hovnanian_def14a.htm
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED
IN PROXY STATEMENT
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
[_] Soliciting Material Under
Rule
[_] Confidential,
For Use of
the
14a-12
Commission Only (as permitted
by Rule 14a-6(e)(2))
[x] Definitive Proxy Statement
[_] Definitive
Additional Materials
HOVNANIAN ENTERPRISES, INC.
------------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Registrant as
Specified In Its Charter)
------------------------------------------------------------------------------------------------------------------------------------------------------
(Name of Person(s)
Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee
(Check the appropriate box):
[x] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
1) Title of
each class of securities to which transaction applies:
____________________________________________________________________________________
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:
|
HOVNANIAN ENTERPRISES,
INC. |
|
110 West Front Street,
P.O. Box 500, Red Bank, N.J. 07701 (732)
747-7800 |
February 1, 2010
Dear
Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders,
which will be held on Tuesday, March 16, 2010, at the offices of Simpson Thacher
& Bartlett LLP, 425 Lexington Avenue, New York, New York 10017. The meeting
will start promptly at 10:30 a.m.
In accordance with the Securities and Exchange Commission rule allowing
companies to furnish proxy materials to their shareholders over the Internet,
the Company is primarily furnishing proxy materials to our shareholders of Class
A Common Stock and registered shareholders of Class B Common Stock on the
Internet, rather than mailing paper copies of the materials (including our
Annual Report to Shareholders for fiscal 2009) to each of those shareholders. We
believe that this e-proxy process will expedite our shareholders’ receipt of
proxy materials, lower costs, and reduce the environmental impact of our annual
meeting. If you received only a Notice Regarding the Availability of Proxy
Materials (the “Notice”) by mail or electronic mail, you will not receive a
paper copy of the proxy materials unless you request one. Instead, the Notice
will instruct you as to how you may access and review the proxy materials on the
Internet. The Notice will also instruct you as to how you may access your proxy
card to vote over the Internet, by telephone or by mail. If you received a
Notice by mail or electronic mail and would like to receive a paper copy of our
proxy materials, free of charge, please follow the instructions included in the
Notice.
We anticipate that the Notice will be mailed to our shareholders on or
about February 1, 2010, and will be sent by electronic mail to our shareholders
who have opted for such means of delivery on or about February 1,
2010.
All shareholders of record of Class B Common Stock who hold in nominee
name have been sent a full set of proxy materials, including a proxy card. As in
the past, shareholders of record of Class B Common Stock held in nominee name
will only be able to vote by returning the enclosed proxy card in the envelope
provided for this purpose or by voting in person at the Company’s 2010 Annual
Meeting.
Attached to this letter is a Notice of Annual Meeting of Shareholders and
Proxy Statement, which describes the business to be conducted at the meeting. We
will also report on matters of current interest to our
shareholders.
It is important that your shares be represented and voted at the meeting.
Therefore, we urge you to complete, sign, date and return the enclosed proxy
card or, if applicable, register your vote via the Internet or by telephone
according to the instructions on the proxy card. If you attend the meeting, you
may still choose to vote your shares personally even though you have previously
designated a proxy.
We sincerely hope you will be able to attend and participate in the
Company’s 2010 Annual Meeting. We welcome the opportunity to meet with many of
you and give you a firsthand report on the progress of your
Company.
|
Sincerely yours, |
|
|
|
|
|
Ara K. Hovnanian |
|
Chairman of the
Board |
PROXY VOTING METHODS
If at the close of business on January 19, 2010, you were a shareholder
of record or held shares through a broker or bank, you may vote your shares as
described below or you may vote in person at the Annual Meeting. To reduce our
administrative and postage costs, we would appreciate if shareholders of Class A
Common Stock and registered shareholders of Class B Common Stock would please
vote through the Internet or by telephone, both of which are available 24 hours
a day. You may revoke your proxies at the times and in the manners described on
page 1 of the Proxy Statement. If you are a shareholder of record or hold shares
through a broker or bank and are voting by proxy, your vote must be received by
11:59 p.m. (Eastern Daylight Time) on March 15, 2010 to be counted unless
otherwise noted below.
To vote by proxy:
Shareholders of Class A Common Stock and Registered Shareholders of Class
B Common Stock:
BY INTERNET
- Go to the website at
www.proxyvote.com and follow the instructions, 24 hours a day, seven days a
week.
- You will need
the 12-digit Control Number included on your Notice Regarding the Availability
of Proxy Materials to obtain your records and to create an electronic voting
instruction form.
BY TELEPHONE
- From a touch-tone telephone, dial
(800) 690-6903 and follow the recorded instructions, 24 hours a day, seven
days a week.
- You will need the 12-digit Control
Number included on your Notice Regarding the Availability of Proxy Materials
in order to vote by telephone.
BY MAIL
- Request a proxy card from us by
following the instructions on your Notice Regarding the Availability of Proxy
Materials.
- When you receive the proxy card,
mark your selections on the proxy card.
- Date and sign your name exactly as
it appears on your proxy card.
- Mail the proxy card in the
postage-paid envelope that will be provided to you.
- Mailed proxy cards must be
received no later than March 15, 2010 to be counted for the Annual
Meeting.
Shareholders
of Record of Class B Common Stock held in Nominee
Name
- Nominees of shareholders of Class
B Common Stock may only appoint proxies by signing, dating and returning the
enclosed proxy card in the envelope provided.
- Shares of Class B Common Stock
held in nominee name will be entitled to ten votes per share only if the
beneficial owner voting instruction card and the nominee proxy card relating
to such shares is properly completed, mailed and received not less than 3 nor
more than 20 business days prior to March 16, 2010.
YOUR VOTE IS IMPORTANT. THANK YOU FOR
VOTING.
HOVNANIAN ENTERPRISES,
INC.
_____________________
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS
FEBRUARY 1, 2010
_____________________
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Hovnanian Enterprises, Inc. will be held on Tuesday, March 16, 2010, at the
offices of Simpson Thacher & Bartlett LLP, 425 Lexington Avenue, New York,
New York 10017 at 10:30 a.m. for the following matters:
|
1. |
|
The election of directors of the
Company for the ensuing year, to serve until the next Annual Meeting of
Shareholders of the Company, and until their respective successors may be
elected and qualified; |
|
2. |
|
The ratification of the selection
of Deloitte & Touche LLP, an independent registered public accounting
firm, to examine the financial statements of the Company for the year
ending October 31, 2010; |
|
3. |
|
The approval of amendments to the
Company’s Amended and Restated 2008 Stock Incentive Plan; and |
|
4. |
|
The transaction of such other
business as may properly come before the meeting and any adjournment
thereof. |
The Board of Directors
recommends that you vote FOR each of the nominees listed in proposal 1 and FOR
proposals 2 and 3.
Only
shareholders of record at the close of business on January 19, 2010 are entitled
to notice of, and to vote at, the Annual Meeting. Accompanying this Notice of
Annual Meeting of Shareholders is a proxy statement, proxy card(s) and the
Company’s Annual Report for the year ended October 31, 2009.
To
ensure your shares are voted, if you are a shareholder of Class A Common Stock
or a registered shareholder of Class B Common Stock, you may vote your shares
over the Internet, by telephone, or by requesting a paper proxy card to
complete, sign and return by mail. These voting procedures are described on the
preceding page and on the proxy card.
If
you are a shareholder of record of Class B Common Stock held in nominee name,
you may only appoint proxies to vote your shares by signing, dating and
returning the enclosed proxy card in the envelope provided.
All
shareholders are urged to attend the meeting in person or by proxy. Shareholders
who do not expect to attend the meeting are requested to complete, sign and date
the enclosed proxy card and return it promptly, or, if applicable, to register
their vote via the Internet or by telephone according to the instructions on the
preceding page and the proxy card.
|
By order of the Board of Directors, |
|
PETER S. REINHART |
|
Secretary |
February 1, 2010 |
|
If you are a shareholder of record
and you plan to attend the Annual Meeting, please mark the appropriate box
on your proxy card or, if applicable, so indicate when designating a proxy
via the Internet or by telephone. If your shares are held by a bank,
broker or other intermediary and you plan to attend, please send written
notice to Hovnanian Enterprises, Inc., 110 West Front Street, P.O. Box
500, Red Bank, New Jersey 07701, Attention: Peter S. Reinhart, Secretary,
and enclose evidence of your ownership (such as a letter from the bank,
broker or other intermediary confirming your ownership or a bank or
brokerage firm account statement). The names of all those planning to
attend will be placed on an admission list held at the registration desk
at the entrance to the meeting. If you do not plan to attend the Annual
Meeting, please designate a proxy by mail or, if applicable, via the
Internet or by telephone. If you choose to vote by mail, please complete,
sign and date the enclosed proxy card and return it promptly so that your
shares will be voted. If you have received a hard copy of the proxy
materials, the enclosed envelope requires no postage if mailed in the
United States. |
HOVNANIAN ENTERPRISES, INC.
110 WEST
FRONT STREET
P.O. BOX
500
RED BANK, NEW JERSEY
07701
____________________
PROXY STATEMENT
____________________
GENERAL
The
accompanying proxy is solicited on behalf of the Board of Directors of Hovnanian
Enterprises, Inc. (the “Company”, “we”, “us”, or “our”) for use at the Annual
Meeting of Shareholders referred to in the foregoing notice and at any
adjournment thereof.
Shares represented by properly executed proxies, that are received or
executed in time and not revoked will be voted in accordance with the
specifications thereon. If no specifications are made, the persons named in the
accompanying proxy card(s) will vote the shares represented by such proxies for
the Board of Directors’ slate of directors; for the ratification of the
selection of Deloitte & Touche LLP, an independent registered public
accounting firm, to examine the financial statements of the Company for the year
ending October 31, 2010, for the approval of amendments to the Company’s Amended
and Restated 2008 Stock Incentive Plan, and as recommended by the Board of
Directors, unless contrary instructions are given. Any person may revoke a
previously designated proxy at any time before it is exercised by delivering
written notice of revocation to Peter S. Reinhart, Secretary, by delivering a
later-dated proxy, or by voting in person at the Annual Meeting. Please note
that attendance at the Annual Meeting will not by itself revoke a
proxy.
VOTING RIGHTS AND SECURITY OWNERSHIP
OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The record date for the determination of shareholders entitled to vote at
the meeting was the close of business on January 19, 2010. As of that date, the
outstanding voting securities of the Company consisted of 62,876,533 shares of
Class A Common Stock, each share entitling the holder thereof to one vote, and
14,572,769 shares of Class B Common Stock, each share entitling the holder
thereof to ten votes. Other than as set forth in the table below, there are no
persons known to the Company to be the beneficial owners of shares representing
more than 5% of either the Company’s Class A Common Stock or Class B Common
Stock.
The
following table sets forth as of January 19, 2010 (1) the Class A Common Stock
and Class B Common Stock of the Company beneficially owned by holders of more
than 5% of either the Class A Common Stock or the Class B Common Stock of the
Company and (2) the Class A Common Stock, Class B Common Stock and Depositary
Shares of the Company beneficially owned by each Director, each nominee for
Director, each executive officer named in the tables set forth under “Executive
Compensation” below and all Directors and executive officers as a
group:
|
|
Class A
Common Stock (1) |
|
Class B
Common Stock (1) |
|
Depositary
Shares (1)(3) |
|
|
Amount and |
|
|
|
Amount and |
|
|
|
Amount and |
|
|
Directors, Nominees for Director,
Certain |
|
Nature of |
|
Percent |
|
Nature of |
|
Percent |
|
Nature of |
|
Percent |
Executive Officers, Directors and
Executive |
|
Beneficial |
|
of |
|
Beneficial |
|
of |
|
Beneficial |
|
of |
Officers as a Group
and Holders of More Than 5% |
|
Ownership |
|
Class (2) |
|
Ownership |
|
Class (2) |
|
Ownership |
|
Class
(2) |
Estate of Kevork S. Hovnanian
(4) |
|
7,567,392 |
|
|
12.04 |
% |
|
|
|
7,138,646 |
|
|
48.99 |
% |
|
|
|
— |
|
|
|
— |
|
|
Ara K. Hovnanian (5) |
|
5,615,056 |
|
|
8.71 |
% |
|
|
|
988,915 |
|
|
6.79 |
% |
|
|
|
— |
|
|
|
— |
|
|
Paul W. Buchanan (6) |
|
121,956 |
|
|
.19 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Robert B. Coutts |
|
28,704 |
|
|
.05 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Edward A. Kangas |
|
73,023 |
|
|
.12 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Joseph A. Marengi |
|
38,704 |
|
|
.06 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
Peter S. Reinhart |
|
114,957 |
|
|
.18 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
3,000 |
|
|
|
0.1 |
% |
|
Peter S. Reinhart as Trustee of the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sirwart Hovnanian 1994 Marital
Trust (7) |
|
— |
|
|
— |
|
|
|
|
5,210,091 |
|
|
35.75 |
% |
|
|
|
— |
|
|
|
— |
|
|
John J. Robbins |
|
51,260 |
|
|
.08 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
J. Larry Sorsby |
|
271,802 |
|
|
.43 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
David G. Valiaveedan (8) |
|
4,526 |
|
|
.01 |
% |
|
|
|
— |
|
|
— |
|
|
|
|
2,000 |
|
|
|
— |
|
|
Stephen D. Weinroth |
|
113,523 |
|
|
.18 |
% |
|
|
|
4,500 |
|
|
.03 |
% |
|
|
|
— |
|
|
|
— |
|
|
All Directors and executive officers as
a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
group (11 persons) |
|
14,000,903 |
|
|
21.60 |
% |
|
|
|
13,342,152 |
|
|
91.56 |
% |
|
|
|
5,000 |
|
|
|
0.1 |
% |
|
(1) |
|
The figures
in the table with respect to Class A Common Stock do not include the
shares of Class B Common Stock beneficially owned by the specified
persons. Shares of Class B Common Stock are convertible at any time on a
share for share basis to Class A Common Stock. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally attributes ownership to persons who have or share
voting or investment power with respect to the relevant securities. Shares
of Common Stock that may be acquired within 60 days upon exercise of
outstanding stock options are deemed to be outstanding. Securities not
outstanding, but included in the beneficial ownership of each such person,
are deemed to be outstanding for the purpose of computing the percentage
of outstanding securities of the class owned by such person, but are not
deemed to be outstanding for the purpose of computing the percentage of
the class owned by any other person. Except as indicated in these
footnotes, and subject to community property laws where applicable, the
persons named in the table have sole voting and investment power with
respect to all securities shown as beneficially owned by them. Shares of
Class A Common Stock subject to options currently exercisable or
exercisable within 60 days, whether or not in-the-money, include the
following: A. Hovnanian, (1,600,000), P. Buchanan (70,000), R. Coutts
(2,333) E. Kangas (3,667), J. Marengi (2,333), P. Reinhart (60,000), J.
Robbins (7,333), J. Sorsby (190,000), S. Weinroth (13,667), and all
Directors and executive officers as a group (1,949,333). Shares of Class B
Common Stock subject to options currently exercisable or exercisable
within 60 days is zero. The stock options amounts exclude options
cancelled by Executive Officers in December 2008 and October 2009 and by
the non-employee Directors in January 2009 and October
2009. |
2
|
|
On July 29, 2008, the Company’s
Board of Directors declared a dividend of one Preferred Stock Purchase
Right for each outstanding share of Class A and Class B Common Stock. The
dividend was paid to stockholders of record on August 15, 2008. Subject to
the terms, provisions and conditions of the Rights Plan, if the Preferred
Stock Purchase Rights become exercisable, each Preferred Stock Purchase
Right would initially represent the right to purchase from the Company one
ten-thousandth of a share of Series B Junior Preferred Stock for a
purchase price of $35.00. However, prior to exercise, a Preferred Stock
Purchase Right does not give its holder any rights as a stockholder,
including without limitation, any dividend, voting or liquidation
rights. |
(2) |
|
Based upon
the number of shares outstanding plus options currently exercisable or
exercisable within 60 days held by each such Director, nominee, executive
officer or holder. |
(3) |
|
Each
Depositary Share represents 1/1,000th of a share of 7.625% Series A
Preferred Stock. |
(4) |
|
Includes
7,127,392 shares of Class A Common Stock and 7,138,646 shares of Class B
Common Stock held by the Executors of the Estate of Kevork S. Hovnanian,
deceased. Ara K. Hovnanian is special purpose Executor with respect to
investments in the Company, but such shares are not also included in his
separate figures of beneficial ownership. Also, includes 440,000 shares of
Class A Common Stock held in the name of Sirwart Hovnanian, wife of the
Company’s deceased Chairman Kevork S. Hovnanian. The business address of
each of the Executors is 110 West Front Street, P. O. Box 500, Red Bank,
New Jersey 07701. |
(5) |
|
Includes
223,587, shares of Class B Common Stock held in a grantor retained annuity
trust (the “AKH GRAT”) for which Ara K. Hovnanian is trustee, 372,116
shares of Class A Common Stock and 431,394 shares of Class B Common Stock
held in family related trusts as to which Ara K. Hovnanian has shared
voting power and shared investment power and 37,374 shares of Class A
Common Stock and 142,274 shares of Class B Common Stock held by Mr.
Hovnanian’s wife and children. Ara K. Hovnanian disclaims beneficial
ownership of such shares, except to the extent of his potential pecuniary
interest in the AKH GRAT and such other accounts and
trusts. |
(6) |
|
Includes
47,846 shares of Class A Common Stock that are held jointly with Mr.
Buchanan’s spouse, Gail R. Buchanan. Paul W. Buchanan and Gail R. Buchanan
share voting and investment power with respect to such
shares. |
(7) |
|
Includes
4,833,826 shares of Class B Common Stock held by the Kevork S. Hovnanian
Family Limited Partnership, a Connecticut limited partnership (the
“Limited Partnership”). Peter S. Reinhart, as trustee of the Sirwart
Hovnanian 1994 Marital Trust (the “Marital Trust”), is the managing
general partner of the Limited Partnership and as such has the sole power
to vote and dispose of the shares of Class B Common Stock held by the
Limited Partnership, as well as of the 376,265 shares of Class B Common
Stock held directly by the Marital Trust. Mr. Reinhart disclaims
beneficial ownership of the shares held by the Limited Partnership and the
Marital Trust. |
(8) |
|
All 2,235
shares of Class A Common Stock are held jointly with Mr. Valiaveedan’s
spouse, Kathleen Dowling. David Valiaveedan and Kathleen Dowling share
voting and investment power with respect to such
shares. |
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company’s executive officers, directors, persons who own more than
10% of a registered class of the Company’s equity securities and certain
entities associated with the foregoing (“Reporting Persons”) to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the “SEC”) and the New York Stock Exchange (the “NYSE”) or
NASDAQ, as applicable. These Reporting Persons are required by SEC rules to
furnish the Company with copies of all Forms 3, 4 and 5, and amendments thereto,
that they file with the SEC, the NYSE and NASDAQ.
Based solely on the Company’s review of copies of the forms and
amendments of forms it has received and written representations from the
Company’s officers and directors, the Company believes that, with respect to the
fiscal year ended October 31, 2009, all the Reporting Persons complied with all
applicable filing requirements.
3
(1) ELECTION OF
DIRECTORS
The Company’s Restated By-laws provide that the Board of Directors shall
consist of up to eleven Directors who shall be elected annually by the
shareholders. The Company’s Amended Certificate of Incorporation requires that
at any time when any shares of Class B Common Stock are outstanding, one-third
of the Directors shall be independent, as defined therein.
