
disposition of all or substantially all of our assets; or
4. The adoption by our shareholders of a plan relating to the
liquidation or dissolution of the Company.
In the event of a change in control, each Option (other than director options)
outstanding on the date that the change in control occurs will be cancelled in
exchange for cash equal to the excess between the change in control price (as
defined in the 2003 Incentive Equity Plan) over the exercise price of the
cancelled Option, and all related SARs will be cancelled. Also upon a change in
control, all directors options will be cancelled in exchange for a lump sum cash
payment equal to the difference between the change in control price and the
exercise price; however, if after the change in control the Common Shares
continue to be traded on an established securities market or the director
continues to be a board member, the director options will be unaffected by the
change in control. All freestanding SARs will be deemed exercisable and will be
paid in a single lump sum cash payment. All performance goals will be deemed to
have been met upon the occurrence of a change in control and all performance
shares and units will be distributed in a single lump sum cash payment. Upon a
change in control, all stock units will be settled for a lump sum cash payment.
Also, any restrictions applicable to restricted shares will lapse and will be
unconditionally transferred to the holders.
The aforementioned accelerated payments will not be made if the
Compensation Committee determines, prior to the change in control and subject to
requirements contained in the 2003 Incentive Equity Plan, that immediately after
the change in control the Awards will be honored or assumed, or substantially
equivalent rights having substantially equivalent value will be substituted
therefore by the employee's new employer.
Limitations on Transfer of Awards
With the permission of the Compensation Committee, a person who has been
granted an Award under the 2003 Incentive Equity Plan may transfer such Award
(other than an ISO) to a revocable inter vivos trust as to which the Participant
is the settlor or may transfer such Award to a "Permissible Transferee." A
Permissible Transferee is any member of the immediate family of the Participant,
any trust, whether revocable or irrevocable, solely for the benefit of members
of the Participant's immediate family, any partnership or limited liability
company whose only partners or members are members of the Participant's
immediate family or an organization described under Section 501(c)(3) of the
Code. Any transferee of an Award will remain subject to all of the terms and
conditions applicable to such Award and any rules prescribed by the Compensation
Committee. A Permissible Transferee may not retransfer an Award except by will
or the laws of descent and distribution, and then only to another Permissible
Transferee. Other than as described above, an Award granted under the 2003
Incentive Equity Plan may not be transferred except by will or the laws of
descent and distribution and, during the lifetime of
-35-
the employee to whom the Award was granted, may be exercised only by such
employee, his guardian or legal representative.
Adjustments Upon Changes in Capitalization
The number of Common Shares available for Awards and subject to
outstanding Awards under the 2003 Incentive Equity Plan will be adjusted, as
appropriate, by the Compensation Committee in the event of any merger,
consolidation, recapitalization, reclassification, split-up, combination of
shares, stock dividend or other similar transaction affecting the Common Shares.
Amendment, Modification and Termination
The Board or the Compensation Committee may at any time terminate, suspend
or amend the 2003 Incentive Equity Plan, in whole or in part, without
shareholder approval. The Board or the Compensation Committee, however, may not
amend the 2003 Incentive Equity Plan without shareholder approval if such
approval is required (i) to satisfy the requirements of Rule 16b-3 under the
Exchange Act, (ii) to satisfy applicable requirements of the Code, or (iii) to
satisfy applicable requirements of Nasdaq National Market or any securities
exchange on which any of our equity securities are listed or traded. In
addition, no amendment may result in the loss of a Compensation Committee
member's status as a "non-employee director," cause the 2003 Incentive Equity
Plan not to meet the requirements of Rule 16b-3 or, without the consent of the
Participant, adversely affect any Award issued before the amendment, termination
or suspension.
By its terms, the 2003 Incentive Equity Plan will expire ten years after
the date it was adopted by the Board.
Federal Income Tax Consequences
The foregoing is a summary of the federal income tax consequences to the
Participants in the Plan and to the Company, based upon current income tax laws,
regulations and rulings.
Incentive Stock Options
A Participant does not realize income on the grant of an ISO. If a
Participant exercises an ISO in accordance with the terms of the option and does
not dispose of the shares acquired within two years from the date of the grant
of the option or within one year from the date of exercise, the Participant will
not realize any ordinary taxable income by reason of the exercise and neither
the Company nor its subsidiaries will be allowed a deduction by reason of the
grant or exercise. The Participant's basis in the shares acquired upon exercise
will be the amount paid upon exercise. (See the discussion below for the tax
consequences of the exercise of an Option with shares already owned by the
Participant and taxes imposed on tax preference items). Provided the Participant
holds the shares as a capital asset at the time of sale or other disposition of
the shares, the gain or loss, if any, recognized on the sale or other
disposition will be capital gain or loss. The amount of gain or loss will be the
difference between the amount realized on the disposition of the shares and the
Participant's basis in the shares. If a Participant disposes of the shares
within two years from the date of grant of the option or within one year from
the date of exercise (an "Early Disposition"), the Participant will realize
ordinary income at the time of disposition which will equal the excess, if any,
of the lesser of (a) the amount realized on the
-36-
disposition, or (b) the fair market value of the shares on the date of exercise,
over the Participant's basis in the shares. Also in this case, the Company or
its subsidiary will be entitled to a deduction in an amount equal to such
income.
If a Participant disposes of such shares for less than his or her basis in
the shares, the difference between the amount realized and such basis will be a
long- or short-term capital loss, depending upon the holding period of the
shares, provided the Participant holds the shares as a capital asset at the time
of disposition. The excess of the fair market value of the shares at the time
the ISO is exercised over the exercise price for the shares is treated as a tax
preference item (the "Incentive Stock Option Preference") unless the Participant
makes an Early Disposition of such shares. See "Taxation of Preference Items"
below.
Nonstatutory Stock Options
NSOs do not receive the special tax treatment accorded to ISOs under the
Code. Although a Participant does not recognize income at the time of the grant
of the Option, he or she recognizes ordinary income upon the exercise of an NSO
in an amount equal to the difference between the fair market value of the shares
on the date of exercise of the Option and the amount paid for the shares.
The excess of the fair market value of the shares on the date of exercise
of an NSO over the exercise price is not treated as an item of "tax preference"
as such term is used in the Code.
Payment of Exercise Price of Shares
If the Participant exercises an Option by surrendering shares owned by him
or her for at least six months ("Old Shares"), the following rules apply:
1. To the extent the number of shares acquired ("New Shares") exceeds the
number of Old Shares exchanged, the Participant will recognize ordinary income
on the receipt of such additional shares (provided the Option is not an ISO) in
an amount equal to the fair market value of such additional shares less any
amount paid for them and the Company or a subsidiary will be entitled to a
deduction in an amount equal to such income. The basis of such additional shares
will be equal to the fair market value of such shares (or, in the case of an
ISO, the amount, if any, paid for additional shares) on the date of exercise,
and the holding period for such additional shares will commence on the date the
Option is exercised.
2. Except as provided below, to the extent the number of New Shares
acquired does not exceed the number of Old Shares exchanged, no gain or loss
will be recognized on such exchange, the basis of the New Shares received will
be equal to the basis of the Old Shares surrendered, and the holding period of
the New Shares received will include the holding period of the Old Shares
surrendered. However, if the Participant exercises an ISO by surrendering Old
Shares which were acquired through the exercise of an ISO and if the surrender
occurs prior to the expiration of the holding period applicable to ISOs, the
surrender will be deemed to be an Early Disposition of the Old Shares. The
federal income tax consequences of an Early Disposition are discussed above.
-37-
3. If the Old Shares surrendered were acquired by the Participant by
exercise of an ISO, then the exchange will not constitute an Early Disposition
of the Old Shares unless the option being exercised is an ISO and the holding
period applicable to an ISO has not been met at the time of the surrender.
Restricted Share Awards
A Participant who is granted a restricted share award will not be taxed
upon the acquisition of such shares so long as the interest in such shares is
subject to both a substantial risk of forfeiture and restrictions on
transferability. Upon lapse or release of the risk of forfeiture or restriction
on transferability, or upon a sale or disposition of the shares, the Participant
will be taxed at ordinary income tax rates on an amount equal to either the
current fair market value of the shares (in the case of lapse or termination) or
the sale price (in the case of a sale), less any consideration paid for the
shares. The Company will be entitled to a corresponding deduction. The basis of
the shares held after lapse or termination of restrictions will be equal to
their fair market value on the date of lapse or termination of restrictions, and
upon subsequent disposition, any further gain or loss will be long-term or
short-term capital gain or loss, depending upon the length of time the shares
are held.
A Participant who is granted a restricted share award may elect to be
taxed at ordinary income tax rates on the full fair market value of the shares
at the time of issuance (less any consideration paid). The basis of the shares
so acquired will be equal to the fair market value at such time. If the election
is made, no tax will be payable upon the subsequent lapse or release of the
restrictions, and any gain or loss upon disposition will be a capital gain or
loss.