Under the rules of the NYSE, listed companies that have a controlling
shareholder are not required to have a majority of independent directors, as
defined by NYSE rules. Because Mr. A. Hovnanian and members of his immediate
family hold more than 50% of the voting power of the Company, the Company is a
controlled company within the meaning of the rules of the NYSE.
The
Board of Directors has determined that a Board of Directors consisting of the
seven nominees listed below is the best composition in order to satisfy both the
independence requirements of the Company’s Amended Certificate of Incorporation
as well as the rules of the NYSE.
The
following individuals are nominated to serve as Directors of the Company to hold
office until the next Annual Meeting of Shareholders and until their respective
successors have been duly elected and qualified. In the event that any of the
nominees for Director should become unavailable to serve as a Director, it is
intended that the shares represented by proxies will be voted for such
substitute nominees as may be nominated by the Board of Directors, unless the
number of Directors constituting a full Board of Directors is reduced. The
Company has no reason to believe, however, that any of the nominees is, or will
be, unavailable to serve as a Director. Proxies cannot be voted for a greater
number of persons than the number of nominees shown below.
Board of
Directors |
|
|
|
|
Year First Became |
Name |
Age |
Company
Affiliation |
a
Director |
Ara K. Hovnanian |
52 |
President, Chief Executive
Officer, |
1981 |
|
|
Chairman of the Board &
Director |
|
Robert B. Coutts |
59 |
Director |
2006 |
Edward A. Kangas |
65 |
Director |
2002 |
Joseph A. Marengi |
56 |
Director |
2006 |
John J. Robbins |
70 |
Director |
2001 |
J. Larry Sorsby |
54 |
Executive Vice President, Chief Financial |
1997 |
|
|
Officer & Director |
|
Stephen D.
Weinroth |
71 |
Director |
1982 |
Board of Directors —
Composition
The
Board of Directors seeks to ensure that the Board of Directors is composed of
members whose particular experience, qualifications, attributes and skills, when
taken together, will allow the Board of Directors to satisfy its oversight
responsibilities effectively. As discussed below under “Corporate Governance and
Nominating Committee” on page 7, a slate of Directors to be nominated for
election at the annual shareholders’ meeting each year is approved by the Board
of Directors after recommendation by the Corporate Governance and Nominating
Committee. In the case of a vacancy on the Board of Directors (other than one
resulting from removal by shareholders), the Board of Directors approves a
Director to fill the vacancy following the recommendation of a candidate by the
Chairman of the Board. In identifying candidates for Director, the Corporate
Governance and Nominating Committee and the Board of Directors takes into
account (1) the comments and recommendations of board members regarding the
qualifications and effectiveness of the existing Board or Directors or
additional qualifications that may be required when selecting new board members
that may be made in connection with the self-examinations described below under
“Corporate Governance and Nominating Committee” on page 7, (2) the requisite
expertise and sufficiently diverse backgrounds of the Board of Directors’
overall membership composition, (3) the independence of outside Directors and
other possible conflicts of interest of existing and potential members of the
Board of Directors and (4) all other factors it considers appropriate. Although
the Company has no policy regarding diversity, the charter of the Corporate
Governance and Nominating Committee includes a statement that it and the Board
of Directors believe that diversity is an important component of a board of
directors, including such factors as background, skills, experience, expertise,
gender, race and culture.
4
When considering whether directors and nominees have the experience,
qualifications, attributes and skills, taken as a whole, to enable the Board of
Directors to satisfy its oversight responsibilities effectively in light of the
Company’s business and structure, the Corporate Governance and Nominating
Committee and the Board of Directors focused primarily on the information
discussed in each of the Directors’ individual biographies set forth below on
pages 5 and 6. In particular, with regard to Mr. Coutts, the Board of
Directors considered his strong background in the manufacturing sector,
believing that his experience with a large multinational corporation engaged in
the manufacture of complicated products is invaluable in evaluating the multiple
integrated processes in the homebuilding business and also valuable in
performance management and other aspects of the Company. With regard to Messrs.
Kangas and Robbins, the Board of Directors considered their significant
experience, expertise and background with regard to accounting matters, which in
Mr. Robbins’ case includes specialization in homebuilding companies. The Board
of Directors also considered the broad perspective brought by Mr. Kangas’s
experience in consulting to clients in many diverse industries. With regard to
Mr. Marengi, the Board of Directors considered his strong background in the
technology sector, since new technologies and their cost and benefit analyses
are important factors in the success of the Company. With regard to Mr.
Weinroth, the Board of Directors considered his many years of experience in the
investment banking field, which is very valuable to the Company as it works
through refinancing of its debt and in the evaluation of various financing
alternatives presented to the Company. The Board of Directors also considered
the many years of experience with the Company represented by Messrs. A.
Hovnanian and Sorsby, our Chief Executive Officer and Chief Financial Officer,
respectively – over thirty years in the case of Mr. A Hovnanian, and over twenty
years in the case of Mr. Sorsby.
Board of Directors — Nominees’
Biographies
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Mr. A. Hovnanian has been Chief
Executive Officer since July 1997 after being appointed President in 1988
and Executive Vice President in 1983. Mr. A. Hovnanian joined the Company
in 1979 and has been a Director of the Company since 1981 and was Vice
Chairman from 1998 through November 2009. In November 2009, he was elected
Chairman of the Board following the death of Kevork S. Hovnanian, the
chairman and founder of the Company and the father of Mr. A.
Hovnanian. |
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Mr. Coutts retired from the
position of Executive Vice President of Lockheed Martin Corporation
(NYSE), which he held from 2000 to 2008. Mr. Coutts was President and COO
of the former Electronics Sector of Lockheed Martin. He was elected an
officer by the Board of Lockheed Martin in December 1996. Mr. Coutts held
management positions with General Electric Corporation (NYSE) from
1972-1993, and was with GE Aerospace when it became part of Lockheed
Martin in 1993. Mr. Coutts is the retired Chairman of Sandia Corporation,
a subsidiary of Lockheed Martin Corp., and is on the Board of Directors of
The Stanley Works (NYSE), as well as the Pall Corporation (PLL), and is
also a member of the Board of Overseers, College of Engineering, Tufts
University. He was elected Director of Hovnanian Enterprises, Inc. in
March 2006 and is a member of the Company’s Compensation
Committee. |
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Mr. Kangas was Chairman and Chief
Executive Officer of Deloitte Touche Tohmatsu from December 1989 to May
2000, when he retired. He also serves on the Boards of United Technologies
Corp. (NYSE), Eclipsys, Inc. (NASDAQ), Tenet Healthcare Corporation, Inc.
(NYSE), and Intuit, Inc. (NASDAQ). He was on the Board of Electronic Data
Systems, Inc. (NYSE) from 2004 to 2008. Mr. Kangas is the past Chairman of
the Board of the National Multiple Sclerosis Society. Mr. Kangas was
elected as a Director of Hovnanian Enterprises, Inc. in September 2002, is
Chairman of the Company’s Audit Committee and a member of the Company’s
Compensation Committee and Corporate Governance and Nominating
Committee. |
5
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Mr. Marengi, since July 2007,
serves as a Venture Partner for Austin Ventures. Prior to that date, Mr.
Marengi served as senior vice president for Dell Inc.’s (NASDAQ)
Commercial Business Group. In this role, Mr. Marengi was responsible for
the Dell units serving medium business, large corporate, government,
education and healthcare customers in the United States. Mr. Marengi
joined Dell in July 1997 from Novell Inc. (NASDAQ), where he was president
and chief operating officer. He joined Novell in 1989 and moved through
successive promotions to become executive vice president of worldwide
sales and field operations. He is also an outside Director for Quantum
Corporation (NYSE) and serves as Chairman of the Board for Entorian
Technologies, Inc. (NASDAQ). Mr. Marengi was elected Director of Hovnanian
Enterprises, Inc. in March 2006 and is member of the Company’s Corporate
Governance and Nominating Committee. |
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Mr. Robbins was a managing partner
of the New York Office of Kenneth Leventhal & Company and executive
committee partner, retiring from the firm in 1992. He was made a partner
of Kenneth Leventhal & Company in 1973. Mr. Robbins was a Trustee of
Keene Creditors Trust from 1996 until July 2009. He was Director and the
Chairman of the Audit Committee of Raytech Corporation from May 2003 until
March 2007, and has been a Director and Chairman of the Audit Committee of
Texas Petrochemicals Inc. from May 2006 until December 2009. Mr. Robbins
was elected as a Director of Hovnanian Enterprises, Inc. in January 2001,
and is a member of the Company’s Audit Committee. |
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Mr. Sorsby has been Chief
Financial Officer of Hovnanian Enterprises, Inc. since 1996, and Executive
Vice President since November 2000. Mr. Sorsby was also Senior Vice
President from March 1991 to November 2000 and was elected as a Director
of the Company in 1997. |
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Mr. Weinroth is a partner in Coral Reef Capital
Partners, a private equity fund and was, until mid-2008, Managing Member
of Hudson Capital Advisors, LLC, a private equity and merchant banking
firm and Chairman of the Board of Cyalume Technologies, Inc., a
manufacturer of military and safety equipment. From 1989 to 2003, he
served as co-Chairman and head of the Investment Committee at First
Britannia Mezzanine N.V., a European private investment firm. He is
Chairman of the Board Emeritus of Core Laboratories, N.V. (NYSE), a global
oil field service company where he had previously been Chairman of the
Board. He was Vice Chair of the Central Asian American Enterprise Fund to
which he was appointed by the President of the United States, and is
Chairman of its successor, the US Central Asia Education Foundation. He is
also Chairman of the Board of The Joyce Theatre Foundation Inc., as well
as a recently retired Trustee of the Horace Mann School. Mr. Weinroth has
been a Director of Hovnanian Enterprises, Inc. since 1982, is a member of
the Company’s Audit Committee, and Chairman of the Company’s Compensation
Committee and Corporate Governance and Nominating
Committee. |
MEETINGS OF THE BOARD OF DIRECTORS
AND COMMITTEES OF THE BOARD OF
DIRECTORS
During the year ended October 31, 2009, the
Board of Directors held four regularly scheduled meetings and two telephonic
meetings. In addition, Directors considered Company matters and had
communications with the Chairman and Vice Chairman of the Board of Directors and
others outside of formal meetings. Directors are expected to attend the Annual
Meeting of Shareholders, but the Company does not have a formal policy with
respect to attendance. Seven of the eight members of the Board of Directors
attended the Annual Meeting of Shareholders held on March 19, 2009.
6
Audit
Committee
During the year ended October 31, 2009, the
members of the Audit Committee of the Board of Directors were Messrs. Kangas,
Robbins and Weinroth. The Audit Committee is currently chaired by Mr. Kangas and
is responsible for reviewing and approving the scope of the annual audit
undertaken by the Company’s independent registered public accounting firm and
meeting with them to review the results of their work as well as their
recommendations. The Audit Committee selects the Company’s independent
registered public accounting firm and also approves and reviews their fees.
During the year ended October 31, 2009, the Audit Committee met on four
occasions and held nine telephonic meetings. The Audit Committee also authorizes
staffing and compensation of the Internal Audit Department. The Vice President
of Internal Audit for the Company reports directly to the Audit Committee on,
among other things, the Company’s compliance with certain Company procedures
which are designed to enhance management’s understanding of operating issues and
the results of the Audit Department’s annual audits of the various aspects of
the Company’s business. In fiscal 2009, the Audit Department issued eleven
traditional audit reports and performed five Sarbanes-Oxley Section 404 reviews.
The Company’s Chief Accounting Officer reports directly to the Audit Committee
on significant accounting issues. For additional information related to the
Audit Committee, see “The Audit Committee” below.
Compensation
Committee
During the year ended October 31, 2009, the
members of the Compensation Committee of the Board of Directors were Messrs.
Weinroth, Kangas and Coutts. The Compensation Committee is currently chaired by
Mr. Weinroth and is responsible for reviewing salaries, bonuses and other forms
of compensation for the Company’s senior executives, key management employees
and non-employee Directors, and is active in other compensation and personnel
areas as the Board of Directors from time to time may request. For a discussion
of the criteria used and factors considered by the Compensation Committee in
reviewing and determining executive compensation, see “The Compensation
Committee” and “Compensation Discussion and Analysis” below. During the year
ended October 31, 2009, the Compensation Committee met on four occasions and
held four telephonic meetings.
Corporate Governance and Nominating
Committee
On December 12, 2005, the Board of Directors
approved the establishment of a Corporate Governance Committee, although the
Company is not required to have such committee because it is a controlled
company under the rules of the NYSE. During the year ended October 31, 2009, the
members of the Corporate Governance Committee of the Board of Directors were
Messrs. Weinroth, Kangas and Marengi. The Corporate Governance and Nominating
Committee is currently chaired by Mr. Weinroth. On September 14, 2009, the Board
of Directors approved an amendment to the charter of the Corporate Governance
Committee to add a nominating function. The committee is now known as the
Corporate Governance and Nominating Committee. The Corporate Governance and
Nominating Committee is responsible for corporate governance matters, and
reviewing and recommending nominees for the Board of Directors and other
Board-related policies. The Corporate Governance and Nominating Committee also
oversees the annual performance evaluation of the Board and its Committees, the
Board’s periodic review of the Company’s Corporate Governance Guidelines
(“Guidelines”) and compliance with the Company’s Related Person Transaction
Policy. During the year ended October 31, 2009, the Corporate Governance and
Nominating Committee met on four occasions and held no telephonic
meetings.
The Guidelines require that the Board of
Directors conduct a self-evaluation at least annually, and as circumstances
otherwise dictate. In conjunction with the self-evaluation, the Board of
Directors reviews the qualifications and effectiveness of the existing Board of
Directors and allows each board member to make comments or recommendations
regarding the qualifications and effectiveness of the existing Board of
Directors or additional qualifications that may be required when selecting new
board members. Among other factors, the Board of Directors generally considers
the size of the Board of Directors best suited to fulfill its responsibilities,
the Board of Directors’ overall membership composition to ensure the Board of
Directors has the requisite expertise and consists of persons with sufficiently
diverse backgrounds, the independence of outside directors and other possible
conflicts of interest of existing and potential members of the Board of
Directors.
The Company does not have a specific policy
regarding shareholder nominations of potential directors to the Board of
Directors, other than through the process described under “Shareholder Proposals
for the 2011 Annual Meeting” below. Possible nominees to the Board of Directors
may be suggested by any Director and
7
given to the Corporate
Governance and Nominating Committee. The Corporate Governance and Nominating
Committee may also seek potential nominees and engage search consultants to
assist it in identifying potential nominees. The Corporate Governance and
Nominating Committee adopted an amendment to its charter in November 2009
affirming its belief that diversity is an important factor to consider in
evaluating potential nominees. The Corporate Governance and Nominating Committee
recommends to the Board of Directors a slate of nominees for the Board of
Directors for inclusion in the matters to be voted upon at the Annual Meeting.
The Company’s Restated By-laws provide that Directors need not be shareholders.
Vacancies on the Board of Directors, other than those resulting from removal by
shareholders, may be filled by action of the Board of
Directors.
As of the 120th calendar day prior to February
4, 2010, the Board of Directors had not received any recommendation for the
nomination of a candidate to the Board of Directors by any shareholder or group
of shareholders that at such time held more than 5% of the Company’s voting
stock for at least one year.
VOTE REQUIRED
The election of the nominees to the Company’s Board of Directors for the
ensuing year, to serve until the next Annual Meeting of Shareholders of the
Company, and until their respective successors may be elected and qualified,
requires that each director be elected by a majority of the votes cast by the
shareholders of Class A Common Stock and Class B Common Stock, voting together,
represented in person or by proxy at the 2010 Annual Meeting. In determining
whether each director has received the requisite number of affirmative votes,
abstentions and broker non-votes will have no impact on such matter because such
shares are not votes cast.
Mr. A. Hovnanian and certain members of his
family have informed the Company that they intend to vote in favor of the
nominees named in this proposal. Because of the voting power of Mr. A. Hovnanian
and such members of his family, this proposal is assured
passage.
Our Board of Directors recommends
that shareholders vote FOR the election of the nominees named in this proposal
to the Company’s Board of Directors.
(2) RATIFICATION OF THE SELECTION OF
AN INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
On January 5, 2009, the Audit Committee of the Board of Directors of the
Company dismissed Ernst & Young LLP as the independent registered public
accounting firm for the Company. Ernst & Young LLP’s reports on the
financial statements of the Company for the fiscal years ended October 31, 2007
and 2008 did not contain any adverse opinion or a disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope or
accounting principle. During the fiscal years ended October 31, 2007 and 2008,
and through January 5, 2009, (1) there were no disagreements with Ernst &
Young LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of Ernst & Young LLP, would have caused Ernst & Young
LLP to make reference thereto in its reports on the financial statements of the
Company for such years, and (2) there have been no “reportable events” as
defined in Item 304(a)(1)(v) of Regulation
S-K.
Also on January 5, 2009, the Audit Committee of the Company’s Board of
Directors appointed Deloitte & Touche LLP as the independent registered
public accounting firm for the Company as of and for the fiscal year ending
October 31, 2009. This appointment followed a solicitation and review process
conducted by the Company’s Audit
Committee.
During the fiscal years ended October 31, 2007
and 2008, and through January 5, 2009, (1) Deloitte & Touche LLP had not
been engaged as the principal accountant of the Company to audit its financial
statements or as an independent accountant to audit a significant subsidiary of
the Company, and (2) the Company had not consulted with Deloitte & Touche
LLP regarding (a) the application of accounting principles to any completed or
proposed transaction, (b) the type of audit opinion that might be rendered on
the Company’s financial statements for such periods, or (c) any other
accounting, auditing or financial reporting matter described in Items
304(a)(2)(i) and (ii) of Regulation
S-K.
The selection of an independent registered public accounting firm to
examine financial statements of the Company made available or transmitted to
shareholders and filed with the SEC for the year ending October 31, 2010 is
submitted to this Annual Meeting of Shareholders for ratification. Deloitte
& Touche LLP has been selected by the Audit Committee of the Company to
examine such financial statements. In the event that the
8
shareholders fail to
ratify the appointment, the Audit Committee will consider the view of the
shareholders in determining its selection of the Company’s independent
registered public accounting firm for the subsequent fiscal year. Even if the
selection is ratified, the Audit Committee may, in its discretion, direct the
appointment of a new independent registered public accounting firm at any time
during the fiscal year if the Audit Committee determines that such a change
would be in the best interests of the Company and our
stockholders.
The Company has been advised that
representatives of Deloitte & Touche LLP will attend the Annual Meeting of
Shareholders to respond to appropriate questions and will be afforded the
opportunity to make a statement if the representative so desires.
VOTE REQUIRED
Ratification of the selection of Deloitte & Touche LLP as the
Company’s independent registered public accounting firm to examine financial
statements of the Company for the year ending October 31, 2010, requires the
majority of the votes cast by the shareholders of Class A Common Stock and Class
B Common Stock, voting together, present in person or by proxy at the 2010
Annual Meeting. In determining whether the proposal has received the requisite
number of affirmative votes, abstentions will have no impact on such matter
because such shares are not considered votes
cast.