Stock Appreciation Rights
Although the recipient of an SAR does not recognize income at the time the
right is granted, the recipient will recognize income in the year the right is
exercised in an amount equal to the cash and the fair market value of the
property received. We will be entitled to deduct as compensation an amount equal
to the income recognized by the recipient, and such deduction shall be claimed
in the taxable year in which the award becomes payable to the recipient.
We are entitled to deduct as compensation the amount included in the
recipient's gross income as a result of the payment of the award in stock only
in the taxable year in which or with which ends the taxable year of the
recipient in which the recipient recognizes gross income. If an SAR is paid in
shares, the recipient's basis will be equal to the fair market value of the
shares when received, and the holding period will begin on that date.
Performance Shares and Units
Performance shares and units will become fully taxable to the recipient
when the requirements on the shares or units are met, and such shares or units
become earned and non-forfeitable. The participant will be taxed on the amount
equal to the cash and/or fair market value received upon payment.
-38-
Taxation of Long-Term Capital Gains
For capital assets held for more than 12 months, the maximum rate of tax
on net capital gains is 20%. A 10% rate applies to taxpayers in the 15% ordinary
income tax bracket. Gains on capital assets held for more than five years are
subject to a reduced rate. The 20% and 10% rates discussed above are reduced to
18% and 8% respectively in such case.
Taxation of Preference Items
Section 55 of the Code imposes an Alternative Minimum Tax equal to the
excess, if any, of (1) 26% of the optionee's "alternative minimum taxable
income" up to $175,000 ($87,500 in the case of married taxpayers filing
separately) and 28% of alternative minimum taxable income in excess of $175,000
($87,500 in the case of married taxpayers filing separately) over (2) his or her
"regular" federal income tax. Alternative minimum taxable income is determined
by adding the optionee's Incentive Stock Option Preference and any other items
of tax preference to his or her adjusted gross income and then subtracting
certain allowable deductions and an exemption amount. The exemption amount is
$35,750 for single taxpayers ($33,750 for taxable years 2005 and later), $49,000
for married taxpayers filing jointly ($45,000 for taxable years 2005 and later)
and $24,500 for married taxpayers filing separately ($22,500 for taxable years
2005 and later).
Other Matters
The 2003 Incentive Equity Plan is intended to comply with Section 162(m)
of the Code with respect to Options, SARs performance shares and performance
units granted thereunder. Section 162(m) of the Code prohibits a publicly held
corporation, such as the Company, from claiming a deduction on its federal
income tax return for compensation in excess of $1 million paid for a given
fiscal year to the chief executive officer (or person acting in that capacity)
at the close of the corporation's fiscal year and the four most highly
compensated executive officers of the corporation, other than the chief
executive officer, at the end of the corporation's fiscal year (collectively,
the "Section 162(m) Officers"). The $1 million compensation deduction limitation
does not apply to "performance-based compensation." The final regulations issued
by the Internal Revenue Service under Section 162(m) in December of 1995 (the
"IRS Regulations") set forth a number of provisions which compensatory plans
must contain if the compensation paid thereunder is to qualify as
"performance-based" for purposes of Section 162(m).
The 2003 Incentive Equity Plan is intended to satisfy the requirements of
the IRS Regulations with respect to Awards granted thereunder. We are seeking
shareholder approval of the 2003 Incentive Equity Plan in a good faith effort to
qualify compensation received thereunder as a result of Awards granted under the
2003 Incentive Equity Plan as "performance-based" for purposes of Section
162(m). If such shareholder approval is not obtained, the 2003 Incentive Equity
Plan will be null and void.
Recommendation and Vote
Shareholder approval of the 2003 Incentive Equity Plan will require the
affirmative vote of the holders of a majority of the Common Shares issued and
outstanding as of the record date. Shareholders will be asked to approve the
following resolution at the Annual Meeting:
-39-
RESOLVED, that the Dominion Homes, Inc. 2003 Stock Option and Incentive
Equity Plan, in substantially the form attached to the Company's April 4,
2003 Proxy Statement as Appendix II, be, and it hereby is, adopted.
CERTAIN MATTERS REGARDING PROXIES
All Common Shares represented by each properly executed Proxy received by
the Board pursuant to this solicitation will be voted in accordance with the
shareholder's directions specified on the Proxy. Except as described below with
respect to broker non-votes, if no directions have been specified on a Proxy,
the Common Shares represented by the Proxy will be voted in accordance with the
Board's recommendations, which are as follows:
"FOR" election as directors of the nine nominees named in the accompanying
form of Proxy;
"FOR" approval of the proposal to amend the Dominion Homes, Inc. Amended
and Restated Code of Regulations to divide the Board into three (3)
classes of directors and to permit the shareholders to remove a director
only for cause; and
"FOR" approval of the proposal to adopt the Dominion Homes, Inc. 2003
Stock Option and Incentive Equity Plan;
Management knows of no other matters that may properly be brought, or
which are likely to be brought, before the Annual Meeting. However, if any other
matters are properly brought before the Annual Meeting, the persons named as
proxies in the accompanying form of Proxy or their substitutes will vote in
accordance with their best judgment on such matters.
Without affecting any vote previously taken, a shareholder signing and
returning a Proxy has the power to revoke it at any time prior to its exercise
by giving notice of such revocation to the Company in a writing or other
verifiable communication delivered to Robert A. Meyer, Jr., Secretary of the
Company, at our corporate offices at 5501 Frantz Road, P. O. Box 7166, Dublin,
Ohio 43017-0766, by executing a subsequent Proxy, or by attending the Annual
Meeting and giving notice of such revocation in person to the inspector of
elections at the Annual Meeting. Attendance at the Annual Meeting will not, in
and of itself, constitute revocation of a Proxy.
Common Shares represented by proxies that have been signed or which
constitute a verifiable communication and that are delivered to us will be
counted toward the quorum in all matters even though they are marked as
"Abstain," "Against" or "Withhold Authority" on one or more or all matters or
they are not marked at all. Broker non-votes, as described in the following
paragraph, also will be counted toward the establishment of a quorum.
Broker/dealers who hold their customers' Common Shares in street name may,
under the applicable rules of the self-regulatory organizations of which the
broker/dealers are members, sign and submit proxies for such Common Shares and
may vote such Common Shares on routine matters which, under such rules,
typically include the election of directors and the ratification of the
selection of independent public accountants. Broker/dealers may not vote such
Common Shares on other matters without specific instructions from the customers
who own such Common
-40-
Shares. Proxies signed and submitted by broker/dealers which have not been voted
on certain matters as described in the previous sentence are referred to as
broker non-votes.
Broker non-votes and votes withheld will not be counted toward the
election of directors or toward the election of individual nominees specified in
the form of Proxy. As to all other proposals to be voted upon at the Annual
Meeting, a broker non-vote or an abstention will have the same effect as a vote
against the proposal.
All costs of solicitation of Proxies will be borne by the Company.
Solicitation of Proxies will be made by mail. Proxies may be further solicited
at no additional compensation by officers, directors, or our employees by
telephone, written communication or in person. Upon request, we will reimburse
banks, brokerage firms, and other custodians, nominees, and fiduciaries for
expenses reasonably incurred by them in sending proxy materials to the
beneficial owners of Common Shares of the Company. No solicitation will be made
by specially engaged employees or other paid solicitors.
PROPOSALS AND NOMINATIONS BY SHAREHOLDERS FOR 2004 MEETING
In order to be eligible to submit a proposal to be included in next year's
Proxy Statement and acted upon at the annual meeting of the shareholders of the
Company to be held in 2004 (the "2004 Annual Meeting"), a shareholder must have
continuously held at least $2,000 in market value, or 1% of the issued and
outstanding Common Shares, for at least one year by the date on which the
proposal is submitted. In addition, the shareholder must continue to hold the
requisite number of Common Shares through the date of the 2004 Annual Meeting.
Each proposal submitted should be accompanied by the name and address of the
shareholder submitting the proposal and a statement that the shareholder intends
to continue to hold the requisite number of Common Shares through the date of
the 2004 Annual Meeting. If the proponent is not a shareholder of record, proof
of beneficial ownership of the requisite number of Common Shares also should be
submitted. The proxy rules of the Securities and Exchange Commission govern the
content and form of shareholder proposals. All proposals must be a proper
subject for action at the 2003 Annual Meeting.
Any eligible shareholder who intends to submit a proposal for the 2004
Annual Meeting for inclusion in the proxy statement and form of proxy relating
to that meeting is advised that the proposal must be received by the Company at
its principal executive offices not later than December 5, 2003. The Company
will not be required to include in its proxy statement or form of proxy a
shareholder proposal which is received after that date or which otherwise fails
to meet the requirements for shareholder proposals established by the rules of
the Securities and Exchange Commission.
In addition, if a shareholder intends to submit a proposal at the 2004
Annual meeting without the inclusion of that proposal in the Company's proxy
statement and form of proxy relating to that meeting and written notice of the
proposal is not received by the Company on or before February 18, 2004, proxies
solicited by the Board of Directors for the 2004 Annual Meeting will confer
discretionary authority to vote on such proposal at such meeting.
-41-
In accordance with Section 2.03 of the Regulations, a nominee for election
as a director may be proposed only by the directors or by a shareholder entitled
to vote for the election of directors if such shareholder shall have proposed
such nominee in a written notice. Each written notice of a proposed nominee must
set forth (1) the name, age, business or residence address of each nominee
proposed in such notice; (2) the principal occupation or employment of each such
nominee for the past five years; and (3) the number of shares of each series and
class of the Company owned beneficially and/or of record by each such nominee
and the length of time any such shares have been owned. The written notice of a
proposed nominee must be delivered or mailed by first class United States mail,
postage prepaid, to our Secretary at our principal office and, in the case of a
nominee proposed for election as a director at an annual meeting of
shareholders, received by the Secretary on or before the later of (i) February
1, immediately preceding such annual meeting or (ii) the sixtieth (60th) day
prior to the first anniversary of the most recent annual meeting of our
shareholders held for the election of directors, provided, however, that if the
annual meeting for the election of directors in any year is not held on or
before the thirty-first (31st) day next following such anniversary, then the
written notice must be received by the Secretary within a reasonable time prior
to the date of such annual meeting.
ADDITIONAL INFORMATION
Upon the written request of any person solicited, the Company will
provide, without charge, a copy of the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, excluding exhibits, which was filed with the
Securities Exchange Commission on March 31, 2003. Such request should be
addressed to Dominion Homes, Inc., Investor Relations Department, Attn: Terry E.
George, 5501 Frantz Road, Dublin, Ohio 43017. The written request must include a
statement that, as of the close of business on March 21, 2003, the person was
the beneficial owner of Common Shares.
-42-
Appendix I
DOMINION HOMES, INC.
Amended and Restated Audit Committee Charter
Purpose
The primary purpose of the Audit Committee (the "Committee") is to assist the
Board of Directors (the "Board") of Dominion Homes, Inc. (the "Company") in
fulfilling its responsibility to oversee management's conduct of the Company's
financial reporting process, including by obtaining an overview of the financial
reports and other financial information provided by the Company to any
governmental or regulatory body, the public or other users thereof, the
Company's systems of internal accounting and financial controls, and the annual
independent audit of the Company's financial statements. The Committee shall
have the sole authority for appointing, determining the compensation of and
overseeing the work of the Company's public accountants.
In discharging its duties, the Committee is empowered to investigate any matter
brought to its attention with full access to all books, records, facilities and
personnel of the Company and the power to retain and determine compensation for
outside counsel, auditors or other experts for this purpose.
The Committee shall review and update this Charter periodically, but at least
annually, as conditions dictate.
Membership
The Committee shall be comprised of not less than three members of the Board.
The Committee and its members shall satisfy the independence, experience and
financial expertise requirements of the National Association of Securities
Dealers, Inc. and Section 10A of the Securities and Exchange Act of 1934, as
amended (the "Exchange Act"), as amended by the Sarbanes-Oxley Act of 2002 (the
"Act"), and the rules promulgated thereunder.
Key Responsibilities
The Committee recognizes that the Company's management is responsible for
preparing the Company's financial statements and that the public accountants are
responsible for auditing those financial statements. Additionally, the Committee
recognizes that financial management including the internal audit staff, as well
as the outside auditors, have more time, knowledge and more detailed information
on the Company than do Committee members. Consequently, in carrying out its
oversight responsibilities, the Committee is not providing any expert or special
assurance as to the Company's financial statements or any professional
certification as to financial managements' or the public accountants' work.
I-1
The Committee recognizes the public accountants' ultimate accountability to the
Committee, as representative of the Company's shareholders. The Committee shall
have the sole authority to select, evaluate and, where appropriate, replace the
public accountants (subject, if applicable, to shareholder ratification). The
Committee shall approve in advance all audit engagement fees and terms and all
non-audit engagements with the public accountants. In its capacity as a
committee of the Board, the Committee shall be directly responsible for the
oversight of the work of the public accounting firm (including resolution of
disagreements between management and the public accounting firm regarding
financial reporting) for the purpose of preparing or issuing an audit report or
related work, and the public accounting firm shall report directly to the
Committee. The Committee may form and delegate authority to subcommittees
consisting of one or more members when appropriate, including the authority to
grant preapprovals of audit and permitted non-audit services, provided that
decisions of such subcommittee to grant preapprovals shall be presented to the
full Audit Committee at its next scheduled meeting.
The following functions shall be the common recurring activities of the
Committee in carrying out its duties. These functions are set forth as a guide
with the understanding that the Committee may diverge from this guide as
appropriate given the circumstances.
Financial Reporting Process
The Committee shall:
o review with management and the public accountants the audited
financial statements to be included in the Company's Annual Report
on Form 10-K (or the Annual Report to Shareholders if distributed
prior to the filing of the Form 10-K) and review and consider with
the public accountants the matters required to be discussed by
Statement of Auditing Standards ("SAS") No. 61;
o review and discuss with management and the public accountants
significant financial reporting issues and judgments made in
connection with the preparation of the Company's financial
statements, including any significant changes in the Company's
selection or application of accounting principles;
o as a whole, or through the Committee's chair, and upon the request
of the outside auditors, review with the public accountants the
Company's interim financial results to be included in the Company's
quarterly reports to be filed with Securities and Exchange
Commission and the matters required to be discussed by SAS No. 61
prior to the Company's filing of the Form 10-Q;
o review or discuss, on a quarterly basis, reports from the public
accountants on (i) all critical accounting policies and practices to
be used; (ii) all alternative treatments of financial information
within GAAP that have been discussed with management, ramifications
of the use of such alternative disclosures and treatments, and the
treatment preferred by the independent auditor; and (iii) any other
material written communications between the independent auditor and
management, such as any management letter or schedule of unadjusted
differences; and
I-2
o discuss with management the Company's earnings press releases,
including the use of "proforma" or "adjusted" non-GAAP information,
as well as financial information and earnings guidance provided to
analysts and rating agencies.
Internal Controls and Oversight
The Committee shall:
o discuss with management and the public accountants the quality and
adequacy of the Company's internal controls and any special steps
adopted in light of material control deficiencies;
o discuss with management and the public accountants the risk of
material misstatement of the financial statements due to fraud and
obtain periodic briefings from management about any fraud, whether
material or not material, that involves management or other
employees who have a significant role in internal control.
o request from the public accountants annually a formal written
statement delineating all relationships between the public
accountants and the Company consistent with Independence Standards
Board Standard Number 1;
o actively discuss with the public accountants any such disclosed
relationships and their impact on the public accountants'
objectivity and independence;
o take appropriate action to oversee the independence of the public
accountants;
o ensure that the lead audit partner of the public accountants and the
audit partner responsible for reviewing the audit are rotated at
least every five years as required by the Act, and further consider
rotation of the public accounting firm itself;
o recommend to the Board policies for the Company's hiring of
employees or former employees of the public accountants who were
engaged on the Company's account;
o establish procedures for (a) the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal
accounting controls or auditing matters and (b) the confidential,
anonymous submission by employees of the Company of concerns
regarding questionable accounting or auditing matters; and
o review disclosures made by the Company's principal executive officer
or officers and principal financial officer or officers regarding
compliance with their certification obligations as required under
the Act and the rules promulgated thereunder, including the
Company's disclosure controls and procedures and internal controls
for financial reporting and evaluations thereof.
I-3
Ethical and Legal Compliance
The Committee shall:
o review any reports of the registered public accountants mandated by
Section 10A of the Exchange Act and obtain from the registered
public accountants any information with respect to illegal acts in
accordance with Section 10A;
o establish, review and update periodically a Code of Ethical Conduct
applicable to employees of the Company;
o ensure that management has established a system to enforce the Code
of Ethical Conduct and complies with the disclosure obligations
contained therein; and
o review legal compliance matters with the Company's internal counsel,
including corporate securities trading policies and any other legal
matter which could have a significant impact on the Company's
financial statements.
I-4
Appendix II
DOMINION HOMES, INC.
2003 Stock Option and Incentive Equity Plan
1.00 PURPOSE
This Plan is intended to foster and promote the long-term financial success of
the Company and to materially increase shareholder value [1] by providing
Employees and Eligible Directors an opportunity to acquire an ownership interest
in the Company and [2] by enabling the Company to attract and retain the
services of outstanding Employees and Eligible Directors upon whose judgment,
interest and special efforts the successful conduct of the Company's business is
largely dependent.
2.00 DEFINITIONS
When used in this Plan, the following terms have the meanings given to them in
this section unless another meaning is expressly provided elsewhere in this
document or clearly required by the context. When applying these definitions,
the form of any term or word will include any of its other forms.
2.01 Act. The Securities Exchange Act of 1934, as amended.
2.02 Affiliated SAR. An SAR that is granted in conjunction with an Option and
which is always deemed to have been exercised at the same time that the related
Option is exercised. The deemed exercise of an Affiliated SAR will not reduce
the number of shares of Stock subject to the related Option, except to the
extent of the exercise of the related Option.