Mr. A. Hovnanian and certain members of his family have informed the
Company that they intend to vote in favor of this proposal. Because of the
voting power of Mr. A. Hovnanian and such members of his family, this proposal
is assured passage.
Our Board of
Directors recommends that shareholders vote FOR ratification of the selection of
Deloitte & Touche LLP as the Company’s independent registered public
accounting firm.
(3) APPROVAL OF AMENDMENTS TO THE AMENDED AND RESTATED
2008 HOVNANIAN
ENTERPRISES, INC. STOCK INCENTIVE PLAN
Shareholders are being asked to consider and approve a proposal to adopt
amendments to the Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock
Incentive Plan (such plan, as proposed to be further amended and restated by the
contemplated amendments, the “Amended Plan”). The Amended Plan, if approved,
will incorporate the following changes as compared to the existing Amended and
Restated 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan (the “Existing
Plan”):
- While the aggregate share reserve
covered by the Amended Plan and the Company’s Amended and Restated Senior
Executive Short-Term Incentive Plan (the “STIP”) collectively will not reflect
an increase, the Amended Plan will allow the Company to satisfy equity awards
(“Awards”) granted under the Amended Plan by utilizing the shares available
for issuance under the STIP, provided that any shares so utilized will reduce
the number of shares available for issuance under the STIP;
- The maximum number of shares for
which Awards may be granted under the Amended Plan to any single Participant
during a fiscal year will be increased from 1,000,000 to 2,000,000; and
- For performance awards granted
under the Amended Plan that are denominated in shares, the annual maximum
grant per Participant during any fiscal year will be 2,000,000 shares
(determined at the time of award grant, rather than at settlement). The
maximum amount payable in respect of a performance award that is not
denominated in shares during a fiscal year to any Participant will remain
equal to the greater of (x) $15,000,000 and (y) 2.5 percent (2.5%) of the
Company’s income before income taxes (consistent with the limit under the
Existing Plan).
The Amended Plan is set forth in Appendix A
hereto. The principal purpose of the proposed amendments to the Existing Plan is
to facilitate the ability to grant contemplated long-term performance Awards to
key employees of the Company. While the terms of the contemplated performance
awards and the identity of the intended recipients have not yet been finalized,
the Company anticipates making special long-term performance award grants during
the 2010 fiscal year to properly incentivize the key employees and better align
their interests with those of the Company’s stockholders. Absent the proposed
amendments to the Existing Plan, the Company might have insufficient shares
available for grant under the terms of the Existing Plan and the contemplated
multi-year grants might exceed the annual award limitations under the Existing
Plan.
For a discussion of the Amended
Plan, see “Material Features of the Amended Plan” below.
9
The Company’s Board of Directors has approved the adoption of the Amended
Plan and recommends that shareholders vote for the approval of the Amended
Plan.
Material Features of the Amended
Plan
The following is a brief summary of the
material features of the Amended Plan. Because this is only a summary, it does
not contain all the information about the Amended Plan that may be important to
you and is qualified in its entirety to the full text of the Amended Plan as set
forth in Appendix A hereto.
Purpose
The purpose of the Amended Plan is to aid the
Company and its affiliates in recruiting and retaining key employees, directors
and consultants of outstanding ability and to motivate those employees,
directors and consultants to exert their best efforts on behalf of the Company
and its affiliates by providing incentives through the granting of “Awards”,
which consist of options, stock appreciation rights or other stock-based Awards
(including performance-based Awards) granted pursuant to the Amended Plan. All
employees, directors and consultants of the Company and its affiliates are
eligible to participate in the Amended Plan if they are selected by the
Compensation Committee of the Board of Directors (the “Committee”) to
participate in the Amended Plan (any such individual, a “Participant”). For the
fiscal year ended October 31, 2009, approximately 70 employees, five directors
(includes non-employee directors only), and no consultants were selected by the
Committee to participate in the Existing Plan (which the Amended Plan is
intended to supersede and replace).
Administration
The Amended Plan is generally administered by
the Committee, which may delegate its duties and powers in whole or in part to
any subcommittee thereof consisting solely of at least two individuals who are
each intended to be “non-employee directors” within the meaning of Rule 16b-3
under the Securities Exchange Act of 1934, as amended, “outside directors”
within the meaning of 162(m) of the Internal Revenue Code of 1986, as amended
(the “Code”), and “independent directors” within the meaning of the applicable
rules, if any, of any national securities exchange on which shares of common
stock of the Company are listed or admitted to trading: provided, however, that
any action permitted to be taken by the Committee may be taken by the Board of
Directors in its discretion. Additionally, if the Company’s CEO is serving as a
member of the Board of Directors, the Board of Directors may by specific
resolution constitute the CEO as a “committee of one” with the authority to
grant Awards covering up to 1,000,000 shares (giving effect to the Company’s
March 26, 2004 stock split) per fiscal year to certain non executive officer
Participants.
Awards
Awards are determined (“granted”) by the
Committee and are subject to the terms and conditions stated in the Amended Plan
and to such other terms and conditions, not inconsistent therewith as the
Committee shall determine. Any stock options granted must have a per share
exercise price that is not less than 100% of the fair market value of the
Company’s common stock underlying such stock options on the date an option is
granted. However, the Amended Plan includes a provision that would permit
“repricing” of stock options (that is, lowering the exercise price of previously
granted stock options) and similar corporate actions if (and only if) the
repricing or similar corporate action is approved by at least a majority of the
independent directors on our Board of Directors. The maximum term for stock
options granted under the Amended Plan is ten years from the initial date of
grant.
In the event a performance-based Award is granted under the Amended Plan,
it may be granted in a manner that would cause the Award to be deductible by the
Company under Section 162(m) of the Code. To that end, performance-based Awards
intended to be deductible under Section 162(m) of the Code must be based on the
attainment by the Company of written performance goals approved by the
Committee. Within 90 days after the start of a designated performance period
(or, if less, the number of days which is equal to 25% of such performance
period), the Committee will establish the objective performance goals for each
Participant. The performance goals will be based on one or more of the following
criteria: (1) earnings before or after taxes (including earnings before
interest, taxes, depreciation and amortization); (2) net income; (3) operating
income; (4) earnings per share of common stock of the Company; (5) book value
per share; (6) return on stockholders’ equity; (7) expense management; (8)
return on investment; (9) improvements in capital structure; (10) profitability
of an identifiable business unit or product; (11); maintenance or improvements
of profit margins;
10
(12) stock price; (13)
market share; (14) revenues or sales; (15) costs; (16) cash flow; (17) working
capital; (18) changes in net assets (whether or not multiplied by a constant
percentage intended to represent the cost of capital); and (19) return on
assets.
Prior to the payment of any Award, the Committee, or its delegate, will
certify that the applicable performance goals have been met. In connection with
such certification, the Committee, or its delegate, may decide to pay amounts,
which are less than the Award otherwise payable for achievement of the
applicable performance goals. The Committee may base the decision to reduce the
Award on any criteria it deems relevant. Payment of an Award to a Participant
will occur only after such certification and will be made as determined by the
Committee in its sole discretion after the end of such performance
period.
Effect of Certain Events on Amended
Plan and Awards
In the event of any change in the outstanding
shares of common stock by reason of any stock dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
shares or other corporate exchange or change in capital structure, any
distribution to shareholders of common stock other than regular cash dividends
or any similar event, the Committee in its sole discretion and without liability
to any person shall make such substitution or adjustment, if any, as it deems to
be equitable, as to (1) the number or kind of common stock or other securities
that may be issued as set forth in the Amended Plan or pursuant to outstanding
Awards, (2) the option price, (3) the maximum number or amount of Awards that
may be granted to a Participant during a fiscal year and/or (4) any other
affected terms of such Awards. Except as otherwise provided in an Award
agreement, in the event of a Change in Control (as defined in the Amended Plan),
the Committee in its sole discretion and without liability to any person may
take such actions, if any as it deems necessary or desirable with respect to any
Award.
Limitations
The Amended Plan provides that the total
number of shares of common stock of the Company that may be issued under the
Amended Plan (inclusive of Awards previously granted under the Existing Plan and
Awards granted under the Company’s Amended and Restated 1999 Stock Incentive
Plan) is 11,185,995, and the maximum amount that may be paid with respect to
performance-based Awards (other than Awards denominated in Shares) during a
fiscal year to any Participant cannot exceed the greater of (x) $15 million or
(y) 2.5% of the Company’s income before income taxes as reported in the
Company’s audited consolidated financial statements prepared for the year in
respect of which the performance-based Award is to be paid. The number of shares
available for issuance under the Amended Plan may also be increased by utilizing
shares otherwise available for issuance under the terms of the Company’s STIP,
provided that any shares so utilized shall reduce the number of shares available
for issuance under the STIP. Additionally, the maximum number of shares of
common stock of the Company for which options, stock appreciation rights,
restricted stock, restricted stock unit Awards and other Share-denominated
performance Awards may be granted during a fiscal year to any Participant is
2,000,000.
No award may be granted under the Amended Plan
after the tenth anniversary of the Effective Date, which is February 6, 2008,
but Awards theretofore granted may be extended beyond that date.
Amendment and
Termination
The Committee may amend, alter or discontinue
the Amended Plan, but no amendment, alteration or discontinuation shall be made
which, (a) without the approval of the shareholders of the Company, would
(except as provided in the Amended Plan in connection with adjustments in
certain corporate events), increase the total number of shares of common stock
of the Company reserved for the purposes of the Amended Plan or change the
maximum number of shares of common stock of the Company for which Awards may be
granted to any Participant or (b) without the consent of a Participant, would
impair any of the rights or obligations under any Award theretofore granted to
such Participant under the Amended Plan; provided, however, that the Committee
may amend the Amended Plan in such manner as it deems necessary to permit the
granting of Awards meeting the requirements of the Code or other applicable
laws. The Committee may not amend, alter or discontinue the provisions relating
to a Change in Control (as defined in the Amended Plan) after the occurrence of
a Change in Control.
11
Nontransferability of
Awards
Unless otherwise determined by the Committee,
an Award shall not be transferable or assignable by the Participant otherwise
than by will or by the laws of descent and distribution. Notwithstanding the
foregoing, and subject to the conditions stated in the Amended Plan, a
Participant may transfer an option (other than an option that is also an
incentive stock option granted pursuant to the Amended Plan) in whole or in part
by gift or domestic relations order to a family member of the
Participant.
Certain United States Federal Income
Tax Consequences
Stock
Options
An employee to whom an incentive stock option
(“ISO”) that qualifies under Section 422 of the Code is granted will not
recognize income at the time of grant or exercise of such option. No federal
income tax deduction will be allowable to the Company upon the grant or exercise
of such ISO. However, upon the exercise of an ISO, special alternative minimum
tax rules apply for the employee.
When the employee sells shares acquired
through the exercise of an ISO more than one year after the date of transfer of
such shares and more than two years after the date of grant of such ISO, the
employee will normally recognize a long-term capital gain or loss equal to the
difference, if any, between the sale prices of such shares and the option price.
If the employee does not hold such shares for this period, when the employee
sells such shares, the employee will recognize ordinary compensation income and
possibly capital gain or loss in such amounts as are prescribed by the Code and
regulations thereunder, and the Company will generally be entitled to a federal
income tax deduction in the amount of such ordinary compensation
income.
An employee to whom an option that is not an ISO (a “non-qualified
option”) is granted will not recognize income at the time of grant of such
option. When such employee exercises a non-qualified option, the employee will
recognize ordinary compensation income equal to the excess, if any, of the fair
market value as of the date of a non-qualified option exercise of the shares the
employee receives, over the option exercise price. The tax basis of such shares
will be equal to the exercise price paid plus the amount includable in the
employee’s gross income, and the employee’s holding period for such shares will
commence on the day after which the employee recognized taxable income in
respect of such shares. Any subsequent sale of the shares by the employee will
result in long or short-term capital gain or loss, depending on the applicable
holding period. Subject to applicable provisions of the Code and regulations
thereunder, the Company will generally be entitled to a federal income tax
deduction in respect of the exercise of non-qualified options in an amount equal
to the ordinary compensation income recognized by the employee. Any such
compensation includable in the gross income of an employee in respect of a
non-qualified option will be subject to appropriate federal, state, local and
foreign income and employment taxes.
Restricted
Stock
Unless an election is made by the Participant
under Section 83(b) of the Code, the grant of an Award of restricted stock will
have no immediate tax consequences to the Participant. Generally, upon the lapse
of restrictions (as determined by the applicable restricted stock agreement
between the Participant and the Company), a Participant will recognize ordinary
income in an amount equal to the product of (x) the fair market value of a share
of common stock of the Company on the date on which the restrictions lapse, less
any amount paid with respect to the Award of restricted stock, multiplied by (y)
the number of shares of restricted stock with respect to which restrictions
lapse on such date. The Participant’s tax basis will be equal to the sum of the
amount of ordinary income recognized upon the lapse of restrictions and any
amount paid for such restricted stock. The Participant’s holding period will
commence on the date on which the restrictions
lapse.
A Participant may make an election under Section 83(b) of the Code within
30 days after the date of transfer of an Award of restricted stock to recognize
ordinary income on the date of award based on the fair market value of common
stock of the Company on such date. An employee making such an election will have
a tax basis in the shares of restricted stock equal to the sum of the amount the
employee recognizes as ordinary income and any amount paid for such restricted
stock, and the employee’s holding period for such restricted stock for tax
purposes will commence on the date after such
date.
With respect to shares of restricted stock upon which restrictions have
lapsed, when the employee sells such shares, the employee will recognize capital
gain or loss consistent with the treatment of the sale of shares received upon
the exercise of non-qualified options, as described above.
12
Stock
Units
A Participant to whom a restricted stock unit
(“RSU”) is granted generally will not recognize income at the time of grant
(although the Participant may become subject to employment taxes when the right
to receive shares becomes “vested” due to retirement eligibility or otherwise).
Upon delivery of shares of common stock of the Company in respect of an RSU, a
Participant will recognize ordinary income in an amount equal to the product of
(x) the fair market value of a share of common stock of the Company on the date
on which the common stock of the Company is delivered, multiplied by (y) the
number of shares of common stock of the Company delivered.
Other Stock-based
Awards
With respect to other stock-based Awards paid
in cash or common stock, Participants will generally recognize income equal to
the fair market value of the Award on the date on which the Award is delivered
to the recipient.
Code Section
409A
The American Jobs Creation Act of 2004
introduced a new section of the Code (Section 409A) covering certain
nonqualified deferred compensation arrangements. Section 409A generally
establishes new rules that must be followed with respect to covered deferred
compensation arrangements in order to avoid the imposition of an additional 20%
tax (plus interest) upon the service provider who is entitled to receive the
deferred compensation. Certain Awards that may be granted under the Amended Plan
may constitute “deferred compensation” within the meaning of and subject to
Section 409A. While the Committee intends to administer and operate the Amended
Plan and establish terms (or make required amendments) with respect to Awards
subject to Section 409A in a manner that will avoid the imposition of additional
taxation under Section 409A upon a Participant, there can be no assurance that
additional taxation under Section 409A will be avoided in all cases. In the
event the Company is required to delay delivery of shares or any other payment
under an Award in order to avoid the imposition of an additional tax under
Section 409A, the Company will deliver such shares (or make such payment) on the
first day that would not result in the Participant incurring any tax liability
under Section 409A. The Committee may amend the Amended Plan and outstanding
Awards to preserve the intended benefits of Awards granted under the Amended
Plan and to avoid the imposition of an additional tax under Section 409A of the
Code.
General
Ordinary income recognized by virtue of the
exercise of non-qualified options, the lapse of restrictions on restricted stock
or RSUs or payments made in cash or shares of common stock of the Company is
subject to applicable tax withholding as required by
law.
The Company generally will be entitled to a federal tax deduction to the
extent permitted by the Code at the time and in the amount that ordinary income
is recognized by Participants.
The discussion set forth above does not
purport to be a complete analysis of all potential tax consequences relevant to
recipients of options or other Awards or to their employers or to describe tax
consequences based on particular circumstances. It is based on federal income
tax law and interpretational authorities as of the date of this proxy statement,
which are subject to change at any time.
Participants in the Amended
Plan
For the fiscal year ending October 31, 2009,
approximately 70 employees, five directors (includes non-employee directors
only), and no consultants were selected by the Committee to participate in the
Existing Plan. The following table sets forth information on Awards granted
under the Existing Plan since its adoption in fiscal 2008. The market value of
the underlying shares of Class A Common Stock on January 19, 2010 was $4.00 per
share.
13
Stock Awards Previously Granted under
the Existing Plan
(since adoption of the Existing Plan)
|
|
|
Restricted Stock |
|
|
|
|
|
Unit and |
|
Total of All |
|
Stock Option |
|
Deferred Share |
|
Columns in |
|
Grants |
|
Grants |
|
Table |
|
# of Shares |
|
# of Shares |
|
# of Shares |
Name & Position |
Covered |
|
Covered |
|
Covered |
Kevork S. Hovnanian, Chairman of the
Board |
— |
|
— |
|
— |
Ara K. Hovnanian, President and Chief Executive Officer |
1,125,000 |
|
— |
|
1,125,000 |
J. Larry Sorsby, Executive Vice
President and Chief Financial Officer |
225,000 |
|
— |
|
225,000 |
Paul W. Buchanan, Senior Vice President and Chief Accounting
Officer |
40,000 |
|
14,098 |
|
54,098 |
Peter S. Reinhart, Senior Vice President
and General Counsel |
40,000 |
|
10,070 |
|
50,070 |
David G. Valiaveedan, Vice President — Finance and
Treasurer |
20,625 |
|
9,676 |
|
30,301 |
Executive Officer Group |
1,450,625 |
|
33,844 |
|
1,484,469 |
Robert B. Coutts, Director |
28,000 |
|
17,904 |
|
45,904 |
Edward A. Kangas, Director |
44,000 |
|
29,841 |
|
73,841 |
Joseph A. Marengi, Director |
28,000 |
|
17,904 |
|
45,904 |
John J. Robbins, Director |
28,000 |
|
17,904 |
|
45,904 |
Stephen D. Weinroth, Director |
44,000 |
|
29,841 |
|
73,841 |
All Current Non-Executive Directors as a
Group |
172,000 |
|
113,394 |
|
285,394 |
All Non-Executive Officer Employees as a Group |
1,377,563 |
|
1,129,229 |
|
2,506,792 |
All Directors and
Employees |
3,000,188 |
|
1,276,467 |
|
4,276,655 |
EQUITY COMPENSATION PLAN
INFORMATION
The following table provides information as of
October 31, 2009, with respect to compensation plans (including individual
compensation arrangements) under which our equity securities are authorized for
issuance.