2.03 Annual Meeting. The annual meeting of the Company's shareholders.
2.04 Award. Any Incentive Stock Option, Nonstatutory Stock Option, Performance
Share, Performance Unit, Restricted Stock and Stock Appreciation Right issued
under the Plan. During any single Plan Year, no Participant may be granted SARs
affecting more than 50,000 shares of Stock allocated to the Plan (adjusted as
provided in Section 5.03) and Options affecting more than 50,000 shares of Stock
allocated to this Plan (adjusted as provided in Section 5.03), including Options
and SARs that are cancelled [or deemed to have been cancelled under Treas. Reg.
ss.1.162-27(e)(2)(vi)(B)] during the Plan Year issued.
2.05 Award Agreement. The written agreement described in Section 4.03.
2.06 Beneficiary. The person a Member designates to receive (or exercise) any
Plan benefits (or rights) that are unpaid (or unexercised) when he or she dies.
A Beneficiary may be designated only by following the procedures described in
Section 13.02; neither the Company nor the Committee is required to infer a
Beneficiary from any other source.
2.07 Board. The Company's Board of Directors.
II-1
2.08 Cause. Unless the Committee specifies otherwise in the Award Agreement,
with respect to any Member:
[1] Any unauthorized disclosure of the Company's or any Subsidiary's
business practices or accounts to a competitor that results in serious
damage to the Company;
[2] Willful and wrongful misappropriation of funds, property or rights of
the Company or any Subsidiary that results in serious damage to the
Company or any Subsidiary;
[3] Willful and wrongful destruction of business records or other property
that results in serious damage to the Company or any Subsidiary;
[4] Conviction of a felony involving moral turpitude;
[5] Conviction of a misdemeanor involving moral turpitude but only if the
conviction arose as part of a plea bargain and relates to acts that were
originally charged as felonies;
[6] Gross and willful misconduct that results in serious damage to the
Company or any Subsidiary;
[7] Material breach of, or inability to perform, regularly assigned
duties, other than by reason of disability (as defined in the Company's
short-term disability plan); or
[8] A Member's failure to return to active employment with the Company or
any Subsidiary within 30 days after the end of any disability (as defined
in the Company's short-term disability plan) but only if that period ends
before the Member's Retirement.
2.09 Change in Control. The occurrence of any of the following events:
[1] Douglas Borror and David Borror both cease to be members of the
Company's Board of Directors; or
[2] Any direct or indirect acquisition by a "person," including a "group"
[as such terms are used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended ("Act")] after which the "person" or
"group" is the "beneficial owner" (as defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing
more than 40 percent of the combined voting power of the Company's then
outstanding securities; provided, however, that "person" or "group" will
not include [a] the Company, [b] any entity under common control with the
Company (within the meaning of Code ss.414), [c] BRC Properties Inc. or
any of its shareholders or members of the family (as defined in Code
ss.318) of Donald Borror or [d] any employee benefit plan of any entity
described in Section 2.09[2][a], [b] and/or [c] of this definition; or
[3] The adoption or authorization by the shareholders of the Company of a
definitive agreement or a series of related agreements [a] for the merger
or other business combination of the Company with or into another entity
in which the shareholders of the Company immediately before the effective
date of that merger or other business
II-2
combination own less than 50 percent of the voting power in the entity
immediately after the effective date of that merger or other business
combination or [b] for the sale or other disposition of all or
substantially all of the assets of the Company; or
[4] The adoption by the shareholders of the Company of a plan relating to
the liquidation or dissolution of the Company.
2.10 Change in Control Price. The highest price per share of Stock offered in
conjunction with any transaction resulting in a Change in Control (as determined
in good faith by the Committee if any part of the offered price is payable other
than in cash) or, in the case of a Change in Control occurring solely by reason
of events not related to a transfer of Stock, the highest Fair Market Value of a
share of Stock on any of the 30 consecutive trading days ending on the last
trading day before the Change in Control occurs.
2.11 Code. The Internal Revenue Code of 1986, as amended, and any regulations
issued under the Code and any applicable regulations or rulings issued under the
Code.
2.12 Committee.
[1] In the case of Awards to Eligible Directors, the Board; or
[2] In the case of all other Awards, the Board's Compensation Committee
which also constitutes a "compensation committee" within the meaning of
Treas. Reg. ss.1.162-27(c)(4). The Committee will be comprised of at least
three persons [a] each of whom is [i] an outside director, as defined in
Treas. Reg. ss.1.162-27(e)(3)(i), and [ii] a "non-employee" director
within the meaning of Rule 16b-3 under the Act and [b] none of whom may
receive remuneration from the Company or any Subsidiary in any capacity
other than as a director, except as permitted under Treas. Reg.
ss.1.162-27(e)(3)(ii).
2.13 Company. Dominion Homes, Inc., an Ohio corporation
2.14 Director Option. A Nonstatutory Stock Option granted to an Eligible
Director under Section 6.05.
2.15 Disability. Unless the Committee specifies otherwise in the Award
Agreement:
[1] With respect to any Award other than an Incentive Stock Option, a
Participant's inability due to illness, accident or otherwise to perform
his duties for the period of time during which benefits are payable to the
Participant under the Company's short-term disability plan, as determined
by an independent physician selected by the Committee and reasonably
acceptable to the Participant (or to his or her legal representative),
provided that the Participant does not return to work on a substantially
full-time basis within 30 days after the Company notifies the Participant
that his employment is being terminated because of his or her Disability;
or
[2] With respect to an Incentive Stock Option, as defined in Code
ss.22(e)(3).
II-3
2.16 Effective Date. The earlier of the date this Plan is adopted by the Board
or the date the Plan is approved by the Company's shareholders.
2.17 Eligible Director. A person who, on an applicable Grant Date [1] is an
elected member of the Board (or has been appointed to the Board to fill an
unexpired term and will continue to serve at the expiration of that term only if
elected by shareholders) and [2] is not an Employee. For purposes of applying
this definition, an Eligible Director's status will be determined as of the
Grant Date applicable to each affected Award.
2.18 Employee. Any person who, on an applicable Grant Date, is a common law
employee of the Company or any Subsidiary and is performing services and to whom
the Committee has granted an Award. A worker who is classified as other than a
common law employee but who is subsequently reclassified as a common law
employee of the Company for any reason and on any basis will be treated as a
common law employee only from the date of that determination and will not
retroactively be reclassified as an Employee for any purpose of this Plan.
2.19 Exercise Price. The price at which a Member may exercise an Award.
2.20 Fair Market Value. The value of one share of Stock on any relevant date,
determined under the following rules:
[1] If the Stock is traded on the Nasdaq National Market or on an
exchange, the reported "closing price" on the last trading day before the
relevant date;
[2] If the Stock is traded over-the-counter with no reported closing
price, the mean between the lowest bid and the highest asked prices on
that quotation system on the last trading day before the relevant date; or
[3] If neither Section 2.20[1] nor Section 2.20[2] applies, the fair
market value as determined by the Committee in good faith.
2.21 Freestanding SAR. An SAR that is not associated with an Option and is
granted under Section 9.00.
2.22 Grant Date. The date an Award is granted to a Participant, whether or not
an Award Agreement is required.
2.23 Incentive Stock Option. Any Option granted under Section 6.00 that meets
the conditions imposed under Code ss.422(b).
2.24 Member. Each Participant and Terminated Participant to whom an Award has
been granted and which has not expired under the terms of the Award Agreement or
as provided in Section 10.00.
2.25 Nonstatutory Stock Option. Any Option granted under Section 6.00 that is
not an Incentive Stock Option.
II-4
2.26 Option. The right granted under the Plan to purchase a share of Stock at a
stated price for a specified period of time. An Option may be either [1] an
Incentive Stock Option or [2] a Nonstatutory Stock Option.
2.27 Participant. Any Employee or Eligible Director who has not Terminated.
2.28 Performance Goal. The conditions that must be met before an Employee will
earn a Performance Share or Performance Unit.
2.29 Performance Period. The period over which the Committee will determine if
applicable Performance Goals have been met.
2.30 Performance Share. An Award granted under Section 8.00.
2.31 Performance Unit. An Award granted under Section 8.00.
2.32 Plan. The Dominion Homes, Inc. 2003 Stock Option and Incentive Equity Plan.
2.33 Plan Year. The Company's fiscal year.
2.34 Prior Plan. The Dominion Homes, Inc. Incentive Stock Plan.
2.35 Restricted Stock. An Award granted under Section 7.00.
2.36 Restriction Period. The period over which the Committee will determine if
an Employee has met conditions placed on Restricted Stock.
2.37 Retirement. Unless the Committee specifies otherwise in the Award
Agreement, the date an Employee Terminates on or after reaching age 55.
2.38 Stock. A common share, without par value, issued by the Company.
2.39 Stock Appreciation Right (or "SAR"). An Award granted under Section 9.00
that is a Tandem SAR, an Affiliated SAR or a Freestanding SAR.
2.40 Subsidiary. Any corporation, partnership or other form of unincorporated
entity of which the Company owns, directly or indirectly, 50 percent or more of
the total combined voting power of all classes of stock if the entity is a
corporation; or of the capital or profits interest, if the entity is a
partnership or another form of unincorporated entity.
2.41 Tandem SAR. An SAR that is associated with an Option and which expires when
that Option expires or is exercised, as described in Section 9.00.
2.42 Termination or Terminated. Unless the Committee specifies otherwise in the
Award Agreement, [1] cessation of the employee-employer relationship between an
Employee and the Company and all Subsidiaries for any reason or [2] cessation of
an Eligible Director's service on the Board for any reason. However, a Member
will not be treated as having Terminated if, without interruption, his or her
status changes from Employee to Eligible Director or, if the Company agrees,
from Employee or Eligible Director to consultant.
II-5
3.00 PARTICIPATION
3.01 Employees.
[1] Consistent with the terms of the Plan and subject to Sections 3.02 and
3.03, the Committee will:
[a] Decide which Employees may become Participants;
[b] Decide which Employees will be granted Awards; and
[c] Specify the type of Award to be granted and the terms upon which
an Award will be granted.
[2] The Committee may establish different terms and conditions:
[a] For each type of Award;
[b] For each Employee receiving the same type of Award; and
[c] For the same Employees for each Award the Employee receives,
whether or not those Awards are granted at different times.
3.02 Eligible Directors. Each Eligible Director will [1] become a Participant on
the date he or she becomes an Eligible Director and [2] receive the Awards
described in Section 6.05 without any further action by the Committee. However,
as of the date an Award is made, the Committee may complete and deliver an Award
Agreement to each affected Eligible Director describing the terms of the Award.
3.03 Conditions of Participation. Each Participant receiving an Award agrees
[1] If required by the Committee, to sign an Award Agreement acknowledging
the terms of the Plan and of the Award;
[2] To be bound by the terms of the Award Agreement and the Plan; and
[3] To comply with other conditions imposed by the Committee.
4.00 ADMINISTRATION
4.01 Committee Duties. The Committee is responsible for administering the Plan
and has all powers appropriate and necessary to that purpose. Consistent with
the Plan's objectives, the Committee may adopt, amend and rescind rules and
regulations relating to the Plan, to the extent appropriate to protect the
Company's interests and has complete discretion to make all other decisions
(including whether a Participant has incurred a Disability) necessary or
advisable for the administration and interpretation of the Plan. Any action by
the Committee will be final, binding and conclusive for all purposes and upon
all persons.
II-6
4.02 Delegation of Ministerial Duties. In its sole discretion and to the extent
allowed by law and consistent with Plan objectives, the Committee may delegate
any duties associated with the Plan to any person (including employees) that it
deems appropriate.
4.03 Award Agreement. At the time any Award is made, the Committee may prepare
and deliver an Award Agreement to each affected Participant. The Award
Agreement:
[1] Will describe:
[a] The type of Award and when and how it may be exercised;
[b] The effect of exercising the Award; and
[c] Any Exercise Price associated with the Award.
[2] To the extent different from the terms of the Plan, will describe:
[a] Any conditions that must be met before the Award may be
exercised;
[b] Any objective restrictions placed on Restricted Stock,
Performance Shares and Performance Units and any performance related
conditions and Performance Goals that must be met before those
restrictions will be released;
[c] When and how an Award may be exercised; and
[d] Any other applicable terms and conditions affecting the Award.
4.04 Repricing/Settlement. In its sole discretion, the Committee may "reprice"
(as defined under rules issued by the Nasdaq National Market or any national
securities exchange or system on which shares of Stock are then listed or
traded) any Award and may repurchase or settle any outstanding Award for cash at
any time and on any basis it believes is appropriate and consistent with the
Plan's purposes.
5.00 STOCK SUBJECT TO PLAN
5.01 Number of Shares of Stock. Subject to Sections 5.02 and 5.03, the number of
shares of Stock subject to Awards under the Plan may not be larger than 500,000.
The shares of Stock to be delivered under the Plan may consist, in whole or in
part, of treasury Stock or authorized but unissued Stock not reserved for any
other purpose.
5.02 Cancelled, Terminated or Forfeited Awards or Awards Settled for Cash. Any
Stock subject to an Award that, for any reason, is cancelled, terminated or
forfeited or otherwise settled without the issuance of the Stock may again be
granted under the Plan.
5.03 Adjustment in Capitalization. If, after the Effective Date, there is a
Stock dividend or Stock split, recapitalization (including payment of an
extraordinary dividend), merger, consolidation, combination, spin-off,
distribution of assets to shareholders, exchange of shares or other similar
corporate change affecting Stock, the Committee will adjust as it deems
appropriate
II-7
[1] the number of Awards that may or will be issued to Participants during a
Plan Year, [2] the aggregate number of shares of Stock available for Awards
under Section 5.01 or subject to outstanding Awards (as well as any share-based
limits imposed under this Plan), [3] the respective Exercise Price, number of
shares and other limitations applicable to outstanding or subsequently issued
Awards and [4] any other factors, limits or terms affecting any outstanding or
subsequently issued Awards.
6.00 OPTIONS
6.01 Grant of Options. The Committee may grant Options to Employees and Eligible
Directors at any time during the term of this Plan. Options may be either [1]
Incentive Stock Options or [2] Nonstatutory Stock Options. However, Options
issued to Eligible Directors must always be Nonstatutory Stock Options.
6.02 Option Price. Each Option will bear the Exercise Price the Committee
specifies in the Award Agreement. However, in the case of an Incentive Stock
Option, the Exercise Price [1] will not be less than the Fair Market Value of a
share of Stock on the Grant Date and [2] will be at least 110 percent of the
Fair Market Value of a share of Stock on the Grant Date with respect to any
Incentive Stock Options issued to an Employee who, on the Grant Date, owns [as
defined in Code ss.424(d)] Stock possessing more than 10 percent of the total
combined voting power of all classes of Stock.
6.03 Exercise of Options. Subject to the terms of the Plan, Options will be
exercisable under the conditions specified in the Award Agreement. However:
[1] Any Option to purchase a fraction of a share of Stock will be
liquidated as of the date it arises and the Participant will be given cash
equal to Fair Market Value multiplied by the fractional share.
[2] Unless the Committee specifies otherwise in the Award Agreement, no
Employee may exercise Options for fewer than the smaller of:
[a] 100 shares of Stock; or
[b] The full number of shares of Stock for which Options are then
exercisable.
[3] No Option may be exercised more than ten years after it is granted
(five years in respect of an Incentive Stock Option, if the Employee owns
[as defined in Code ss.424(d)] Stock possessing more than 10 percent of
total combined voting power of all classes of Stock on the Grant Date).
6.04 Incentive Stock Options. Notwithstanding anything in the Plan to the
contrary:
[1] No provision of this Plan relating to Incentive Stock Options will be
interpreted, amended or altered; nor will any discretion or authority
granted under the Plan be exercised, in a manner that is inconsistent with
Code ss.422, or, without the consent of any affected Member, to cause any
Incentive Stock Option to fail to qualify for the federal income tax
treatment afforded under Code ss.421;
II-8
[2] The aggregate Fair Market Value of the Stock (determined as of the
Grant Date) with respect to which Incentive Stock Options are exercisable
for the first time by any Member during any calendar year (under all
option plans of the Company and all Subsidiaries of the Company) will not
exceed $100,000 [or other amount specified in Code ss.422(d)]; and
[3] No Incentive Stock Option will be granted to any person who is not an
Employee on the Grant Date.
6.05 Director Options.
[1] On the first business day after each Annual Meeting, each Eligible
Director will be issued Director Options to purchase 2,500 shares of
Stock. The Director Options issued under this section will be reduced (but
not below zero) by any options issued for the same purpose under the Prior
Plan.
[2] Subject to the terms of the Plan and the Award Agreement, each
Director Option may be exercised at any time during the ten years
beginning on the Grant Date.
[3] However:
[a] Any Director Option to purchase a fraction of a share of Stock
will be liquidated as of the date it arises and the Participant will
be given cash equal to Fair Market Value multiplied by the
fractional share;
[b] Unless the Committee specifies otherwise in the Award Agreement,
no Eligible Director may exercise Director Options for fewer than
the smaller of:
[i] 100 shares of Stock; or
[ii] The full number of shares of Stock for which Director
Options are then exercisable.
6.06 Payment for Options. Unless the Committee specifies otherwise in the Award
Agreement, the Exercise Price associated with each Option must be paid in cash.
However, the Committee may, at any time and in its discretion, develop, and
extend to some or all Members, procedures through which Members may pay an
Option's Exercise Price, including allowing a Member to tender Stock he or she
already has owned for at least six months before the exercise date, either by
actual delivery of the previously owned Stock or by attestation, valued at its
Fair Market Value on the exercise date, as partial or full payment of the
Exercise Price.
6.07 Transferability of Stock. Unless the Committee specifies otherwise in the
Award Agreement, Stock acquired through an Option will be transferable, subject
to applicable federal securities laws, the Company's stock trading policy, the
requirements of the Nasdaq National Market or any national securities exchange
or system on which shares of Stock are then listed or traded or any blue sky or
state securities laws.