Equity Compensation Plan
Information
|
|
|
|
|
|
|
|
|
Number of |
|
Number of |
|
Number of |
|
|
|
|
|
securities |
|
Class A |
|
Class |
|
Weighted |
|
Weighted |
|
remaining |
|
Common |
|
Stock B |
|
average |
|
average |
|
available for |
|
Stock |
|
Common |
|
exercise |
|
exercise |
|
future issuance |
|
securities to be |
|
securities to be |
|
price of |
|
price of |
|
under equity |
|
issued upon |
|
issued upon |
|
outstanding |
|
outstanding |
|
compensation |
|
exercise of |
|
exercise of |
|
Class A |
|
Class B |
|
plans |
|
outstanding |
|
outstanding |
|
Common |
|
Common |
|
(excluding |
|
options, |
|
options, |
|
Stock |
|
Stock |
|
securities |
|
warrants and |
|
warrants and |
|
options, |
|
options, |
|
reflected in |
|
rights (in |
|
rights (in |
|
warrants and |
|
warrants and |
|
columns (a)) (in |
Plan
Category |
thousands) |
|
thousands) |
|
rights(2) |
|
rights(3) |
|
thousands)(1) |
|
(a) |
|
(a) |
|
(b) |
|
(b) |
|
(c) |
Equity compensation plans |
|
|
|
|
|
|
|
|
|
approved by security holders |
6,352 |
|
|
1,584 |
|
|
$10.77 |
|
|
$3.85 |
|
|
5,861 |
|
Equity compensation plans |
|
|
|
|
|
|
|
|
|
not approved by security
holders |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
6,352 |
|
|
1,584 |
|
|
$10.77 |
|
|
$3.85 |
|
|
5,861 |
|
(1) |
|
Under the Company’s equity compensation
plans, securities may be issued in either Class A Common Stock or Class B
Common Stock. |
(2) |
|
Does not include 1,702 shares to be
issued upon vesting of restricted stock, because they have no exercise
price. |
(3) |
|
Does not include 459 shares to be issued
upon vesting of restricted stock, because they have no exercise
price. |
14
VOTE
REQUIRED
In order for the Amended Plan to be approved, the current NYSE rules
require the affirmative vote of a majority of the shares of Class A Common Stock
and Class B Common Stock, voting together, cast on the proposal, provided that a
majority of the outstanding shares of common stock are votes on the proposal.
With respect to the proposal to adopt the Amended Plan, abstentions are
considered “votes cast” under NYSE rules and thus will have the same effect as a
vote “against” the proposal and will be counted in determining whether
a majority of the
outstanding shares of common stock are voted on the proposal. Broker non-votes
will not count as votes cast “for” or “against” the proposal to adopt the
Amended Plan and will have no effect on the outcome of the proposal, assuming a
majority of the outstanding shares of common stock are otherwise voted on the
proposal.
Mr. A. Hovnanian and certain members of his
family have informed the Company that they intend to vote in favor of this
proposal. Because of the voting power of Mr. A. Hovnanian and such members of
his family, this proposal is assured passage.
Our Board of Directors recommends that
shareholders vote FOR approval of the Amended Plan.
THE COMPENSATION
COMMITTEE
The Compensation Committee of the Board of
Directors (the “Committee”) is the principal overseer of the Company’s various
policies and procedures related to executive compensation. The Committee meets
at least three times a year to discuss industry trends with regard to overall
compensation issues and consults with outside compensation consultants as
needed. The Committee is governed by its Charter which is available on the
Company’s public website (www.khov.com).
Areas of
Responsibility
The Committee, in conjunction with the Board
of Directors and with management’s input, shapes the Company’s executive
compensation philosophy and objectives. In particular, the Committee is charged
with:
- Reviewing, at least annually, the
salaries, bonuses and other forms of compensation, including stock option
grants, for the Company’s senior executives (which include the named executive
officers (“NEOs”) for whom compensation is reported in the tables
below);
- Reviewing, at least annually,
compensation paid to the Company’s non-employee Directors;
- Participating in the review of
compensation of other key employees of the Company as may be directed by the
Board of Directors or by management; Periodically reviewing the Company’s
policies and procedures pertaining to the Company’s equity award plans and
forms of equity grants to all employees and non-employee Directors, employee
benefit plans (for example, the 401(k) plan and deferred compensation plans),
the Chief Executive Officer’s severance agreement, executive perquisites, and
forms of equity grants to all employees and non-employee directors; and
- Fostering good corporate
governance practices as they relate to executive compensation.
These areas of responsibilities are discussed
in more detail below under “Compensation Discussion and Analysis.” During the
fiscal year ended October 31, 2009, the members of the Committee were all
independent, non-employee directors.
Compensation Review Process for the
Named Executive Officers
The Committee, in conjunction with the Board
of Directors and with management’s input, is responsible for making decisions
related to the overall compensation of the
NEOs.
At least annually, the Committee establishes objective financial measures
for determining bonus awards to the NEOs. The Committee also considers salary,
employee benefits and discretionary bonus awards, if any, for the
NEOs.
In determining overall compensation for the NEOs, the Committee may
consult with other members of the Board of Directors, including the Chairman of
the Board, the President and Chief Executive Officer (“CEO”), and the Executive
Vice President and Chief Financial Officer (“CFO”) of the Company. These
individuals often provide the Committee with insight on the overall performance
of executives, including the
15
achievement of personal
objectives, if any, rather than relying solely on the Company’s financial
performance measures in determining their compensation. The Committee also
engages an outside compensation specialist related to various compensation
issues.
Outside Compensation
Consultant
Since October 2003, the Committee has engaged
Pearl Meyer & Partners (“PM&P”) as the Committee’s independent outside
compensation consultant to provide services related to executive and
non-employee director compensation. PM&P does not provide any other services
to the Company unless approved by the Committee and no such services were
provided in fiscal 2009. In fiscal 2009, PM&P assisted the Committee with
its review and design of the Company’s annual bonus and long-term incentive
plans for the NEOs in order to reflect modifications in the Company’s objectives
due to declining market conditions in the homebuilding industry. The analysis
also included a review of the compensation of similar executive positions among
the Company’s peer group of 11 publicly-traded homebuilding companies (the “Peer
Group”). See “Peer Group Considerations” of the Compensation Discussion and
Analysis below for a list of the companies in the Company’s Peer
Group.
The Committee’s primary objective for engaging PM&P is to obtain
advice and feedback related to maintaining programs that provide compensation
opportunities for executives within the median range of the Peer Group for
comparable financial performance. The Committee may also instruct PM&P to
provide assistance in fostering an overall compensation program that aligns with
its compensation philosophy to guide, motivate, retain and reward its executives
for the achievement of the Company’s financial performance, strategic
initiatives and individual goals, including increased long-term shareholder
value in the context of a challenging business environment. The Company also
periodically participates in a homebuilding industry group compensation survey
that is conducted by PM&P and which provides valuable information to the
Committee in assessing its competitive pay levels. An abbreviated edition of the
homebuilding industry survey was conducted by PM&P during fiscal 2009 at no
charge to all participants, including the
Company.
The Committee weighs the information gathered
from PM&P and the members of the Board and management it has consulted in
conjunction with its review of other information it considers relevant when
making decisions or making recommendations to the full Board regarding executive
compensation.
Board
Communication
The Company’s Board of Directors is updated at
least quarterly of any compensation decisions or recommendations made by the
Committee and the Committee requests feedback from the Board of Directors
regarding specific compensation issues as it deems necessary.
Compensation Committee
Report
The Committee has reviewed and discussed the
Compensation Discussion and Analysis provided below with the Company’s
management. Based on its review, the Compensation Committee recommended to the
Board of Directors that the Compensation Discussion and Analysis be included in
this proxy statement and in the Company’s Annual Report on Form 10-K for the
year ended October 31, 2009.
COMPENSATION COMMITTEE |
|
Stephen
D. Weinroth, Chair |
Robert
B. Coutts
|
Edward
A. Kangas
|
Compensation Committee Interlocks and
Insider Participation
During the fiscal year ended October 31, 2009,
the members of the Compensation Committee were Messrs. Weinroth, Kangas, and
Coutts. Each of Messrs. Weinroth, Kangas, and Coutts are non-employee Directors
and were never officers or employees of the Company or any of its
subsidiaries.
16
COMPENSATION DISCUSSION AND
ANALYSIS
I. COMPENSATION PHILOSOPHY AND
OBJECTIVES
The Compensation Committee, in conjunction
with the Board of Directors and with senior management, has been instrumental in
shaping the Company’s compensation philosophy and objectives because of its
responsibilities and oversight of the Company’s various policies and procedures
concerning executive compensation.
The four primary objectives that the Committee
considered in making compensation decisions are discussed below. In making
compensation related decisions, the Committee also considered its role in
promoting good corporate governance practices.
Primary Objectives for the
Compensation Program
The Company’s primary objectives for
compensating its executives are as follows:
|
1. |
|
To fairly
compensate its executives in a manner that is appropriate with respect to
their performance, level of responsibilities, abilities and skills;
|
|
2. |
|
To offer
compensation that guides, motivates, retains, and rewards its executives
for the achievement of the Company’s financial performance, strategic
initiatives and individual goals, including increased long-term
shareholder value; |
|
3. |
|
To maintain
competitive pay for its executives so that it retains its talent pool and,
at the same time, has the ability to attract new and highly-qualified
individuals to join the organization as it grows or in the event of
succession or replacement of an executive; and |
|
4. |
|
To ensure
suitability of the reward system in a challenging business
environment. |
Tailored
Compensation
Consistent with these objectives, the
Company’s compensation philosophy also takes into consideration the very unique
roles played by each of the named executive officers for whom compensation is
reported in the tables below (“NEOs”) and seeks to individually tailor their
compensation packages to align their pay mix and pay levels with their
contributions to, and positions within, the Company. For example:
- Chairman of the
Board: The Company’s
founder, Mr. Kevork Hovnanian, had served as the Chairman of the Board of
Directors since the Company’s inception in 1959 until his death on September
24, 2009. Since Mr. K. Hovnanian owned a significant percentage of the voting
power of the Company’s issued and outstanding shares, his compensation package
emphasized cash compensation rather than equity awards.
- CEO: The compensation package of the CEO, Mr.
Ara K. Hovnanian, differs from those of the other NEOs due to his unique role
and elevated set of responsibilities. Because the CEO makes executive
decisions that influence the direction, stability and profitability of the
Company, his overall compensation is intended to strongly align with objective
financial measures of the Company.
- CFO: The Committee recognizes that the role of
the CFO, Mr. J. Larry Sorsby, similar to the CEO, is important in influencing
the direction, stability, and profitability of the Company. Therefore, a
significant portion of the CFO’s overall compensation is also aligned with
objective financial measures of the Company. Since fiscal 2008, Mr. Sorsby’s
role and contributions as CFO have intensified significantly as a result of
the downturn in the homebuilding industry and the Company’s focus on debt
reduction and other actions taken to proactively access the capital markets
and restructure the balance sheet for future profitability.
- Other NEOs: The Company’s Senior Vice President – Chief
Accounting Officer, Mr. Paul W. Buchanan, Senior Vice President – General
Counsel, Mr. Peter S. Reinhart, and Vice President – Finance and Treasurer,
Mr. David G. Valiaveedan have, as result of their respective positions, less
direct influence on the Company’s strategic and operational decisions as
compared to the former Chairman of the Board, the CEO and the CFO. Therefore,
overall compensation for these NEOs reflects both objective financial measures
of the Company and the attainment of personal objectives (as determined by the
CFO and the CEO, who may consult with other members of senior
management).
17
Variable Incentive
Compensation and Discretionary
Awards
The Company’s compensation philosophy
emphasizes variable incentive compensation elements (bonus and long-term
incentives) that reflect the Company’s financial and stock performance. For
executives who report to the CEO or CFO, the variable compensation elements also
include personal performance objectives. For all executive officers, the
Committee retains the flexibility to adjust incentive awards downward or to
consider discretionary bonus awards. Discretionary awards may be appropriate,
for example, to reward progress toward strategic objectives or to reflect strong
leadership while addressing industry-wide market conditions or to serve as a
retention bonus for valued executives.
Peer Group
Considerations
As context for setting the compensation levels
for the CEO and CFO and the compensation practices for all other NEOs in fiscal
2009, the Committee considered the compensation levels and practices of its Peer
Group companies. The Company’s Peer Group includes the following 11
publicly-traded homebuilding companies: (1) Beazer Homes USA, Inc.; (2) Centex
Corporation; (3) D.R. Horton, Inc.; (4) KB Home; (5) Lennar Corporation; (6)
M.D.C. Holdings, Inc.; (7) NVR, Inc.; (8) Pulte Homes, Inc.; (9) Ryland Group,
Inc.; (10) The Standard Pacific Corp.; and (11) Toll Brothers, Inc. The
companies in the Peer Group have not changed since 2003 and have been selected
by PM&P because of their comparable business profile. In particular, the
Company’s revenue size relative to the Peer Group was considered the most
relevant measure for selection of peer companies within the homebuilding
industry. The Company and PM&P will continue to review the appropriateness
of the Peer Group composition. With respect to the compensation levels for the
other NEOs, the Committee periodically reviews Peer Group and survey data.
Because the compensation structure for each of the NEOs is uniquely tailored to
his position, the extent to which such Peer Group benchmarking data is
considered is described below for each individual NEO.
Market Conditions
Considerations
In determining overall compensation for the
NEOs, the Committee also takes into account leadership abilities and risk
management contributions, which are especially critical during difficult market
conditions.
During fiscal 2009, the homebuilding industry
has continued to be impacted by a lack of consumer confidence, increasing home
foreclosure rates, large supplies of resale and new home inventories, and more
restrictive lending standards for homebuyers. The result has been weakened
demand for new homes, slower sales, higher than normal cancellation rates, and
increased price discounts and other sales incentives to attract
homebuyers.
The heightened importance of cash flow and
liquidity, as well as the Company’s budget cuts and downsizing, were considered
by the Committee in making executive compensation decisions for fiscal 2009. As
a result, the Chairman of the Board, the CEO and the CFO did not receive any
salary increases for fiscal 2009. Their fiscal 2009 annual bonus formulas
continued to place a heavier focus on cash flow and liquidity, but were capped
at 50% of the respective bonus amounts earned by each of them in fiscal 2008.
The Chief Accounting Officer and General Counsel received salary adjustments of
less than 3% from the prior fiscal year and their fiscal 2009 bonus formulas
remained the same as fiscal 2008, except that their payments were capped at 50%
of the maximum percentages of base salary they could otherwise achieve under the
personal objectives portion of their respective bonus formulas. Following his
promotion in August 2008 and a 19% salary increase, the Vice President – Finance
and Treasurer, in further recognition of his promotion and performance in his
new role, received an additional 8% salary increase for 2009 and his overall
bonus potential increased from 40%/60%/80% to 60%/80%/100% of base salary at
threshold/target/outstanding performance (as defined in his bonus formula),
respectively, subject to a cap of 50% of the maximum percentage of base salary
he could otherwise achieve under the personal objectives portion of his new
bonus formula. In addition, fiscal 2009 bonuses for all NEOs were paid entirely
in cash.
As previously discussed in the fiscal 2007 and
fiscal 2008 Compensation Discussion and Analysis and below, each NEO has been
offered the opportunity to earn a one-time retention bonus equal to 3% of such
NEO’s fiscal year end 2007 base salary if the NEO remains employed with the
Company through the end of the first fiscal year in which the Company’s ROACE
(as defined below) returns to 20%. At the end of fiscal 2009, the Company’s
ROACE did not meet this threshold. Also, as discussed in the fiscal 2007 and
fiscal 2008 Compensation Discussion and Analysis and below, discretionary
retention awards were awarded where appropriate.
18
The Committee viewed these difficult compensation actions as appropriate
and necessary to ensure alignment of pay and performance, while also taking into
consideration competitive market pressures, both within and outside of the
homebuilding industry, and the strength of leadership required in this
challenging business environment.
II. FISCAL YEAR 2009 COMPENSATION
ELEMENTS AND COMPENSATION MIX
Compensation Elements at a
Glance
There are four main compensation elements that
support the Company’s compensation objectives, each of which is discussed in
detail below.
|
1. |
|
Base
salaries; |
|
2. |
|
Regular and
discretionary bonuses; |
|
3. |
|
Stock grants (for
example, stock options and restricted stock unit awards); and |
|
4. |
|
Various employee
benefits, including specified
perquisites. |
Compensation
Mix
Fixed vs. Variable
Compensation. A
significant portion of executives’ “Total Direct Compensation” (which includes
base salary, bonuses and stock grants) opportunity is attributed to variable
compensation – that is, the ultimately realized compensation is dependent on
either individual or Company performance. Of the elements of Total Direct
Compensation, base salary is fixed compensation, while bonuses and
stock grants are variable compensation. Bonuses for the former Chairman of
the Board, the CEO and the CFO were based upon objective formulas tied to
financial performance goals that include the Company’s (a) ROACE and (b) net
debt reduction. For the other NEOs, bonuses are determined based on both the
Company’s ROACE and the achievement of tailored personal objectives. An
important part of each NEO’s compensation package also consists of stock
options, the ultimate value of which is tied to the Company’s stock performance.
These variable elements are intended to align the executives’ performance and
interests with Company performance and long-term shareholder
value.
The intent of the Committee is generally to maintain variable
compensation opportunity as the most significant percentage of Total Direct
Compensation opportunity for all NEOs and to maintain its approximate level from
year to year. In addition, the Committee intends for Total Direct Compensation
and the level of variable compensation realized to align with the Peer Group in
years when the Company performs at median levels compared to the Peer Group. In
fiscal 2007, 2008 and 2009, the percentage of variable compensation received has
declined from historical levels because total bonus amounts ultimately received
by the Chairman and the CEO were zero for fiscal 2007, significantly lower than
historical amounts for fiscal 2008 and reduced by an additional 50% in fiscal
2009. In fiscal 2009, the Committee also awarded stock grants to each of the
NEOs, with the exception of Mr. K. Hovnanian, as discussed below, at levels
significantly lower than historical amounts for fiscal 2007 and below the Peer
Group median.
Long-Term vs. Short-Term
Compensation. An
important portion of each NEO’s Total Direct Compensation is long-term
compensation, which normally includes stock option and/or restricted stock unit
awards and deferred share awards granted in lieu of cash for a portion of total
bonus amounts. In fiscal 2009, due to the reduced amount of the bonuses,
deferred share awards were not granted and the total bonus amounts were paid
100% in cash. Short-term compensation consists of base salary and the cash
portion of annual bonus amounts. Stock option awards and restricted stock unit
awards are intended to foster long-term commitment by the executive,
employee-shareholder alignment and improved long-term shareholder value. The
average long-term compensation amounts as a percent of Total Direct Compensation
for fiscal years 2005 through 2009 for the CEO and CFO were 56% and 44%,
respectively. The Company’s former Chairman of the Board and founder, Mr. K.
Hovnanian, did not typically receive any stock options or restricted stock unit
awards as part of his overall compensation as he held a significant equity
interest in the Company. The average long-term compensation percentages for
Messrs. Buchanan, Reinhart and Valiaveedan for the same period were 19%, 18% and
11%, respectively, reflecting the Committee’s belief that while it is important
for these executives to be compensated in part based on the long-term
performance of the Company, they have less direct influence on the long-term
financial success of the Company as compared to the CEO and CFO.
19
III. DETAILS OF COMPENSATION
ELEMENTS
Base
Salaries
Base salaries are intended to reward
executives for their day-to-day contributions to the Company. The Committee
believes that base salaries at or above the competitive median level are
necessary to retain the Company’s executive talent pool, and it determined that
the fiscal 2009 base salaries of the Company’s executive officers were necessary
to retain their services.
Base salaries of all the NEOs are reviewed
annually by the Committee and are subject to adjustment based on factors that
may include individual performance, change in responsibilities, average salary
increases or decreases in the industry, compensation for similar positions
involving the Company’s Peer Group or other comparable companies if comparable
data was unavailable from the Peer Group companies, as well as other factors
such as cost of living and internal pay relationships with other executives. The
Committee also consults with PM&P in determining the need for salary
adjustments.
- Chairman of the Board and
CEO: For fiscal 2008 and
2009, the former Chairman of the Board and the CEO did not receive any
adjustments in their existing annual base salaries. This is reflective of the
Company’s budget cuts and downsizing due to industry conditions. In addition,
based on discussions with PM&P, the Committee has determined that the
CEO’s fiscal 2009 base salary is near the median base salary level of other
chief executive officers at Peer Group companies.
- CFO: For fiscal 2009, the CFO did not receive any
adjustment in his existing annual base salary. This is reflective of the
salary adjustment previously provided in fiscal 2008 and the Company’s budget
cuts and downsizing due to industry conditions. While the Committee desires to
position base salary for the CFO near the Peer Group median, salaries for Peer
Group CFOs have increased considerably more rapidly than at the Company. Based
on year-end discussions with PM&P, the committee has determined that the
CFO’s fiscal 2009 base salary falls between the Peer Group 25th percentile and
median.
- Other NEOs: For fiscal 2009, Messrs. Buchanan and
Reinhart each received a nominal merit increase of 2.5% of their respective
base salaries. Neither executive received a salary adjustment in fiscal 2008.
In making these determinations, the Committee considered the individual
performance of each executive, the merit budget for employees of the Company
generally, and the cost of living. Mr. Valiaveedan received a 19% base salary increase in August of fiscal
2008 upon promotion to his current position followed by an additional base
salary adjustment of 8% in fiscal 2009 in further recognition of his promotion
and his individual performance in his current position.
Bonuses
Regular
Bonuses
The Company provides each of the NEOs with an
opportunity to earn bonuses, the cash portions of which are intended to reward
executives for the attainment of short-term financial objectives and, in the
case of certain NEOs, individual performance objectives. Fiscal 2009 bonus
awards were made pursuant to the Company’s amended and restated Hovnanian
Enterprises, Inc. Senior Executive Short-Term Incentive Plan (the “Short-Term
Incentive Plan”) and the 2008 Hovnanian Enterprises, Inc. Stock Incentive Plan
(the “Stock Incentive Plan”), each of which is a shareholder approved plan,
although ultimately no stock awards were paid as part of the fiscal 2009 bonus
awards under the Short-Term Incentive Plan or the Stock Incentive
Plan.
Bonus opportunities are intended to be competitive with industry-wide
practices in order to retain and attract executive talent. With the exception of
the former Chairman of the Board, who had significant equity ownership, normally
30% of the earned bonuses for the NEOs is paid in the form of deferred shares
(with the remaining 70% paid in cash) with vesting restrictions in order to
provide alignment with shareholders and encourage long-term retention. However,
due to the reduced amount of the bonuses for fiscal 2009, 100% of the earned
bonuses were paid in cash. In prior years, the number of shares of the Company’s
common stock paid under a deferred share award was determined by dividing the
dollar amount of the deferred share portion by the lesser of (1) the closing
price of the Class A Common Stock on the last day of the fiscal year during
which the service giving rise to the deferred share award was performed or (2)
the average of the closing prices of a share of Class A Common Stock on the last
day of each of the five previous fiscal quarters ending on the last day of
20
the fiscal year during
which the service giving rise to the deferred share award was performed, and
adding an incremental 20% more shares to reflect the shift from a cash bonus
award to a deferred share award with four-year vesting
restrictions.
Historically, bonuses for the former Chairman
of the Board, the CEO and the CFO were linked solely to a measure of the
Company’s return on equity (ROACE, as the current example), a common industry
practice. For fiscal 2008, bonus formulas for these NEOs were reoriented by
including a net debt reduction component. For fiscal 2009, the net debt
reduction component was changed to a net debt amount component. In light of
prevailing market conditions, the Committee, in consultation with PM&P,
determined that continuing this additional bonus measure based on specified
targets for the reduction of the Company’s net debt amount provides clarity and
was well-aligned with the Company’s focus on cash flow and liquidity.
Specifically, the bonus formulas for the former Chairman of the Board, the CEO,
and the CFO for fiscal 2009 provided that bonuses would be equal to the greater
of (a) the executive’s bonus formula based on the Company’s ROACE and (b) the
new bonus formula based on the Company’s net debt amount, with the final bonus
not to exceed 50% of the fiscal 2008 bonus. “ROACE” is defined as “net income”
divided by “average common equity” (stockholder’s equity less preferred stock at
the beginning of the fiscal year and at the end of each fiscal quarter during
the year divided by five). “Net debt” is defined as the “total debt” (balances
of bank debt, senior secured notes, senior notes, and senior subordinated notes)
net of any unrestricted cash and cash equivalents as of the last day of fiscal
2009. Net debt assumes “debt extinguishment accounting” and adds back any cash
investments in new joint ventures.
For fiscal 2009, the bonus formulas for
Messrs. Buchanan and Reinhart remained the same as their fiscal 2008 formulas,
except that their total bonus payments were capped at 50% of the maximum
percentages of base salary they could otherwise achieve under the personal
objectives portion of their respective bonus formulas. For fiscal 2009, in
connection with his promotion in August 2008, Mr. Valiaveedan’s overall bonus
formula increased from 40%/60%/80% to 60%/80%/100% of base salary at
threshold/target/outstanding performance (as defined in his bonus formula),
respectively, subject to a cap of 50% of the maximum percentage of base salary
he could otherwise achieve under the personal objectives portion of his new
bonus formula. Messrs. Buchanan, Reinhart and Valiaveedan have, as result of
their respective positions, less direct influence on the Company’s strategic and
operational decisions compared to the former Chairman of the Board, CEO and CFO
and, therefore, their bonus formulas were not revised to include a net debt
amount component. Specifically, these NEOs’ fiscal 2009 bonus formulas provide,
as in fiscal 2008, that bonuses would be based on both (a) a formula based on
the Company’s ROACE and (b) the attainment of tailored personal
objectives.
Fiscal year 2009 bonus formulas for each of
the NEOs are further tailored as set forth below and are assessed annually. For
all of the ROACE bonus formulas discussed below for each of the NEOs, net income
used in calculating ROACE is after taxes and preferred dividends and, at the
Committee’s discretion, excludes land charges.
- Chairman of the Board:
The former Chairman of the
Board’s bonus formula for fiscal 2009 provided for a bonus award equal to the
greater of (a) a fixed dollar amount based on the Company’s ROACE and (b) a
fixed dollar amount based on the Company’s net debt amount, with his final
bonus from both formulas not to exceed 50% of his fiscal 2008 bonus.
THE GREATER
OF: |
|
|
(a) ROACE Calculation
Method* |
ROACE
percentage |
Bonus |
|
0.0% |
|
$ |
0 |
|
1.0% |
|
$ |
150,000 |
|
5.0% |
|
$ |
444,700 |
|
10.0% |
|
$ |
444,700 |
|
15.0% |
|
$ |
444,700 |
|
20.0% |
|
$ |
444,700 |
|
25.0% |
|
$ |
444,700 |
* |
|
The bonus is interpolated between the
points shown in the table. The $444,700 cap is 50% of the fiscal 2008
bonus. The bonus is also subject to the maximum payment under the
Short-Term Incentive Plan. |
21
AND |
|
(b) Net Debt Amount Calculation
Method* |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
|
|
|
|
|
Net Debt (millions) |
|
$ |
1,900 |
|
$ |
1,900 |
|
$ |
1,850 |
|
$ |
1,800 |
Bonus (thousands) |
|
$ |
0 |
|
$ |
345.0 |
|
$ |
385.0 |
|
$ |
444.7 |
* |
|
The bonus will not be extrapolated above
$444,700 if net debt is less than $1,800,000. The bonus will be
interpolated between levels shown in the table. The $444,700 cap is 50% of
the fiscal 2008 bonus. |
Based on the bonus
formula above, Mr. K. Hovnanian earned a cash bonus of $444,700 for fiscal 2009
which was entirely attributed to the net debt amount calculation method of his
bonus formula.
- CEO: The CEO’s bonus formula for fiscal 2009
provided for a bonus award equal to the greater of (a) a fixed percentage of
pre-tax income based on the Company’s ROACE and (b) a fixed dollar amount
based on the Company’s net debt amount, with his final bonus from both
formulas not to exceed 50% of his fiscal 2008 bonus. The methodology
underlying the ROACE portion of the formula was historically designed to yield
an annual bonus that would result in Total Direct Compensation opportunity
that falls within the median range of the Peer Group for comparable financial
performance.
THE GREATER
OF: |
|
|
|
(a) ROACE Calculation
Method* |
ROACE
percentage |
% Pre-tax Income |
|
0.0% |
|
0% |
|
|
5.0% |
|
1.00% |
|
|
10.0% |
|
1.25% |
|
|
15.0% |
|
1.50% |
|
|
20.0% |
|
2.00% |
|
* |
|
The bonus is interpolated between the
points shown in the table, and may be extrapolated beyond the maximum
ROACE percentage shown at a rate of 0.10% of pre-tax income per percentage
point increase in ROACE, which is the rate applied between the last two
tiers of the above chart, but is subject to a maximum bonus of $699,500,
which is 50% of the fiscal 2008 bonus before the 20% premium on the
deferred share portion (since the 2009 bonus will be paid entirely in
cash) and also subject to the maximum bonus payable under the Short-Term
Incentive Plan. |
AND |
|
(b) Net Debt Amount Calculation
Method* |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
|
|
|
|
|
Net Debt (millions) |
|
$ |
1,900 |
|
$ |
1,900 |
|
$ |
1,850 |
|
$ |
1,800 |
Bonus (thousands) |
|
$ |
0 |
|
$ |
530.0 |
|
$ |
600.0 |
|
$ |
699.5 |
* |
|
The bonus will not be extrapolated above
$699,500 if net debt is less than $1,800,000. The bonus will be
interpolated between levels shown in the table. Since the 2009 bonus will
be paid entirely in cash, the $699,500 cap is 50% of the fiscal 2008 bonus
before the 20% premium on the deferred share
portion. |
Based on the bonus
formula above, Mr. A. Hovnanian earned a cash bonus of $699,500 which was
entirely attributed to the net debt amount calculation method of his bonus
formula. For the reason discussed above, this bonus was paid 100% in
cash.
- CFO: Like the former Chairman of the Board’s
formula, the CFO’s bonus formula provided for a bonus amount equal to the
greater of (a) a fixed dollar amount based on the Company’s ROACE and (b) a
fixed dollar amount based on the Company’s net debt amount, with his final
bonus not to exceed 50% of the fiscal 2008 bonus. The ROACE portion of the
formula was historically designed to yield an annual bonus that would result
in Total Direct Compensation opportunity that falls within the median range of
the Peer Group for comparable financial performance.
22
THE GREATER
OF: |
|
|
(a) ROACE Calculation
Method* |
ROACE
percentage |
Bonus |
|
0.0% |
|
$ |
0 |
|
5.0% |
|
$ |
254,800 |
|
10.0% |
|
$ |
254,800 |
|
15.0% |
|
$ |
254,800 |
|
20.0% |
|
$ |
254,800 |
|
25.0% |
|
$ |
254,800 |
* |
|
The bonus is interpolated between the
points shown in the table. The $254,800 cap is 50% of the fiscal 2008
bonus before the 20% premium on the deferred share portion (since the 2009
bonus will be paid entirely in cash). The bonus is also subject to the
maximum payment under the Short-Term Incentive
Plan. |
AND |
|
(b) Net Debt Amount Calculation
Method* |
|
|
Greater |
|
|
|
|
|
|
|
|
|
|
|
than |
|
|
|
|
|
|
|
|
|
Net Debt (millions) |
|
$ |
1,900 |
|
$ |
1,900 |
|
$ |
1,850 |
|
$ |
1,800 |
Bonus (thousands) |
|
$ |
0 |
|
$ |
190.0 |
|
$ |
215.0 |
|
$ |
254.8 |
* |
|
The bonus will not be extrapolated above
$254,800 if net debt is less than $1,800,000. The bonus will be
interpolated between levels shown in the table. Since the 2009 bonus will
be paid entirely in cash, the $254,800 cap is 50% of the fiscal 2008 bonus
before the 20% premium on the deferred share
portion. |
Based on the bonus
formula above, Mr. Sorsby earned a cash bonus of $254,800 which was entirely
attributed to the net debt amount calculation method of his bonus formula. For
the reason discussed above, this bonus was paid 100% in cash.
- Other NEOs: Fiscal 2009 incentive opportunities for
Messrs. Buchanan, Reinhart and Valiaveedan were based on a combination of
Company performance and individual performance factors that were within each
of these executives’ control and that would have a positive impact on the
Company. Therefore, the bonus
program for these NEOs targets the achievement of both (a) ROACE financial
performance objectives for the Company and (b) personal objectives, and, for
fiscal 2009, is capped at 50% of the maximum percentages of base salary they
could otherwise achieve under the personal objectives portion of their
respective bonus formulas.
BOTH |
|
(a) Calculation Method – for
Achievement of Financial Performance Measure* |
ROACE
Percentage |
|
Paul
Buchanan |
|
Peter
Reinhart |
|
David
Valiaveedan |
0.0% |
|
$0 |
|
$0 |
|
$0 |
5.0% |
|
10% of base salary |
|
10% of base salary |
|
15% of base salary |
10.0% |
|
20% of base salary |
|
20% of base salary |
|
30% of base salary |
15.0% |
|
40% of base salary |
|
30% of base salary |
|
40% of base salary |
20.0% |
|
60% of base salary |
|
40% of base salary |
|
50% of base salary |
25.0% |
|
90% of base
salary |
|
80% of base
salary |
|
|
* |
|
The bonuses are interpolated between the
points shown in the table. The total bonuses payable under both components
are capped at 50% of the maximum percentages of base salary these NEOs
could otherwise achieve under the personal objectives portion of their
respective bonus formulas and are subject to the maximum bonus payable
under the Short-Term Incentive Plan and Stock Incentive Plan, as
applicable. |
23
AND |
|
(b) Calculation Method – for
Meeting Personal Objectives Measure* |
Goals |
|
Paul
Buchanan |
|
Peter
Reinhart |
|
David
Valiaveedan |
Threshold |
|
Up to 20% of base salary |
|
Up to 20% of base salary |
|
Up to 30% of base salary |
Target |
|
Up to 40% of base salary |
|
Up to 30% of base salary |
|
Up to 40% of base salary |
Outstanding |
|
Up to
60% of base salary |
|
Up to
40% of base salary |
|
Up to
50% of base salary |
* |
|
“Threshold,” “target,” and “outstanding”
levels are determined by the CFO and the CEO, who may consult with other
members of senior management, and are used for internal evaluation
purposes only. As stated above, the total bonuses payable under both
components are capped at 50% of the maximum percentages of base salary
these NEOs could otherwise achieve under the personal objectives portion
of their respective bonus formulas and are subject to the maximum bonus
payable under the Short-Term Incentive Plan and Stock Incentive Plan, as
applicable. |
Mr. Buchanan’s fiscal 2009 personal objectives included management of
special projects and the transition from Ernst & Young LLP to Deloitte &
Touche LLP for audit of the Company’s financial statements and Ernst & Young
LLP to JH Cohn for the audit of the Company’s 401(k) plan, and absorbing
management responsibilities of the vacant Vice President of Accounting Processes
position. Mr. Reinhart’s fiscal 2009 personal objectives included completion of
the mortgage collateralization project, managing the grass roots efforts of
Hovnanian Associates in federal tax law legislation and negotiating resolution
of storm water issues. Mr. Valiaveedan’s fiscal 2009 personal objectives
included developing and executing the capital structure strategy and management
of existing joint ventures and structured lot
options.
Based on the bonus formulas above and the
Committee’s determinations regarding each executive’s personal objectives, none
of these NEOs earned bonuses related to the ROACE calculation method for the
fiscal year, but each did earn a cash bonus for meeting his fiscal 2009 personal
objectives in full (the “outstanding” category); however, since the outstanding
payouts for meeting personal objectives would exceed the cap described above,
the bonuses were reduced by 50% to comply with the
cap.
The NEOs have also been offered the opportunity to earn a one-time
retention bonus equal to 3% of such NEO’s fiscal year end 2007 base salary if
the NEO remains employed with the Company through the end of the first fiscal
year in which the Company’s ROACE returns to 20%. At the end of fiscal 2009, the
Company’s ROACE did not yet meet this threshold.
Discretionary
Bonuses
The Committee has the authority to make
discretionary bonus awards, which it considers under special circumstances,
including exceptional contributions not reflected in the regular bonus measures,
new hire sign-on bonuses and retention
rewards.
As discussed in the fiscal 2007 Compensation
Discussion and Analysis, the Committee believes that the following discretionary
bonus awards and other benefits discussed under “Other Employee Benefits” below
were necessary to reward the executives discussed below for their individual
performance during difficult market conditions and to retain their services for
future fiscal years. The Committee recognized that the CFO’s leadership and
supervision was critical to the formulation and implementation of the Company’s
revised economic strategies and organizational modifications intended to
minimize the impact of the Company’s reduction in homebuilding and mortgage
sales. Furthermore, the CFO and the Vice President – Finance and Treasurer have
made significant contributions to improve the Company’s long-term financial
health by proactively accessing the capital markets, and restructuring the
balance sheet. The Chief Accounting Officer and the General Counsel also
provided strong leadership and supervision during this period by reducing the
overall pecuniary and legal impact of the Company’s reduction in homebuilding
and mortgage sales.
- CFO: In December 2007, the Committee approved a
discretionary cash retention bonus of $150,000 for the CFO that vested and
became payable 50% in July 2008 and 50% in January 2009, subject to his
continued employment with the Company.
- Other NEOs: In December 2007, the Committee also
approved discretionary cash retention bonuses of $100,000 for each of Messrs.
Buchanan and Reinhart and $70,000 for Mr. Valiaveedan that vested and became
payable 50% in July 2008 and 50% in January 2009, subject to their continued
employment with the Company.
24
Stock
Grants
The Committee may make grants of stock
options, stock appreciation rights, restricted stock and restricted stock units,
unrestricted shares of stock, or stock-based awards settled in cash pursuant to
the Stock Incentive Plan. In fiscal 2009, the Committee awarded stock options to
the NEOs, subject to an election to receive restricted stock units (“RSUs”)
instead for some of the NEOs. No other stock-based awards were made to NEOs in
fiscal 2009.
Stock options are intended to establish a
strong commitment to maintain employment with the Company and focus on creating
long-term shareholder value. In addition, stock options are selected over other
types of awards because their design inherently rewards executives only if the
stock price increases, which provides a balance with cash incentives and
retention-oriented restricted stock
grants.
Because the ultimate value received by stock option holders is directly
tied to increases in the Company’s stock price, stock options serve to link the
interests of management and shareholders and to motivate executive officers to
make decisions that will increase the long-term total return to shareholders.
Additionally, grants under the Stock Incentive Plan include vesting and
termination provisions that the Committee believes will encourage stock option
holders to remain long-term employees of the
Company.
The Committee ultimately approves the size of
the grants taking into account the recommendations by the CEO (other than for
his own grant) and other criteria as determined by the Committee. The awards are
intended to result in Total Direct Compensation opportunity that falls within
the median range of the Peer Group for comparable performance. The Committee’s
determination and rationale for the fiscal 2009 grants is described
below.