II-9
7.00 RESTRICTED STOCK
7.01 Restricted Stock Grants. Subject to the terms of the Plan and the Award
Agreement, the Committee may grant Restricted Stock to Employees at any time
during the term of this Plan.
7.02 Transferability. Shares of Restricted Stock may not be sold, transferred,
pledged, assigned or otherwise alienated or hypothecated until the end of the
applicable Restriction Period. Restricted Stock normally will be held by the
Company as escrow agent during the Restriction Period and will be distributed as
described in Section 7.03. However, at any time during the Restriction Period,
the Committee may, in its sole discretion, issue the Restricted Stock to the
Employee in the form of certificates containing a legend describing restrictions
imposed on the Restricted Stock.
7.03 Removal of Restrictions. Shares of Restricted Stock will be:
[1] Forfeited, if all restrictions have not been met at the end of the
Restriction Period and again become available to be granted under the
Plan; or
[2] Released from escrow and distributed to the affected Employee (or any
restrictions imposed on the distributed certificate removed) as soon as
practicable after the last day of the Restriction Period if all
restrictions have then been met.
7.04 Rights Associated with Restricted Stock. During the Restriction Period:
[1] Employees may exercise full voting rights associated with their
Restricted Stock; and
[2] All dividends and other distributions paid with respect to any
Restricted Stock will be held by the Company as escrow agent during the
Restriction Period. At the end of the Restriction Period, these dividends
will be distributed to the Employee or forfeited as provided in Section
7.03. No interest or other accretion will be credited with respect to any
dividends held in this escrow account. If any dividends or other
distributions are paid in shares of Stock, those shares will be subject to
the same restrictions on transferability and forfeitability as the shares
of Restricted Stock with respect to which they were issued.
8.00 PERFORMANCE SHARES AND PERFORMANCE UNITS
8.01 Performance Shares and Performance Unit Grants. Subject to the terms of the
Plan and the Award Agreement, the Committee may grant Performance Shares or
Performance Units to Employees at any time during the term of this Plan.
However, Performance Shares and Performance Units will be granted to
Participants whose compensation is subject to Code ss.162(m) ["Code ss.162(m)
Participants"] solely under the terms of Section 8.02, while Performance Shares
and Performance Units will be granted to Participants who are not Code ss.162(m)
Participants solely under the terms of Section 8.03.
II-10
8.02 Code ss.162(m) Participants.
[1] For each Performance Period, the Committee will establish the
Performance Goal that will be applied to determine the Performance Shares
or Performance Units that may be distributed at the end of the Performance
Period to any Code ss.162(m) Participant.
[2] In establishing each affected Code ss.162(m) Participant's Performance
Goal, the Committee will consider the relevance of his or her assigned
duties and responsibilities to factors that preserve and increase the
Company's value. These factors will include:
[a] Increasing sales;
[b] Developing new products and lines of revenue;
[c] Reducing operating expenses;
[d] Increasing customer satisfaction;
[e] Developing new markets and increasing the Company's share of
existing markets;
[f] Meeting completion schedules;
[g] Increasing standardized pricing;
[h] Developing and managing relationships with regulatory and other
governmental agencies;
[i] Managing cash;
[j] Managing claims against the Company, including litigation;
[k] Identifying and completing strategic acquisitions; and
[l] Increasing the Company's book value.
[3] The Committee will make adjustments that appropriately reflect:
[a] The effect on any Performance Goal of any Stock dividend or
Stock split, recapitalization (including, without limitation, the
payment of an extraordinary dividend), merger, consolidation,
combination, spin-off, distribution of assets to shareholders,
exchange of shares or similar corporate change. This adjustment to
the Performance Goal will be made [i] to the extent the Performance
Goal is based on Stock, [ii] as of the effective date of the event
and [iii] for the Performance Period in which the event occurs.
Also, the Committee will make a similar adjustment to any portion of
a Performance Goal that is not based on Stock but which is affected
by an event having an effect similar to those just described.
II-11
[b] A substantive change in a Code ss.162(m) Participant's job
description or assigned duties and responsibilities.
[4] Performance Goals will be established and communicated to each
affected Code ss.162(m) Participant in an Award Agreement no later than
the earlier of:
[a] 90 days after the beginning of the applicable Performance
Period; or
[b] The expiration of 25 percent of the applicable Performance
Period.
[5] As of the end of each Performance Period, the Committee will certify
to the Board the extent to which each Code ss.162(m) Participant has or
has not met the Performance Goals established under this section. These
Performance Shares or Performance Units will be:
[a] Forfeited, to the extent that Performance Goals have not been
met at the end of the Performance Period, and again become available
to be granted under the Plan; or
[b] Valued and distributed, in a single lump sum in the form of
cash, Stock or a combination of both (as determined by the
Committee) as soon as practicable after the last day of the
Performance Period, to the extent that related Performance Goals
have been met.
8.03 Non-Code ss.162(m) Participants. At its discretion, the Committee may issue
Performance Shares and Performance Units to Participants who are not Code
ss.162(m) Participants ("Non-Code ss.162(m) Participants") by applying the
procedures described in Section 8.02 or on any other basis it deems appropriate.
These Performance Shares or Performance Units will be;
[1] Forfeited, to the extent that any Performance Goals or other standards
(if any) have not been met, and again become available to be granted under
the Plan; or
[2] Valued and distributed, in a single lump sum in the form of cash,
Stock or a combination of both (as determined by the Committee) at a time
determined by the Committee, to the extent that related Performance Goals
(if any) have been met.
8.04 Rights Associated with Performance Shares and Performance Units. During the
Performance Period, and unless any Award Agreement provides otherwise:
[1] Employees may not exercise voting rights associated with their
Performance Shares or Performance Units; and
[2] No dividends or other distributions made or declared during the
Performance Period will be paid with respect to any Performance Shares or
Performance Units.
II-12
9.00 STOCK APPRECIATION RIGHTS
9.01 SAR Grants. Subject to the terms of the Plan and the Award Agreement, the
Committee may grant Affiliated SARs, Freestanding SARs and Tandem SARs (or a
combination of each) to Employees at any time during the term of this Plan.
9.02 Exercise Price. Unless the Committee specifies otherwise in the Award
Agreement, the Exercise Price specified in the Award Agreement will:
[1] In the case of an Affiliated SAR, not be less than 100 percent of the
Fair Market Value of a share of Stock on the Grant Date;
[2] In the case of a Freestanding SAR, not be less than 100 percent of the
Fair Market Value of a share of Stock on the Grant Date; and
[3] In the case of a Tandem SAR, not be less than the Exercise Price of
the related Option.
9.03 Exercise of Affiliated SARs. Affiliated SARs will be deemed to be exercised
on the date the related Option is exercised. However:
[1] An Affiliated SAR will expire no later than the date the related
Option expires;
[2] The value of the payout with respect to the Affiliated SAR will not be
more than the Exercise Price of the related Option; and
[3] An Affiliated SAR may be exercised only if the Fair Market Value of
the shares of Stock subject to the related Option is larger than the
Exercise Price of the related Option.
9.04 Exercise of Freestanding SARs. Freestanding SARs will be exercisable
subject to the terms specified in the Award Agreement.
9.05 Exercise of Tandem SARs. Tandem SARs may be exercised with respect to all
or part of the shares of Stock subject to the related Option by surrendering the
right to exercise the equivalent portion of the related Option. A Tandem SAR may
be exercised only with respect to the shares of Stock for which its related
Option is then exercisable. However:
[1] A Tandem SAR will expire no later than the date the related Option
expires;
[2] The value of the payout with respect to the Tandem SAR will not be
more than 100 percent of the difference between the Exercise Price of the
related Option and the Fair Market Value of a share of Stock subject to
the related Option at the time the Tandem SAR is exercised; and
[3] A Tandem SAR may be exercised only if the Fair Market Value of a share
of Stock subject to the Option is larger than the Exercise Price of the
related Option.
II-13
9.06 Settling SARs.
[1] A Member exercising a Tandem SAR or a Freestanding SAR will receive an
amount equal to:
[a] The difference between the Fair Market Value of a share of Stock
on the exercise date and the Exercise Price; multiplied by
[b] The number of shares of Stock with respect to which the Tandem
SAR or Freestanding SAR is exercised.
[2] A Member will not receive any cash or other amount when exercising an
Affiliated SAR. Instead, the value of the Affiliated SAR being exercised
will be applied to reduce (but not below zero) the Exercise Price of the
related Option.
At the discretion of the Committee, the value of any Tandem SAR or Freestanding
SAR being exercised will be settled in cash, shares of Stock or any combination
of both.
10.00 TERMINATION
10.01 Retirement. Unless otherwise specified in the Award Agreement, all Awards
that are outstanding (whether or not then exercisable) when a Participant
Retires may be exercised at any time before the earlier of [1] the expiration
date specified in the Award Agreement or [2] 12 months (three months in the case
of Incentive Stock Options) beginning on the Retirement date (or any shorter
period specified in the Award Agreement).