Stock options and RSUs generally vest in four equal annual installments,
commencing on the second anniversary date of the grant. In fiscal 2007, the
Committee also approved, with respect to all future stock options and all prior
non-qualified stock options, the extension of the post-termination of employment
(or service, for non-employee directors) exercise period for up to 12 months (or
until the normal option termination date, if sooner) in the event of
“retirement.” For this purpose, “retirement” generally means termination of
employment (or, for non-employee directors, termination as a member of the Board
of Directors) on or after age 60, or on or after age 58 with at least 15 years
of credited service with the Company. The Committee determined that such an
extension was appropriate based on the cyclical nature of the homebuilding
industry.
Fiscal 2009 Stock Option
Awards
- Chairman of the
Board: Because the
former Chairman of the Board already had substantial equity holdings, no
further equity awards were deemed necessary or appropriate.
- CEO and CFO: In determining the fiscal 2009 equity awards
for the CEO and the CFO, the Committee considered, without giving specific
weight to each factor, then available information on Peer Group equity awards
for the chief executive officers and the chief financial officers, the
Company’s available share pool and the potential impact on shareholder
dilution, the Company’s stock performance, the historical equity awards
provided to each executive and the desire to further align compensation with
Company performance. The CEO was granted 750,000 stock options which
represented a 10% increase in grant date fair value from his stock option
awards in fiscal 2008. The CFO received a total of 150,000 stock options,
which represented a 10% increase in grant date fair value from his stock
option award in fiscal 2008. The grant date fair value of each stock option
award was considerably below the Peer Group median for both the CEO and the
CFO. Fifty percent of the fiscal 2009 stock option awards for the CEO and CFO
were granted in the form of performance-based options. These performance-based
options follow the same vesting schedule as standard stock options provided
that the Committee determines that (1) the Company’s EBITDA (as defined below)
for fiscal 2009 is at least $200,000,000 greater than the Company’s EBITDA for
fiscal 2008 and (2) the Company’s EBITDA for fiscal 2010 is at least
$300,000,000 greater than the Company’s EBITDA for fiscal 2008. If the
Committee determines that either one or both of these performance goals has
not been met, the CEO and the CFO would forfeit the 375,000 and 75,000
performance-based stock options, respectively. For this purpose, “EBITDA” is
defined as the Company’s consolidated earnings before interest expense, income
taxes, depreciation and amortization (but including inventory impairment loss
and land option write-offs and gain on extinguishment of debt), determined in
a manner consistent with the Company’s normal practices for quarterly press
release financial reporting purposes. At the end of fiscal 2009, the Committee
determined that the first performance hurdle was achieved since the Company’s
EBITDA for fiscal 2009 was at least $200,000,000 greater than in fiscal
2008.
25
- Other NEOs: In determining the fiscal 2009 equity
awards for the other NEOs, the Committee considered, without giving specific
weight to each factor, PM&P guidance regarding the anticipated range of
decline in equity award values across industries, the Company’s available
share pool and the potential impact on shareholder dilution, the desire to
retain the employment of each NEO, and the desire to continue to link a
portion of each NEO’s compensation with future Company stock performance.
Messrs. Buchanan and Reinhart were each granted 25,000 stock options in fiscal
2009, which represented an 8% decline in grant date fair value from their
stock option awards in fiscal 2008. Mr. Valiaveedan was awarded 17,500 stock options in fiscal 2009 and
elected to receive, in respect of his 17,500 options, 13,125 stock options and
1,458 restricted stock units (which reflects 4,375 stock options translated
into restricted stock units at a ratio of 3 options to 1 share). The 17,500
stock option award in fiscal 2009 represented a 9% decline in grant date fair
value in comparison with his 2008 award.
Cancellation of Certain
Out-of-the-Money
Options:
As was reported in the fiscal 2008 proxy
statement, some named executive officers and non-employee directors cancelled
some of their out-of-the-money stock options in December 2008 and January 2009.
Additional options were cancelled in October 2009.
The table below summarizes these
cancellations during fiscal year 2009.
|
|
Number of |
|
|
Cancelled
Options |
Ara K. Hovnanian |
|
1,845,834 |
J.
Larry Sorsby |
|
185,417 |
All Other Executive Officers |
|
27,500 |
Non
Employee Board of Directors |
|
164,500 |
Other Company Employees |
|
305,000 |
Total |
|
2,528,251 |
Other Employee
Benefits
The Company maintains additional employee
benefits that the Committee believes enhance executive safety, efficiency and
time that the executive is able to devote to Company
affairs.
In addition to benefits generally provided to
employees of the Company, such as the Company’s matching contributions to the
participant’s 401(k) plan, NEOs are also eligible to participate in the
following programs:
- Personal use of the Company’s
aircraft and automobiles;
- Auto allowance, including car
maintenance and gas expense;
- Executive term life
insurance;
- Annual Executive Physical Program;
- Contributions to the Company’s
executive deferred compensation plan (“EDCP”), a non-qualified plan into which
executives may defer both salary and bonus award payments;
- Golf membership or country club
reimbursement; and
- Personal tax preparation.
For the reasons discussed under “Discretionary Bonuses” above, in
December of 2007, the Committee approved a $175,000 cash contribution in the
name of Mr. Sorsby to the Children’s Hospital of Philadelphia, payable in three
installments as follows: $50,000 in 2008, $50,000 in 2009 and $75,000 in
2010.
Specific benefits and the incremental costs of such benefits are
described in detail in the footnotes to the Summary Compensation Table. The
Company does not offer any defined benefit pension plans to its
employees.
26
IV. ACTIONS FOR FISCAL 2010
Base Salary and Bonus
Compensation
CEO and CFO. The Committee maintained the base salary of
the CEO at its fiscal 2009 amount, but approved an increase of $250,000 in the
maximum bonus amount for the CEO to $949,500 in recognition of his increased
responsibilities in assuming the position of Chairman of the Board. The
Committee approved a base salary increase for the CFO in January 2010 to
$600,000 and to increase his maximum bonus amount by $95,200 to $350,000 in
order to better approximate the Peer Group median level. The bonus amounts
earned under the bonus formulas will continue to be paid entirely in cash (that
is, no deferred shares will be
awarded).
Other NEOs: Messrs. Buchanan, Reinhart and Valiaveedan did
not receive any fiscal 2010 base salary increases since they each received base
salary increases in fiscal 2009. Their fiscal 2010 bonus formulas will continue
to be capped such that their payouts cannot exceed 50% of the maximum
percentages of base salary they could otherwise achieve under the personal
objectives portion of their respective bonus formulas. For example, the maximum
bonus as a percentage of base salary that Messrs. Buchanan, Reinhart and
Valiaveedan will be eligible to receive is 30%, 20% and 25%, respectively. In
addition, as with the CEO and the CFO, fiscal 2010 bonuses for these NEOs will
continue to be paid entirely in cash.
V. TAX DEDUCTIBILITY AND ACCOUNTING
IMPLICATIONS
As a general matter, the Committee always
takes into account the various tax and accounting implications of compensation.
When determining amounts of equity grants to executives and employees, the
Committee also examines the accounting cost associated with the grants.
Similarly, in making its determination to request the cancellation of certain
outstanding options as discussed above, the Committee took into consideration
the acceleration of unamortized, non-cash accounting expense that would result
from the cancellation.
The Company’s annual bonus and stock option
programs are intended to allow the Company to make awards to executive officers
that are deductible under Section 162(m) of the Internal Revenue Code which
otherwise sets limits on the tax deductibility of compensation paid to a
company’s most highly compensated executive officers (with the exception of the
Company’s CFO). The Committee will continue to seek ways to limit the impact of
Section 162(m) of the Internal Revenue Code. However, the Committee believes
that the tax deduction limitation should not compromise the Company’s ability to
establish and implement incentive programs that support the compensation
objectives discussed above. Accordingly, achieving these objectives and
maintaining required flexibility in this regard may result in compensation that
is not deductible for federal income tax purposes. The bonus formulas approved
by the Committee for fiscal 2009 were intended to be established in accordance
with the requirements for deductibility as performance based compensation under
Section 162(m) of the Internal Revenue Code.
VI. TIMING AND PRICING OF STOCK
OPTIONS
For fiscal 2009, stock options were granted on
the second Friday in June for all eligible employees and non-employee Directors
of the Company. In addition, the Company awards shares of the Company’s Class A
Common Stock to non-employee Directors as part of their annual retainer on the
second Friday in January. The Company’s practice of setting “fixed” equity award
grant dates is designed to avoid the possibility that the Company could grant
stock awards prior to the release of material, nonpublic information which is
likely to result in an increase in its stock price, or to delay the grant of
stock awards until after the release of material, non-public information that is
likely to result in a decrease in the Company’s stock price. Exercise prices of
stock options were set at the closing price per share of the Company’s Class A
Common Stock on the NYSE on the date the options were granted.
VII. STOCK OWNERSHIP
GUIDELINES
The Board of Directors of the Company adopted
stock ownership guidelines, recommended by the Committee, which set forth
minimum amounts of stock ownership, directly or beneficially, for the Company’s
directors and certain senior executive officers. On an annual basis, the
Committee reviews adherence to the Company’s stock ownership guidelines, which
are incorporated into the Company’s Corporate Governance Guidelines. The Company
believes these guidelines further enhance the Company’s commitment to aligning
the interests of non-employee directors and executive management with those of
its stockholders.
27
In its annual review
in 2008, the Compensation Committee determined that once the stock ownership
guidelines were met, they would be deemed satisfied for subsequent annual review
periods, regardless of decreases in the Company’s stock price, so long as the
executive or non-employee Director does not sell any portion of the share
amounts which were originally included in determining that the recommended
thresholds were met.
As of January 19,
2010 (the record date for the Annual Meeting), all senior executive officers and
non-employee Directors had met the Company’s stock ownership
guidelines.
Senior Executive
Officers
The guidelines
provide that the following senior executive officers of the Company are
requested to achieve and maintain minimum stock ownership amounts as
follows:
Chairman of the Board
and Chief Executive Officer – 5x current base salary
Chief Financial
Officer – 2x current base salary
Non-Employee
Directors
The Company’s
non-employee Directors receive 50% of their annual retainer in the Company’s
Class A Common Stock and 50% in cash. Non-employee Directors also receive an
annual grant of stock options. The guidelines provide that non-employee
Directors are requested to achieve and maintain stock ownership amounts which
equal 2x the total value of their annual Director retainer (or $80,000 in total)
within 5 years after they become subject to the guidelines.
28
EXECUTIVE
COMPENSATION
(I) SUMMARY COMPENSATION
TABLE
The following table
summarizes the compensation for fiscal 2009, 2008 and 2007 of the chief
executive officer, the chief financial officer, and the next three most highly
compensated executive officers serving as executive officers as of October 31,
2009. Due to the death of Mr. K. Hovnanian, our Founder and former Chairman of
the Board, on September 24, 2009, Mr. K. Hovnanian’s compensation for three
years is included in the table. These six individuals comprise our named
executive officers or “NEOs.”
Summary Compensation
Table
|
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Change in |
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Pension |
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Value and |
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Non-Equity |
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Nonqualified |
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Incentive Plan |
|
Deferred |
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|
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Stock |
|
Option |
|
Compensation |
|
Compensation |
|
All Other |
|
|
|
Name and Principal
Position |
|
Year |
|
Salary |
|
Bonus (1)
|
|
Awards (2) |
|
Awards (3) |
|
(4) |
|
Earnings |
|
Compensation
(5) |
|
Total
(6) |
Kevork S. Hovnanian, |
|
2009 |
|
$ |
1,058,911 |
|
|
|
|
|
|
|
|
|
|
$ |
444,700 |
|
|
|
$ |
82,740 |
|
|
$ |
1,586,351 |
Former Chairman |
|
2008 |
|
$ |
1,128,433 |
|
|
|
|
|
|
|
|
|
|
$ |
889,402 |
|
|
|
$ |
110,136 |
|
|
$ |
2,127,971 |
of the Board |
|
2007 |
|
$ |
1,128,433 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
134,902 |
|
|
$ |
1,263,335 |
- deceased |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ara K. Hovnanian, |
|
2009 |
|
$ |
1,092,606 |
|
|
|
|
|
|
|
$ |
1,380,000 |
|
$ |
699,500 |
|
|
|
$ |
267,015 |
|
|
$ |
3,439,121 |
President, Chief |
|
2008 |
|
$ |
1,092,606 |
|
|
|
|
$ |
503,641 |
|
$ |
1,256,250 |
|
$ |
979,302 |
|
|
|
$ |
336,344 |
|
|
$ |
4,168,143 |
Executive Officer and |
|
2007 |
|
$ |
1,092,606 |
|
|
|
|
|
|
|
$ |
3,915,000 |
|
|
|
|
|
|
$ |
375,334 |
|
|
$ |
5,382,940 |
Chairman of |
|
|
|
|
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|
|
|
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|
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|
|
|
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|
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|
|
|
the Board |
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Larry Sorsby, |
|
2009 |
|
$ |
500,000 |
|
$ |
75,000 |
|
|
|
|
$ |
276,000 |
|
$ |
254,800 |
|
|
|
$ |
58,822 |
|
|
$ |
1,164,622 |
Executive Vice President |
|
2008 |
|
$ |
499,023 |
|
$ |
75,000 |
|
$ |
183,456 |
|
$ |
251,250 |
|
$ |
356,721 |
|
|
|
$ |
182,059 |
|
|
$ |
1,547,509 |
and Chief |
|
2007 |
|
$ |
321,291 |
|
$ |
188,000 |
|
|
|
|
$ |
522,000 |
|
|
|
|
|
|
$ |
67,855 |
|
|
$ |
1,099,146 |
Financial Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul W. Buchanan, |
|
2009 |
|
$ |
286,192 |
|
$ |
50,000 |
|
|
|
|
$ |
46,000 |
|
$ |
86,100 |
|
|
|
$ |
34,331 |
|
|
$ |
502,623 |
Senior Vice President/ |
|
2008 |
|
$ |
280,000 |
|
$ |
50,000 |
|
$ |
60,480 |
|
$ |
50,250 |
|
$ |
117,600 |
|
|
|
$ |
46,880 |
|
|
$ |
605,210 |
Chief Accounting |
|
2007 |
|
$ |
271,925 |
|
|
|
|
$ |
167,730 |
|
|
|
|
$ |
117,600 |
|
|
|
$ |
34,263 |
|
|
$ |
591,518 |
Officer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter S. Reinhart, |
|
2009 |
|
$ |
306,635 |
|
$ |
50,000 |
|
|
|
|
$ |
46,000 |
|
$ |
61,500 |
|
|
|
$ |
69,461 |
|
|
$ |
533,596 |
Senior Vice President/ |
|
2008 |
|
$ |
300,000 |
|
$ |
50,000 |
|
$ |
43,200 |
|
$ |
50,250 |
|
$ |
84,000 |
|
|
|
$ |
48,646 |
|
|
$ |
576,096 |
General |
|
2007 |
|
$ |
300,000 |
|
|
|
|
$ |
150,450 |
|
|
|
|
$ |
84,000 |
|
|
|
$ |
41,493 |
|
|
$ |
575,943 |
Counsel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David G. Valiaveedan, |
|
2009 |
|
$ |
267,692 |
|
$ |
35,000 |
|
$ |
3,718 |
|
$ |
24,150 |
|
$ |
67,500 |
|
|
|
$ |
6,321 |
|
|
$ |
404,381 |
Vice President Finance |
|
2008 |
|
$ |
218,615 |
|
$ |
35,000 |
|
$ |
37,061 |
|
$ |
25,125 |
|
$ |
61,600 |
|
|
|
$ |
4,966 |
|
|
$ |
382,367 |
and Treasurer |
|
|
|
|
|
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|
|
|
(1) |
|
The “Bonus”
Column. In accordance with SEC rules, the “Bonus” column discloses
discretionary cash bonus awards. Discretionary cash retention awards were
awarded in December 2007 for the CFO in the amount of $150,000, for the
Chief Accounting Officer and for the General Counsel in the amount of
$100,000 each and for the Vice President-Finance and Treasurer in the
amount of $70,000, that vested and became payable 50% in July 2008 and 50%
in January 2009 as discussed under “Discretionary Bonuses” in the
Compensation Discussion and Analysis. The CFO received a discretionary
cash bonus in the amount of $188,000 in December 2007. The cash portion of
bonuses earned based on the NEOs meeting either financial
performance-based measures or personal objectives portions of their
regular bonus programs are reflected in the Summary Compensation Table as
“Non-Equity Incentive Plan Compensation” and described under footnote (4)
below. |
29
(2) |
|
The “Stock Awards”
Column. This column reflects the grant date fair
values of deferred share awards and restricted stock units granted in the
fiscal year indicated which were computed in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification
Topic 718, Compensation – Stock Options (“ASC Topic 718”). Assumptions
used in the calculation of these amounts are set forth in Footnotes 3 and
15 to the Company’s audited financial statements for the fiscal year
indicated in the Company’s Annual Report on Form 10-K for the fiscal year
ended October 31, 2009. |
|
(3) |
|
The “Option Awards”
Column. Similar to the “Stock Awards” column,
this column reflects the grant date fair values of stock options awarded
in the fiscal year indicated which were computed in accordance with FASB
ASC Topic 718. Assumptions used in the calculation of these amounts are
set forth in Footnotes 3 and 15 to the Company’s audited financial
statements for the fiscal year indicated in the Company’s Annual Report on
Form 10-K for the fiscal year ended October 31, 2009. Fifty percent of the
2009 stock option awards for Messrs. A. Hovnanian and Sorsby were granted
in the form of performance-based options. These performance-based options
follow the same vesting schedule as standard stock options provided that
the Committee determines that (1) the Company’s EBITDA for fiscal 2009 is
at least $200,000,000 greater than the Company’s EBITDA for fiscal 2008
and (2) the Company’s EBITDA for fiscal 2010 is at least $300,000,000
greater than the Company’s EBITDA for fiscal 2008. All option awards noted
for all NEOs for fiscal year 2007 were cancelled in October
2009. |
|
(4) |
|
“Non-Equity Incentive
Plan Compensation” Column. This column represents the cash portion
of the performance bonus awards earned by the NEOs in the fiscal year
indicated. |
|
(5) |
|
“All Other
Compensation” Column. This column discloses all other
compensation for the fiscal year indicated, including reportable
perquisites and other personal benefits. |
|
|
|
For fiscal 2009, total perquisites and
other personal benefits, and those that exceeded the greater of $25,000 or
10% of total perquisites and other personal benefits for each NEO, were as
follows: |
|
Fiscal 2009
Perquisites (Supplemental Table) |
|
|
|
|
|
|
|
|
Fiscal 2009 Perquisites that Exceeded
the Greater of $25,000 |
Total
Perquisites and Description |
|
or 10% of
Total Perquisites |
|
|
Total Fiscal 2009 |
|
Types of Perquisites |
|
Personal Use of Company’s |
|
Personal Use of Company’s |
Name |
|
Perquisites |
|
(a) |
|
Aircraft
(b) |
|
Automobiles
(c) |
Kevork S. Hovnanian |
|
$ |
75,165 |
|
|
(2) (4) |
|
$ |
N/A |
|
|
$ |
64,575 |
|
Ara K. Hovnanian |
|
$ |
249,129 |
|
|
(1) (2) (4) (5) (6) (7) |
|
$ |
57,975 |
|
|
$ |
149,716 |
|
J. Larry Sorsby |
|
$ |
46,407 |
|
|
(3) (4) (5) |
|
|
N/A |
|
|
|
N/A |
|
Paul W. Buchanan |
|
$ |
24,212 |
|
|
(2) (4) (5) |
|
|
N/A |
|
|
|
N/A |
|
Peter S. Reinhart |
|
$ |
60,783 |
|
|
(3) (4) (5) |
|
|
N/A |
|
|
|
N/A |
|
David G.