10.02 Death or Disability. Unless otherwise specified in the Award Agreement,
all Awards that are outstanding (whether or not then exercisable) when a
Participant Terminates because of death or Disability may be exercised by the
Participant or the Participant's Beneficiary at any time before the earlier of
[1] the expiration date specified in the Award Agreement or [2] 12 months
beginning on the date of death or Termination because of Disability (or any
shorter period specified in the Award Agreement).
10.03 Termination for Cause. Unless otherwise specified in the Award Agreement,
all Awards that are outstanding (whether or not then exercisable) if a
Participant Terminates for Cause will be forfeited.
10.04 Termination for any Other Reason. Unless otherwise specified in the Award
Agreement or subsequently, any Awards that are outstanding when a Participant
Terminates for any reason not described in Sections 10.01 through 10.03 and
which are then exercisable, or which the Committee has, in its sole discretion,
decided to make exercisable, may be exercised at any time before the earlier of
[1] the expiration date specified in the Award Agreement or [2] 90 days
beginning on the date the Participant Terminates.
10.05 Limits on Exercisability/Forfeiture of Exercised Awards. Regardless of any
other provision of this section or the Plan and unless the Committee specifies
otherwise in the Award Agreement or the Company subsequently consents in
writing, a Member who fails to comply with
II-14
Section 10.05[3]will:
[1] Forfeit all outstanding Awards; and
[2] Forfeit all shares of Stock or cash (including dividends held in
escrow under Sections 7.04[2]) acquired or received by the exercise of any
Award, lapse of any restrictions or attainment of any Performance Goals on
the date of Termination or within 180 days before and 365 days after
Terminating, including any amounts received under a cash settlement
described in Section 4.04 but excluding amounts received as a consequence
of a Change in Control as described in Section 11.00.
[3] The forfeiture described in Sections 10.05[1] and [2] will apply if,
within the time period described in Section 10.05[2] the Member "competes"
with the Company or any Subsidiary. For purposes of this section,
"compete" means:
[a] Anywhere in the State of Ohio or in any other state in which the
Company or any Subsidiary is conducting business when benefits are
paid, the Member, without the written consent of the Company,
provides advice with respect to, engages in or directly or
indirectly supervises or assists the provision of any service or
sale of any product that competes with any service or product of the
Company or any Subsidiary; or
[b] Anywhere in any state, the Member accepts employment with, the
Member provides advice to, or engages in or directly or indirectly
supervises or assists the provision of any service or sale of any
product by any person, company, partnership, corporation or other
entity that builds homes, develops land or otherwise competes with
the Company or any Subsidiary in any market, city or area in which
the Company or any Subsidiary conducts business when benefits are
paid.
11.00 CHANGE IN CONTROL
11.01 Accelerated Vesting and Settlement. Subject to Section 11.02, on the date
of any Change in Control:
[1] [a] Each Option (other than Director Options) outstanding on the date
of a Change in Control (whether or not exercisable) will be cancelled in
exchange [i] for cash equal to the excess of the Change in Control Price
over the Exercise Price associated with the cancelled Option or, [ii] at
the Committee's discretion, for whole shares of Stock with a Fair Market
Value equal to the excess of the Change in Control Price over the Exercise
Price associated with the cancelled Option and the Fair Market Value of
any fractional share of Stock will be distributed in cash, and [b] all
related Affiliated and Tandem SARs will be cancelled. However, the
Committee, in its sole discretion, may offer the holders of the Options to
be cancelled a reasonable opportunity (not longer than 15 days beginning
on the date of the Change in Control) to exercise all their outstanding
Options (whether or not otherwise then exercisable) by following the
exercise procedures described in Section 6.00;
II-15
[2] All Performance Goals associated with Performance Shares or
Performance Units will be deemed to have been met on the date of the
Change in Control, all Performance Periods accelerated to the date of the
Change in Control and all outstanding Performance Shares and Performance
Units (including those subject to the acceleration described in this
subsection) will be distributed in a single lump sum cash payment;
[3] All Freestanding SARs will be deemed to be exercisable and will be
liquidated in a single lump sum cash payment; and
[4] All Restricted Stock will be released from escrow and distributed to
the affected Employee (or any restrictions imposed on the distributed
certificate removed).
11.02 Alternative Awards. Section 11.01 will not apply to the extent that the
Committee reasonably concludes in good faith before the Change in Control occurs
that Awards will be honored or assumed or new rights substituted for the Award
(collectively "Alternative Awards") by the Employee's employer (or the parent or
a subsidiary of that employer) immediately after the Change in Control, provided
that any Alternative Award must:
[1] Be based on stock that is (or, within 60 days of the Change in
Control, will be) traded on the Nasdaq National Market or a national
securities exchange or system;
[2] Provide the Employee (or each Employee in a class of Employees) rights
and entitlements substantially equivalent to the rights, terms and
conditions of each Award for which it is substituted, including an
identical or better exercise or vesting schedule and identical or better
timing and methods of payment, provided that such substitution of an Award
will not constitute a modification, extension or renewal of any Award;
[3] Have substantially equivalent economic value to the Award (determined
at the time of the Change in Control) for which it is substituted; and
[4] Provide that, if the Employee's employment is involuntarily Terminated
without Cause or constructively Terminated by the Employee, any conditions
on the Employee's rights under, or any restrictions on transfer or
exercisability applicable to, each Alternative Award will be waived or
lapse.
For purposes of this section, a constructive Termination means a Termination by
an Employee following a material reduction in the Employee's compensation or job
responsibilities (when compared to the Employee's compensation and job
responsibilities on the date of the Change in Control) or the relocation of the
Employee's principal place of employment to a location at least 50 miles from
his or her principal place of employment on the date of the Change in Control
(or other location to which the Employee has been reassigned with his or her
written consent), in each case without the Employee's written consent but only
if the material reduction or relocation occurs within 24 months after the Change
in Control.
11.03 Director Options. Upon a Change in Control, each outstanding Director
Options will be cancelled unless [1] the Stock continues to be traded on an
established securities market after the Change in Control or [2] the Eligible
Director continues to be a Board member after the Change in Control. In the
situations just described, the Director Option will be unaffected by a Change in
II-16
Control. Any Director Option to be cancelled under the next preceding sentence
will be exchanged [3] for cash equal to the excess of the Change in Control
Price over the Exercise Price associated with the cancelled Director Option or
[4] at the Committee's discretion, for whole shares of Stock with a Fair Market
Value equal to the excess of the Change in Control Price over the Exercise Price
associated with the cancelled Director Option and the Fair Market Value of any
fractional share of Stock will be distributed in cash. However, the Committee,
in its sole discretion, may offer the holders of the Director Options to be
cancelled a reasonable opportunity (not longer than 15 days beginning on the
date of the Change in Control) to exercise all their outstanding Director
Options (whether or not otherwise then exercisable) by following the exercise
procedures described in Section 6.00.
11.04 Coordination of Change In Control Benefits. If the sum of the benefits
received due to a Change in Control, as described in this section, and those
provided under all other plans, programs or agreements between the Participant
and the Company or any Subsidiary constitute "excess parachute payments" as
defined in Code ss.280G(b)(1), the Company and or Subsidiary will either:
[1] Reimburse the Participant for the amount of any excise tax due under
Code ss.4999 (but not for any income taxes or additional excise taxes
associated with this initial payment), if this procedure provides the
affected Participant with an after-tax amount that is larger than the
after-tax amount produced under Section 11.04[2]; or
[2] Reduce the amounts paid to the Participant under this Plan so that his
or her total "parachute payment" as defined in Code ss.280G(b)(2)(A) under
this and any all other plans, programs or agreements between the
Participant and the Company or Subsidiary will be $1.00 less than the
amount that would be an "excess parachute payment," if this procedure
provides the Participant with an after-tax amount that is larger than the
after-tax amount produced under Section 11.04[1].
12.00 AMENDMENT, MODIFICATION AND TERMINATION OF PLAN
The Board or the Committee may terminate, suspend or amend the Plan at any time
without shareholder approval except to the extent that shareholder approval is
required to satisfy applicable requirements imposed by [1] Rule 16b-3 under the
Act, or any successor rule or regulation, [2] applicable requirements of the
Code or [3] the Nasdaq National Market or any securities exchange, market or
other quotation system on or through which the Company's securities are listed
or traded. Also, no Plan amendment may [4] result in the loss of a Committee
member's status as a "non-employee director" as defined in Rule 16b-3 under the
Act, or any successor rule or regulation, with respect to any employee benefit
plan of the Company, [5] cause the Plan to fail to meet requirements imposed by
Rule 16b-3 or [6] without the consent of the affected Member, adversely affect
any Award issued before the amendment, modification or termination.
13.00 MISCELLANEOUS
13.01 Assignability. Except as described in this section, an Award may not be
transferred except by will or the laws of descent and distribution and, during
the Member's lifetime, may be exercised
II-17
only by the Member, the Member's guardian or legal representative. However, with
the permission of the Committee, a Member or a specified group of Members may
transfer Awards (other than Incentive Stock Options) to a revocable inter vivos
trust, of which the Member is the settlor, or may transfer Awards (other than an
Incentive Stock Option) to any member of the Member's immediate family, any
trust, whether revocable or irrevocable, established solely for the benefit of
the Member's immediate family, any partnership or limited liability company
whose only partners or members are members of the Member's immediate family or
an organization described in Code ss.501(c)(3) ("Permissible Transferees"). Any
Award transferred to a Permissible Transferee will continue to be subject to all
of the terms and conditions that applied to the Award before the transfer and to
any other rules prescribed by the Committee. A Permissible Transferee [other
than an organization described in Code ss.501(c)(3)] may not retransfer an Award
except by will or the laws of descent and distribution and then only to another
Permissible Transferee.
13.02 Beneficiary Designation. Each Member may name a Beneficiary or
Beneficiaries (who may be named contingently or successively) to receive or to
exercise any vested Award that is unpaid or unexercised at the Member's death.
Each designation made will revoke all prior designations made by the same
Member, must be made on a form prescribed by the Committee and will be effective
only when filed in writing with the Committee. If a Member has not made an
effective Beneficiary designation, the deceased Member's Beneficiary will be his
or her surviving spouse or, if none, the deceased Member's estate. The identity
of a Member's designated Beneficiary will be based only on the information
included in the latest beneficiary designation form completed by the Member and
will not be inferred from any other evidence.
13.03 No Guarantee of Employment or Participation. Nothing in the Plan may be
construed as:
[1] Interfering with or limiting the right of the Company or any
Subsidiary to Terminate any Employee's employment at any time;
[2] Conferring on any Participant any right to continue as an employee or
director of the Company or any Subsidiary;
[3] Guaranteeing that any common-law employee will be selected to be a
Participant; or
[4] Guaranteeing that any Member will receive any future Awards.
13.04 Tax Withholding.
[1] The Company will withhold from other amounts owed to the Member, or
require a Member to remit to the Company, an amount sufficient to satisfy
federal, state and local withholding tax requirements on any Award,
exercise or cancellation of an Award or purchase of Stock. If these
amounts are not to be withheld from other payments due to the Member (or
if there are no other payments due to the Member), the Company will defer
payment of cash or issuance of shares of Stock until the earlier of:
[a] Thirty days after the settlement date; or
II-18
[b] The date the Member remits the required amount.
If the Member has not remitted the required amount within 30 days after
the settlement date, the Company will permanently withhold from the value
of the Awards to be distributed the minimum amount required to be withheld
to comply with applicable federal, state and local income, wage and
employment taxes and distribute the balance to the Member.
[2] In its sole discretion, which may be withheld for any reason or for no
reason, the Committee may permit a Member to elect, subject to conditions
the Committee establishes, to reimburse the Company for this tax
withholding obligation through one or more of the following methods:
[a] By having shares of Stock otherwise issuable under the Award
withheld by the Company (but only to the extent of the minimum
amount that must be withheld to comply with applicable state,
federal and local income, employment and wage tax laws);
[b] By delivering to the Company previously acquired shares of Stock
that the Member has owned for at least six months;
[c] By remitting cash to the Company; or
[d] By remitting a personal check immediately payable to the
Company.
13.05 Indemnification. Each individual who is or was a member of the Committee
or of the Board will be indemnified and held harmless by the Company against and
from any loss, cost, liability or expense that may be imposed upon or reasonably
incurred by him or her in connection with or resulting from any claim, action,
suit or proceeding to which he or she may be made a party or in which he or she
may be involved by reason of any action taken or failure to take action under
the Plan as a Committee member and against and from any and all amounts paid,
with the Company's approval, by him or her in settlement of any matter related
to or arising from the Plan as a Committee member or paid by him or her in
satisfaction of any judgment in any action, suit or proceeding relating to or
arising from the Plan against him or her as a Committee member, but only if he
or she gives the Company an opportunity, at its own expense, to handle and
defend the matter before he or she undertakes to handle and defend it in his or
her own behalf. The right of indemnification described in this section is not
exclusive and is independent of any other rights of indemnification to which the
individual may be entitled under the Company's organizational documents, by
contract, as a matter of law or otherwise.
13.06 No Limitation on Compensation. Nothing in the Plan is to be construed to
limit the right of the Company to establish other plans or to pay compensation
to its employees or directors, in cash or property, in a manner not expressly
authorized under the Plan.
13.07 Requirements of Law. The grant of Awards and the issuance of shares of
Stock will be subject to all applicable laws, rules and regulations and to all
required approvals of any governmental agencies or national securities exchange,
market or other quotation system. Also, no shares of Stock will be issued under
the Plan unless the Company is satisfied that the issuance
II-19
of those shares of Stock will comply with applicable federal and state
securities laws. Certificates for shares of Stock delivered under the Plan may
be subject to any stock transfer orders and other restrictions that the
Committee believes to be advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, the Nasdaq National
Market or any stock exchange or other recognized market or quotation system upon
which the Stock is then listed or traded, or any other applicable federal or
state securities law. The Committee may cause a legend or legends to be placed
on any certificates issued under the Plan to make appropriate reference to
restrictions within the scope of this section.
13.08 Term of Plan. The Plan will be effective upon its adoption by the Board
and approval by the affirmative vote of the holders of at least a majority of
the common shares issued and outstanding as of the record date for the first
Annual Meeting occurring after the Board approves the Plan. Subject to Section
12.00, the Plan will continue until the tenth anniversary of the Effective Date.
13.09 Governing Law. The Plan, and all agreements hereunder, will be construed
in accordance with and governed by the laws (other than laws governing conflicts
of laws) of the State of Ohio.
13.10 No Impact on Other Benefits. Plan Awards are incentives designed to
promote the objectives described in Section 1.00. Also, Awards are not
compensation for purposes of calculating a Member's rights under any other
employee benefit plan.
13.11 Effect on Prior Plan. Upon shareholder approval of the Plan, the Prior
Plan will terminate; however, all outstanding Awards at the time of termination
will continue to be governed by the rights and terms of the Prior Plan until
exercised or forfeited.
II-20
Appendix III
DOMINION HOMES, INC.
Proxy for the Annual Meeting of Shareholders to be held on May 6, 2003
This Proxy is solicited on behalf of the Board of Directors
The undersigned holder(s) of common shares, no par value ("Common
Shares"), of Dominion Homes, Inc. (the "Company") hereby constitute(s) and
appoint(s) David S. Borror and Terry E. George, or either of them, the Proxy or
Proxies of the undersigned, with full power of substitution, to attend the
Annual Meeting of Shareholders ("Annual Meeting") of the Company to be held at
the Embassy Suites Hotel at 5100 Upper Metro Place, Dublin, Ohio, 43017, on May
6, 2003, at 10:00 a.m., local time, and any adjournment or adjournments thereof,
and to vote all of the Common Shares which the undersigned is entitled to vote
at such Annual Meeting or at any adjournments thereof:
1. |_| FOR election as Directors of all the nominees listed below (except
as marked to the contrary below)*
2. |_| WITHHOLD AUTHORITY to vote for all nominees listed below
Class I Directors
Douglas G. Borror Jon M. Donnell Zuheir Sofia C. Ronald Tilley
Class II Director
Carl. A. Nelson
*(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THE NAME OF THE NOMINEE IN THE LIST ABOVE.)
2. |_| FOR |_| AGAINST |_| ABSTAIN
Approval of the Dominion Homes, Inc. 2003 Stock Option and Incentive Equity
Plan.
In their discretion, the Proxies are authorized to vote upon such other business
as may properly come before the Annual Meeting or any postponements or
adjournments thereof.
(Continued, and to be signed, on other side)
III-1
(Continued from other side)
WHERE A CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS PROXY WILL BE
VOTED AS SPECIFIED. WHERE NO CHOICE IS INDICATED, THE SHARES REPRESENTED BY THIS
PROXY WILL BE VOTED "FOR" THE ELECTION OF THE NOMINEES LISTED IN ITEM NO. 1 AS
DIRECTORS OF THE COMPANY, "FOR" THE APPROVAL OF THE DOMINION HOMES, INC. 2003
STOCK OPTION AND INCENTIVE EQUITY PLAN, AND, IN THE DISCRETION OF THE PROXY OR
PROXIES, ON ANY OTHER BUSINESS PROPERLY BROUGHT BEFORE THE MEETING OR ANY
POSTPONEMENT(S) OR ADJOURNMENT(S) THEREOF.
All proxies previously given by the undersigned are hereby revoked. The
undersigned acknowledges receipt of the accompanying Notice of Annual Meeting of
Shareholders and Proxy Statement for the May 6, 2003, Annual Meeting.
Dated: __________________, 2003 ______________________________
Signature of Shareholder(s)
Dated: __________________, 2003 ______________________________
Signature of Shareholder(s)
Please sign exactly as your
name appears hereon.
Executors, administrators,
trustees, guardians, attorneys
and agents should give their
full titles. If shareholder is
a corporation, sign in full
corporate name by authorized
officer. If shares are
registered in two names, both
shareholders should sign.
(Please note any change of
address on this proxy.)
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF DOMINION HOMES,
INC. PLEASE FILL IN, DATE, SIGN AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE.
III-2