Valiaveedan |
|
$ |
2,200 |
|
|
(5) |
|
|
N/A |
|
|
|
N/A |
|
(a) |
|
(1) Personal use of Company’s aircraft;
(2) Personal use of the Company’s automobiles; (3) Perquisites related to
executive’s use of their own vehicle; (4) Subsidized medical premiums for
the remainder of the NEO’s employment with the Company; (5) Use of the
Company’s Annual Executive Physical Exam Program; (6) Golf/country club
membership fees; and (7) Personal tax preparation. |
(b) |
|
The incremental costs of personal use of
the Company’s aircraft are calculated as (1) the total operating costs
(including trip-based management fees) directly associated with personal
trips, plus (2) the allocable share of all other costs of the aircraft for
the fiscal year (including depreciation or lease payments) based upon the
percentage of total hours flown during the fiscal year represented by
personal trips. No “deadhead” flights occurred in fiscal
2009. |
(c) |
|
The incremental costs of personal use of
the Company’s automobiles are calculated as the allocable share of all
costs of the automobiles for the fiscal year (including depreciation)
based upon the percentage of total miles driven during the fiscal year
represented by personal trips. |
30
|
In addition to the perquisites
and other personal benefits listed above, the NEOs received the following
other compensation in fiscal 2009: |
Fiscal
2009 All Other Compensation Other Than Perquisites (Supplemental
Table)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company Contributions |
|
|
|
|
|
|
|
|
Company’s |
|
to the Executive |
|
|
|
|
|
|
Term Life |
|
Contributions |
|
Deferred |
|
|
Charitable Cash |
|
Insurance |
|
to the Executive’s |
|
Compensation Plan |
Name |
|
Contribution
(a) |
|
Premiums |
|
Retirement
Plan (401(k)) |
|
(“EDCP”)
(b) |
Kevork S. Hovnanian |
|
|
— |
|
|
$225 |
|
$ |
7,350 |
|
|
|
— |
|
Ara K. Hovnanian |
|
|
— |
|
|
$450 |
|
$ |
7,350 |
|
|
$ |
10,086 |
|
J. Larry Sorsby |
|
$ |
50,000 |
|
|
$450 |
|
$ |
7,350 |
|
|
$ |
4,615 |
|
Paul W. Buchanan |
|
|
— |
|
|
$429 |
|
$ |
7,090 |
|
|
$ |
2,601 |
|
Peter S. Reinhart |
|
$ |
34,615 |
|
|
$450 |
|
$ |
5,441 |
|
|
$ |
2,787 |
|
David G.
Valiaveedan |
|
|
— |
|
|
$398 |
|
$ |
3,722 |
|
|
|
— |
|
(a) |
|
In December 2007, the Compensation
Committee approved a $175,000 cash contribution in the name of Mr. Sorsby
to the Children’s Hospital of Philadelphia, payable in three installments
as follows: $50,000 in 2008, $50,000 in 2009, and $75,000 in 2010. In
November 2009, in lieu of a periodic service award for long term service,
the Company made a charitable contribution of $34,615 on Mr. Reinhart’s
behalf to the Community Foundation of New Jersey. |
(b) |
|
Messrs. K. Hovnanian and Valiaveedan did
not participate in the Company’s executive deferred compensation plan
(“EDCP”). |
|
(6) |
|
“Total” Compensation
Column. This column reflects the sum of all the
columns (the Salary, Bonus, Stock Awards, Option Awards, Non-Equity
Incentive Plan Compensation, Change in Pension Value and Nonqualified
Deferred Compensation Earnings, and All Other Compensation columns) of the
Summary Compensation Table. |
|
|
|
|
|
Fiscal 2009 Total Compensation
(Supplemental Table). The Fiscal 2009 Total Compensation
(Supplemental Table) below includes the same amounts as the “Salary,”
“Bonus,” “Non-Equity Incentive Plan Compensation,” “Change in Pension
Value and Nonqualified Deferred Compensation Earnings” and “All Other
Compensation” columns of the Summary Compensation Table for fiscal 2009,
but values stock awards and option awards for the fiscal year differently,
as explained in footnote (a)
below. |
The table below is intended to provide
additional, supplemental compensation disclosure and not as a replacement for
the Summary Compensation Table.
Fiscal 2009 Total
Compensation (Supplemental Table)
|
|
|
|
|
|
|
|
|
|
|
|
|
Intrinsic |
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense |
|
Pension |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of |
|
Value and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Awards |
|
Outstanding |
|
Nonqualified |
|
|
|
|
|
Total of All |
|
|
|
|
|
Fiscal 2009 |
|
of Fiscal 2009 |
|
Options in |
|
Deferred |
|
All Other |
|
Columns of |
|
|
Fiscal 2009 |
|
Retention |
|
Performance |
|
Fiscal 2009
|
|
Compensation
|
|
Compensation |
|
Supplemental |
Name |
|
Salary |
|
Cash
Bonus |
|
Bonus |
|
(a) |
|
Earnings |
|
in Fiscal
2009 |
|
Table |
Kevork S. Hovnanian |
|
$ |
1,058,991 |
|
$ |
0 |
|
|
$ |
444,700 |
|
|
$0 |
|
$0 |
|
$ |
82,740 |
|
|
$ |
1,586,431 |
Ara K. Hovnanian |
|
$ |
1,092,606 |
|
$ |
0 |
|
|
$ |
699,500 |
|
|
$0 |
|
$0 |
|
$ |
267,015 |
|
|
$ |
2,059,121 |
J. Larry Sorsby |
|
$ |
500,000 |
|
$ |
75,000 |
|
|
$ |
254,800 |
|
|
$0 |
|
$0 |
|
$ |
58,822 |
|
|
$ |
888,622 |
Paul W. Buchanan |
|
$ |
286,192 |
|
$ |
50,000 |
|
|
$ |
86,100 |
|
|
$0 |
|
$0 |
|
$ |
34,331 |
|
|
$ |
456,623 |
Peter S. Reinhart |
|
$ |
306,635 |
|
$ |
50,000 |
|
|
$ |
61,500 |
|
|
$0 |
|
$0 |
|
$ |
69,461 |
|
|
$ |
487,596 |
David G.
Valiaveedan |
|
$ |
267,692 |
|
$ |
35,000 |
|
|
$ |
67,500 |
|
|
$0 |
|
$0 |
|
$ |
6,321 |
|
|
$ |
376,513 |
(a) |
|
The “Intrinsic Expense Value of
Outstanding Options in Fiscal 2009” column is based on the intrinsic
expense value or degree to which the stock option was “in-the-money” of
stock option awards granted in fiscal 2009 at the grant date, instead of
the grant date fair values of option awards granted in fiscal 2009, as
discussed under footnotes (2) and (3)
above. |
31
(II) GRANTS OF PLAN-BASED AWARDS IN FISCAL
2009
The following table
summarizes both:
(1) The potential
equity and non-equity incentive plan awards that could have been earned by each
of the NEOs at the defined levels of “Threshold,” “Target,” and “Maximum” based
on the performance-based awards granted to the NEOs in fiscal 2009;
and
(2) All other
plan-based awards, such as stock options, granted in fiscal
2009.
Each of the following
columns is described in the footnotes below the table.
Grants of Plan-Based Awards in Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
Option |
|
Exercise |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
Awards: |
|
or Base |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
Number of |
|
Price of |
|
Grant Date |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
Securities |
|
Option |
|
Fair Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future Payouts Under |
|
of Shares |
|
Underlying |
|
Awards |
|
of Stock |
|
|
|
|
Estimated Future Payouts Under |
|
Equity Incentive Plan Awards |
|
of Stock or |
|
Options |
|
($/Sh) |
|
and Option |
|
|
|
|
Non-Equity
Incentive Plan Awards |
|
Number of
Shares of Stock (3) |
|
Units (4) |
|
(#)(5) |
|
(6) |
|
Awards
(7) |
|
|
Grant |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date |
|
Threshold |
|
Target |
|
Maximum |
|
Threshold |
|
Target |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
|
Kevork S. |
|
N/A |
|
|
— |
(1) |
|
$ |
444,700 |
(1) |
|
$ |
444,700 |
(1) |
|
N/A |
|
N/A |
|
N/A |
|
— |
|
— |
|
|
|
— |
|
|
|
— |
Hovnanian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ara K. |
|
6/12/09 |
|
|
— |
(1) |
|
|
|
(1) |
|
$ |
699,500 |
(1) |
|
N/A |
|
375,000 |
|
N/A |
|
— |
|
375,000 |
|
|
$ |
2.55 |
|
|
$ |
690,000 |
Hovnanian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Larry |
|
6/12/09 |
|
|
— |
(1) |
|
$ |
254,800 |
(1) |
|
$ |
254,800 |
(1) |
|
N/A |
|
75,000 |
|
N/A |
|
— |
|
75,000 |
|
|
$ |
2.55 |
|
|
$ |
138,000 |
Sorsby |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul W. |
|
6/12/09 |
|
$ |
57,400 |
(2) |
|
$ |
86,100 |
(2) |
|
$ |
86,100 |
(2) |
|
N/A |
|
N/A |
|
N/A |
|
— |
|
25,000 |
|
|
$ |
2.55 |
|
|
$ |
46,000 |
Buchanan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter S. |
|
6/12/09 |
|
$ |
61,500 |
(2) |
|
$ |
61,500 |
(2) |
|
$ |
61,500 |
(2) |
|
N/A |
|
N/A |
|
N/A |
|
— |
|
25,000 |
|
|
$ |
2.55 |
|
|
$ |
46,000 |
Reinhart |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David G. |
|
6/12/09 |
|
$ |
67,500 |
(2) |
|
$ |
67,500 |
(2) |
|
$ |
67,500 |
(2) |
|
N/A |
|
N/A |
|
N/A |
|
1,458 |
|
13,125 |
|
|
$ |
2.55 |
|
|
$ |
27,868 |
Valiaveedan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Estimated Future
Payments for former Chairman, CEO, and CFO. As stated above under
“Regular Bonuses” in Compensation Discussion and Analysis, the fiscal 2009
bonus formulas for Messrs. K. Hovnanian, A. Hovnanian and Sorsby are based
on the greater of the ROACE calculation method and the Net Debt Amount
calculation method, provided that their respective final bonuses do not
exceed 50% of their respective fiscal 2008 bonuses. These NEOs would not
earn any bonus under the Net Debt Amount calculation method if the “net
debt amount” (as defined above under “Regular Bonuses” in the Compensation
Discussion and Analysis) was $1,900,000,000 or greater and would not earn
any bonus under the ROACE calculation method if the ROACE percentage (as
defined above under “Regular Bonuses” in the Compensation Discussion and
Analysis) was zero or lower (as was the case in fiscal 2009). Therefore, no values have been
disclosed at the “threshold” level for purposes of the above table
presentation for these NEOs.
For purposes of
the above table presentation, bonuses earned at the “target” levels for
the former Chairman, the CEO and the CFO would be equal to the greater of
(a) the ROACE calculation method which has a “target” percentage of 15% in
accordance with the respective bonus formula tables and (b) the amount
that could be earned under the Net Debt Amount calculation at the “target”
level or the “mid-point” range of the respective bonus formula tables as
described above under “Regular Bonuses” in Compensation Discussion and
Analysis, provided that their respective final bonuses do not exceed 50%
of their respective fiscal 2008 bonuses. Based on the greater of both
components of their respective “target” levels of the bonus formulas, the
ROACE portion of the bonus formulas would be greater than the Net Debt
Formula calculations for Messrs. K. Hovnanian and Sorsby. As a result, the
total cash bonuses payable to Messrs. K. Hovnanian and Sorsby at this
level would be $444,700 and $254,800, respectively. Mr. A. Hovnanian’s
ROACE calculation method would provide for a payment of 1.5% of pre-tax
income and, because pre-tax income was not determinable at the time the
fiscal 2009 bonus formula was established, no target amount is reflected
for Mr. A. Hovnanian in the above presentation table. The maximum
cash bonuses that could be earned by Messrs. K. Hovnanian, A. Hovnanian
and Sorsby for fiscal 2009 under either the ROACE calculation method or
the Net Debt Amount calculation method were $444,700, $699,500, and
$254,800,
respectively.
|
32
(2) |
|
Estimated Future
Payments for the Chief Accounting Officer, General Counsel and Vice
President – Finance and Treasurer. As stated above under “Regular Bonuses”
of the Compensation Discussion and Analysis, the fiscal 2009 bonus
formulas for Messrs. Buchanan, Reinhart and Valiaveedan are based on both
the ROACE calculation method and the “Meeting Personal Objectives” method,
subject to a cap of 50% of the maximum percentages of base salary they
could otherwise achieve under the personal objectives portion of their
respective bonus formulas. For purposes of
the above table presentation, the “threshold” level is defined as when the
ROACE percentage is at or below zero and the “threshold” achievement of
the personal objectives established for Messrs. Buchanan, Reinhart and
Valiaveedan at the beginning of the fiscal year as described above in the
Compensation Discussion and Analysis under “Regular Bonuses” is achieved.
Based on the “threshold” level, these NEO’s would not have earned a bonus
payout for fiscal 2009 based on the ROACE percentage and, based upon the
“threshold” achievement of their personal objectives, Messrs.
Buchanan, Reinhart and Valiaveedan would
have earned bonus payouts of 20%, 20% and 25% of their base salaries,
respectively, after reducing Mr. Valiaveedan’s bonus to comply with the
cap. As a result, for fiscal 2009, Messrs. Buchanan, Reinhart and
Valiaveedan would have earned total cash bonuses of $57,400, $61,500 and
$67,500, respectively. For purposes of
this table presentation, the “target” level is defined as when the
Company’s ROACE percentage is at 15% and if the “target” or a
“substantial” percentage of the personal objectives established for
Messrs. Buchanan, Reinhart and Valiaveedan at the beginning of the fiscal
year is achieved. Since the payouts based on their respective “target”
levels would exceed 50% of the maximum percentages of base salary they
could otherwise achieve under the personal objectives portion of their
respective bonus formulas, the bonuses for Messrs. Buchanan, Reinhart and
Valiaveedan at this level would be capped at $86,100, $61,500 and $67,500,
respectively. For purposes of
this table presentation, the “maximum” level is defined as the maximum
award earned under the ROACE calculation method and if all or an
“outstanding” percentage of the personal objectives established for
Messrs. Buchanan, Reinhart and Valiaveedan at the beginning of the fiscal
year are achieved. The maximum bonus payable under the ROACE calculation
is capped at a 25% ROACE level for Messrs. Buchanan and Reinhart and a 20%
ROACE level for Mr. Valiaveedan. Since the payouts based on their
respective “maximum” levels would exceed 50% of the maximum percentages of
base salary they could otherwise achieve under the personal objectives
portion of their respective bonus formulas, the bonuses for Messrs.
Buchanan, Reinhart and Valiaveedan at this level would be capped at
$86,100, $61,500 and $67,500, respectively.
|
(3) |
|
Fifty percent of
the fiscal 2009 stock option awards for the CEO and CFO were granted in
the form of performance-based options. These performance-based options
follow the same vesting schedule as standard stock options provided that
the Committee determines that (1) the Company’s EBITDA (as defined above)
for fiscal 2009 is at least $200,000,000 greater than the Company’s EBITDA
for fiscal 2008 and (2) the Company’s EBITDA for fiscal 2010 is at least
$300,000,000 greater than the Company’s EBITDA for fiscal
2008. |
|
|
|
(4) |
|
“All Other Stock
Awards: Number of Shares of Stock or Units” Column. This column discloses the number of restricted
stock units (not tied to any financial or personal objectives performance
measure) awarded to an NEO in fiscal 2009. Mr. Valiaveedan’s grant reflects his election to
receive a portion of his stock option grant in the form of restricted
stock units. |
|
|
|
(5) |
|
“All Other Option
Awards: Number of Securities Underlying Options” Column. This column discloses the number of stock
options (not tied to any financial or personal objectives performance
measure) awarded to an NEO in fiscal 2009. |
|
|
|
(6) |
|
“Exercise or Base
Price of Option Awards” Column. The option exercise price is the closing price
per share of the Company’s Class A Common Stock on the day of the option
grant on June 12, 2009 (which was $2.55). |
|
|
|
(7) |
|
“Grant Date Fair
Value of Stock and Option Awards” Column. The grant date fair value of the restricted
stock unit or stock option awards was computed in accordance with FASB ASC
Topic 718. Assumptions used in the calculation of these amounts are set
forth in Footnotes 3 and 15 to the Company’s audited financial statements
for the fiscal year indicated in the Company’s Annual Report on Form 10-K
for the fiscal year ended October 31, 2009. This value for options was
calculated based on the Black-Scholes option pricing model in which the
option fair value as of the grant date (June 12, 2009) was determined to
be $1.84. The value for restricted stock units was based on the closing
stock price on the date of the grant, or
$2.55. |
33
(III) OUTSTANDING EQUITY AWARDS AT
FISCAL 2009 YEAR-END
The following table
shows all unexercised stock options, unvested deferred shares, and unvested
restricted stock units held at the end of fiscal 2009 by the NEOs.
Outstanding Equity Awards at Fiscal
2009 Year-End
|
|
|
OPTION AWARDS |
|
STOCK AWARDS |
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
Incentive |
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
Plan Awards: |
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
Market or |
|
|
|
|
Number of |
|
Number of |
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
Payout Value |
|
|
|
|
Securities |
|
Securities |
|
Underlying |
|
|
|
|
|
|
|
Market Value |
|
Unearned |
|
of Unearned |
|
|
|
|
Underlying |
|
Underlying |
|
Unexercised |
|
|
|
|
|
|
|
of Shares of |
|
Shares or |
|
Shares or |
|
|
|
|
Unexercised |
|
Unexercised |
|
Unearned |
|
Option |
|
|
|
|
Stock that |
|
other Rights |
|
other Rights |
|
|
Grant |
|
Options # |
|
Options # |
|
Options |
|
Exercise |
|
Option |
|
have not |
|
that have not |
|
that have not |
Name |
|
Date (1) |
|
Exercisable |
|
Unexercisable |
|
#(2) |
|
Price ($) |
|
Expiration Date |
|
vested
($) |
|
vested
# |
|
vested
($) |
Kevork Hovnanian |
|
— |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
— |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
Ara Hovnanian |
|
03/13/00 |
|
250,000 |
|
|
— |
|
|
— |
|
|
$ |
2.88 |
|
3/12/2010 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
03/13/01 |
|
250,000 |
|
|
— |
|
|
— |
|
|
$ |
6.35 |
|
3/12/2011 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
11/06/01 |
|
500,000 |
|
|
— |
|
|
— |
|
|
$ |
5.58 |
|
11/5/2011 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
11/13/02 |
|
600,000 |
|
|
|
|
|
— |
|
|
$ |
15.90 |
|
11/12/2012 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
06/13/08 |
|
— |
|
|
375,000 |
|
|
— |
|
|
$ |
6.46 |
|
6/12/2018 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
6/12/09 |
|
— |
|
|
375,000 |
|
|
375,000 |
|
|
$ |
2.55 |
|
6/11/2019 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
J. Larry Sorsby |
|
03/21/00 |
|
40,000 |
|
|
— |
|
|
— |
|
|
$ |
2.97 |
|
3/20/2010 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
03/01/01 |
|
50,000 |
|
|
— |
|
|
— |
|
|
$ |
5.35 |
|
2/28/2011 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
11/06/01 |
|
50,000 |
|
|
— |
|
|
— |
|
|
$ |
5.58 |
|
11/5/2011 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
11/08/02 |
|
50,000 |
|
|
|
|
|
— |
|
|
$ |
16.35 |
|
11/7/2012 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
06/13/08 |
|
— |
|
|
75,000 |
|
|
— |
|
|
$ |
6.46 |
|
6/12/2018 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
6/12/09 |
|
— |
|
|
75,000 |
|
|
75,000 |
|
|
$ |
2.55 |
|
6/11/2019 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
Paul Buchanan |
|
08/28/00 |
|
15,000 |
|
|
— |
|
|
— |
|
|
$ |
3.28 |
|
8/27/2010 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
03/18/02 |
|
15,000 |
|
|
— |
|
|
— |
|
|
$ |
12.13 |
|
3/17/2012 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
06/13/08 |
|
15,000 |
|
|
— |
|
|
— |
|
|
$ |
6.46 |
|
6/12/2018 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
6/12/09 |
|
25,000 |
|
|
— |
|
|
— |
|
|
$ |
2.55 |
|
6/11/2019 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
Peter Reinhart |
|
08/28/00 |
|
5,000 |
|
|
— |
|
|
— |
|
|
$ |
3.28 |
|
8/27/2010 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
03/18/02 |
|
15,000 |
|
|
— |
|
|
— |
|
|
$ |
12.13 |
|
3/17/2012 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
06/13/08 |
|
15,000 |
|
|
— |
|
|
— |
|
|
$ |
6.46 |
|
6/12/2018 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
6/12/09 |
|
25,000 |
|
|
— |
|
|
— |
|
|
$ |
2.55 |
|
6/11/2019 |
|
|
|
|
— |
|
|
— |
|
|
|
|
— |
|
|
|
David Valiaveedan(3) |
|
10/31/05 |
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
— |
|
|
|
|
— |
|
|
38 |
|
|
|
$ |
149 |
|
|
|
10/31/07 |
|
— |
|
|
|
|
|
— |
|
|
|
— |
|
— |
|
|
|
|
— |
|
|
1,895 |
|
|
|
$ |
7,409 |
|
|
|
10/31/08 |
|
— |
|
|
— |
|
|
— |
|
|
|
— |
|
— |
|
|
|
|
— |
|
|
7,385 |
|
|
|
$ |
28,875 |
|
|
|
6/13/08 |
|
— |
|
|
7,500 |
|
|
— |
|
|
$ |
6.46 |
|
6/12/2018 |
|
|
|
$ |
3,257 |
|
|
— |
|
|
|
|
— |
|
|
|
6/12/09 |
|
— |
|
|
13,125 |
|
|
— |
|
|
$ |
2.55 |
|
6/11/2019 |
|
|
|
$ |
5,701 |
|
|
— |
|
|
|
|
— |
|
(1) |
|
The options listed above that were
granted prior to 2007 vest 25% per year beginning on the third anniversary
of the date of grant. The options listed above that were granted after
2007 vest 25% per year beginning on the second anniversary of the date of
grant provided, however, that upon termination due to death, disability or
retirement (as defined under “Stock Grants”), the options, to the extent
not previously vested and exercised, shall immediately become fully vested
and exercisable. All restricted stock unit awards represented in the table
vest 25% per year beginning on the second anniversary of the date of grant
provided, however, that upon termination due to death, disability or
retirement (as defined under “Stock Grants”), but only if such retirement
occurs on or after the first anniversary of the date of grant, the
restricted stock units, to the extent not previously vested and
distributed, will become vested and distributable. Currently, Messrs.
Buchanan and Reinhart are the only NEOs with option or restricted stock
unit grants who qualify for accelerated vesting on the basis of
retirement. |
(2) |
|
In addition to the vesting conditions,
the options will not vest if certain financial performance goals are not
met as described under “Fiscal 2009 Stock Option Awards”
above. |
34
(3) |
|
The amounts
listed for Mr. Valiaveedan under the “Equity Incentive Plan Awards: Market
or Payout Value of Unearned Shares or other Rights that have not vested”
column in the table above represent unvested deferred share awards granted
prior to fiscal year 2009. Deferred share awards vest 25% per year
beginning on the second November 1st following the
fiscal year for which the award was granted provided, however, if the
grantee either attains age 58 or completes 20 years of service with the
Company, the grantee would become immediately vested in 100% of his then
unvested Deferred Share Award upon the later of (1) the January 15th following the
fiscal year for which the award was granted or (2) the date the Grantee
attains age 58 or completes 20 years of service with the Company.
Currently, Mr. Valiaveedan is the only NEO who has not achieved the age or
service necessary for the accelerated vesting of his deferred share
awards. |
(IV) OPTION EXERCISES AND STOCK
VESTED IN FISCAL 2009
The following table
discloses information with respect to stock options exercised by the NEOs in
fiscal 2009 and stock awards held by them that vested in fiscal
2009:
Option Exercises and Stock Vested in
Fiscal 2009
|
Option
Awards |
|
Stock
Awards |
|
Number of |
|
|
|
|
|
Number of |
|
|
|
|
|
Shares Acquired |
|
Value Realized |
|
Shares Acquired |
|
Value Realized |
|
on Exercise |
|
on Exercise |
|
on Vesting |
|
on Vesting |
Name |
(#) |
|
($)
(1) |
|
(#) |
|
($) |
Kevork S. Hovnanian |
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
Ara K. Hovnanian (2) |
150,000 |
|
|
$ |
645,000 |
|
|
117,399 |
|
|
$ |
204,274 |
|
J. Larry Sorsby (3) |
— |
|
|
|
— |
|
|
42,764 |
|
|
$ |
74,409 |
|
Paul W. Buchanan |
— |
|
|
|
— |
|
|
15,348 |
|
|
$ |
27,756 |
|
Peter S. Reinhart (4) |
— |
|
|
|
— |
|
|
11,320 |
|
|
$ |
20,747 |
|
David
G.Valiaveedan |
— |
|
|
|
— |
|
|
673 |
|
|
$ |
2,921 |
|
(1) |
|
Based on the difference
between the market price of the Company’s Class A Common Stock on the NYSE
at the time of exercise of the option and the exercise price of the
option. |
(2) |
|
Option awards were exercised
on the date the grant was to expire. Upon vesting, 117,399 stock awards
shares of the Company’s Class B Common Stock were deferred into the
Company’s nonqualified deferred compensation plan for executives (“EDCP”)
in accordance with Mr. Hovnanian’s prior election. |
(3) |
|
Upon vesting, 42,764 stock
awards shares of the Company’s Class A Common Stock were deferred into the
Company’s nonqualified deferred compensation plan for executives (“EDCP”)
in accordance with Mr. Sorsby’s prior election. |
(4) |
|
Upon vesting 10,070 stock
awards shares of the Company’s class A Common Stock were deferred into the
Company’s nonqualified deferred compensation plan for executives (“EDCP”)
in accordance with Mr. Reinhart’s prior election.
|
35
(V) NONQUALIFIED DEFERRED
COMPENSATION FOR FISCAL 2009
The following table
provides a summary of the NEOs’ participation in the Company’s nonqualified
executive deferred compensation plan (“EDCP”) during fiscal 2009. Executives may
defer both salary and performance-based bonus award payments under the EDCP. Mr.
K. Hovnanian and Mr. Valiaveedan did not participate in the EDCP. For Mr.
Buchanan and Mr. Reinhart, the table also provides information regarding RSUs
that were considered to have vested in a prior fiscal year due to their
“retirement eligibility” because of age and/or years of service, but upon which
the underlying shares of Class A Common Stock have not yet been
delivered.
Nonqualified Deferred
Compensation for Fiscal 2009
|
Executive |
|
Registrant |
|
|
|
|
Aggregate |
|
Aggregate Balance |
|
Contributions in |
|
Contributions in |
|
Aggregate Earnings in |
|
Withdrawals/ |
|
at Last Fiscal |
Name |
|
Last Fiscal
Year (1) |
|
Last Fiscal
Year (2) |
|
Last Fiscal
Year (3) |
|
Distributions
(4) |
|
Year
(5) |
Kevork S. Hovnanian |
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Ara K. Hovnanian |
$ |
214,360 |
|
|
$ |
10,086 |
|
|
($31,186 |
) |
|
$ |
85,240 |
|
|
$ |
3,388,883 |
|
J. Larry Sorsby |
$ |
79,025 |
|
|
$ |
4,615 |
|
|
($35,269 |
) |
|
$ |
38,418 |
|
|
$ |
752,292 |
|
Paul W. Buchanan |
$ |
2,601 |
|
|
$ |
2,601 |
|
|
($15,524 |
) |
|
$ |
26,032 |
|
|
$ |
160,803 |
|
|
|
— |
|
|
|
— |
|
|
($3,563 |
) |
|
$ |
3,225 |
|
|
$ |
14,663 |
|
Peter S. Reinhart |
$ |
20,308 |
|
|
$ |
2,787 |
|
|
($10,291 |
) |
|
$ |
59,611 |
|
|
$ |
— |
|
|
|
— |
|
|
|
— |
|
|
($3,563 |
) |
|
$ |
3,225 |
|
|
$ |
14,663 |
|
David G.
Valiaveedan |
|
— |
|
|
|
— |
|
|
— |
|
|
|
— |
|
|
|
— |
|
(1) |
|
“Executive Contributions in
Last Fiscal Year” Column. This column represents (A) any
deferrals of cash compensation by the NEO (including deferrals in excess
of an NEO’s maximum 401(k) contribution amount (“401(k) excess” amount),
and (B) any deferred stock award which may have become vested in fiscal
2009 and was elected by the NEO to be deferred further under the EDCP. For
fiscal 2009, Mr. A. Hovnanian, Mr. Sorsby and Mr. Reinhart deferred
117,399 shares, 42,764 shares, and 10,070 shares, respectively, with the
market values of $204,274, $74,409, and $17,522, respectively, as of the
vesting date. The other NEOs’ contributions here principally represent
401(k) excess amounts which were deferred under the EDCP and which were
included in the “Salary” column of the Summary Compensation Table. In
addition, contributions under the EDCP also included deferrals of cash
bonus amounts included in the “Bonus” or “Non-Equity Incentive Plan
Compensation” column of the Summary Compensation
Table. |
|
|
|
(2) |
|
“Registrant
Contributions in Last Fiscal Year” Column. This column represents the
Company’s matching contributions to the accounts of the NEOs in fiscal
2009 in respect of the executive’s contributions. These values are also
reflected in the “All Other Compensation” column of the Summary
Compensation Table. See footnote (5) to the Summary Compensation
Table. |
|
|
|
(3) |
|
“Aggregate Earnings in
Last Fiscal Year” Column. This column represents the
unrealized earnings/(losses) of the EDCP’s total “account balance” as
described in the narrative below. For Mr. Buchanan and Mr. Reinhart, the
second row under their names represents earnings/(losses) on the
undelivered portion of the shares of Class A Common Stock underlying their
RSUs that had been considered vested in a prior fiscal year, which
earnings/(losses) have been “realized” only to the extent of the shares
delivered during fiscal 2009. No such earnings are considered above-market
or preferential and, accordingly, are not included in the Summary
Compensation Table. |
|
|
|
(4) |
|
“Aggregate
Withdrawals/Distribution” Column. This column represents the
payouts or distributions to the NEOs of vested amounts of deferred
compensation pursuant to their elections. For Mr. Buchanan and Mr.
Reinhart, the second row under their names represents the value “realized”
upon the delivery of the first 25% of the shares of Class A Common Stock
underlying their RSUs that had been considered vested in a prior fiscal
year, based upon the market price of the Company’s Class A Common Stock on
the NYSE at the time of delivery. |
|
|
|
(5) |
|
“Aggregate Balance at
Last Fiscal Year” Column. This column represents the net
balance of the NEOs’ EDCP accounts as of October 31, 2009 based on an
aggregation of all sub-accounts (discussed below). The majority of such
balances reflects executive and Company contributions that were included
in Summary Compensation tables in previous years. For Mr. Buchanan and Mr.
Reinhart, the second row under their names represents the market value of
the remaining undelivered portion of the shares of Class A Common Stock
underlying their RSUs that had been considered vested in a prior fiscal
year, based upon the market price of the Company’s Class A Common Stock of
the NYSE as of October 30, 2009, the last trading day prior to fiscal
year-end. The grant date fair value of these shares ($80,438) is included
in the Summary Compensation Table in a previous
year. |
36
Narrative to the Non-Qualified
Deferred Compensation Table for Fiscal 2009
Total Account
Balances
The EDCP’s
total account balance is equal to the sum of (1) the “Deferral Account” balance,
(2) the “Company Contribution Account” balance and (3) the “Deferred Share
Deferral Account” balance. The “Deferral Account” balance amount includes that
portion of a participant’s annual base salary, cash bonus and any “401(k)
excess” contribution amount, as elected by the participant, that is deferred in
accordance with the EDCP’s provisions. The “Company Contribution Amount” balance
consists of the annual company matching contribution amounts under the plan. The
“Deferred Share Deferral Account” balance includes the value of vested stock
awarded under any Company stock incentive plan for which shares may have been
deferred under the EDCP.
EDCP’s Election
Options
In connection
with the cash payments deferred under the EDCP, a participant may elect one or
more of the “Measurement Funds” available under the EDCP, for the purpose of
crediting or debiting additional amounts to his or her Account
Balance:
Fund Class |
|
Measurement
Fund |
Money Market Fund |
|
Vanguard VIF Money Market |
Income |
|
PIMCo (VIT) Total Return Bond |
Income |
|
Vanguard VIF Hi-Yield Bond |
Balanced |
|
Vanguard VIF Balanced |
Large Growth |
|
Vanguard VIF Capital Growth |
Large Value |
|
T. Rowe Price Equity Income Portfolio |
Mid Cap |
|
T. Rowe Price Mid-Cap
Growth |
Small/Mid Value |
|
First Eagle Overseas |
Small Value |
|
Royce Micro-Cap |
Small Growth |
|
Vanguard VIF Small Company |
Aggressive-Growth |
|
INVESCO (VIF) Dynamics |
Foreign Large Blend |
|
T. Rowe Price International |
37
(VI) POTENTIAL PAYMENTS UPON
TERMINATION OR CHANGE-IN-CONTROL TABLE
The following table
summarizes payments and benefits that would be payable to each of the NEOs in
the event of their termination of employment or upon the occurrence of a change
in control (“triggering event”). For purposes of this table, the effective date
of termination is assumed to be October 30, 2009, the last business day of
fiscal 2009.
Potential Payments Upon
Termination Or Change-In-Control Table |
Named Executive
Officer |
|
Voluntary
Termination |
|
Involuntary
Termination |
|
Change in
Control |
|
|
|
|
|
|
|
|
|
|
|
|
Without |
|
With |
|
|
With
Good |
|
Normal |
|
Without |
|
With |
|
Death or |
|
Qualified |
|
Qualified |
Form of
Compensation |
|
Reason |
|
Retirement |
|
Cause |
|
Cause |
|
Disability |
|
Termination |
|
Termination |
Kevork S. Hovnanian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards
(1) |
|
$444,700 |
|
$444,700 |
|
$444,700 |
|
— |
|
$444,700 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total |
|
$444,700 |
|
$444,700 |
|
$444,700 |
|
— |
|
$444,700 |
|
— |
|
— |
|
Ara K. Hovnanian |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards
(1) |
|
— |
|
— |
|
$699,500 |
|
— |
|
$699,500 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
— |
|
— |
|
— |
|
— |
|
$510,000 |
|
— |
|
— |
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
$10,000,000 |
|
— |
|
— |
Total |
|
— |
|
— |
|
$699,500 |
|
— |
|
$11,209,500 |
|
— |
|
— |
|
J. Larry Sorsby |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards (1) |
|
— |
|
— |
|
$254,800 |
|
— |
|
$254,800 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
— |
|
— |
|
— |
|
— |
|
$102,000 |
|
— |
|
— |
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total |
|
— |
|
— |
|
$254,800 |
|
— |
|
$356,800 |
|
— |
|
— |
|
Paul W. Buchanan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards (1) |
|
$86,100 |
|
$86,100 |
|
$86,100 |
|
— |
|
$86,100 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
$48,663 |
|
$48,663 |
|
|
|
|
|
$48,663 |
|
|
|
|
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total |
|
$134,763 |
|
$134,763 |
|
$86,100 |
|
— |
|
$134,763 |
|
— |
|
— |
|
Peter S. Reinhart |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards (1) |
|
$61,500 |
|
$61,500 |
|
$61,500 |
|
— |
|
$61,500 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
$48,663 |
|
$48,663 |
|
— |
|
— |
|
$48,663 |
|
— |
|
— |
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total |
|
$110,163 |
|
$110,163 |
|
$61,500 |
|
— |
|
$110,163 |
|
— |
|
— |
|
David G. Valiaveedan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated vesting of cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
performance-based awards (1) |
|
— |
|
— |
|
$67,500 |
|
— |
|
$67,500 |
|
— |
|
— |
Accelerated vesting of equity awards
(2) |
|
— |
|
— |
|
— |
|
— |
|
$63,241 |
|
— |
|
— |
Contractual Disability/Death Payment (3) |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
|
— |
Total |
|
— |
|
— |
|
$67,500 |
|
— |
|
$130,741 |
|
— |
|
— |
For purposes of this table presentation, consideration of the forms of
compensation or additional payments or benefits to an NEO in the event of a
triggering event include:
(1) |
|
Accelerated vesting
of cash performance-based awards. According to the Company’s bonus
program’s policies and procedures, the cash portion of an NEO’s total 2009
performance-based bonus award is considered earned only if he is on the
payroll and employed by the Company on the scheduled date that it is paid.
However, if an NEO’s termination were due to retirement on or after age
58, a reduction in force, position elimination, death or disability, the
NEO would be eligible for a prorated payment through his termination date,
less any amounts previously paid. The values in the table represent 100%
of the NEOs’ fiscal 2009 bonuses that were payable no later than January
15, 2010. |
38
(2) Accelerated vesting of equity
awards.
- Deferred Share
Awards. No deferred shares were awarded in fiscal 2009 because
100% of the bonus awards were paid in cash. As of October 30, 2009, Mr.
Valiaveedan had 9,318 deferred share awards that would vest upon termination
due to death or disability.
- Option and Restricted Stock Unit
Awards. On October 30, 2009, the closing market price of the
Company’s stock was $3.91. Under circumstances other than death, disability or
qualified retirement, any unvested stock options are cancelled in accordance
with the Company’s stock option agreements.
(3) Contractual Disability and
Death Payment.
- Mr. Ara Hovnanian’s
contractual arrangement: In February 2006, the Company entered
into an agreement with Mr. A. Hovnanian, which provides that in the event of
his disability or death during his employment with the Company he (or his
designated beneficiary, estate or legal representative) will be entitled to
receive a lump sum payment of $10 million. This agreement replaced a
pre-existing agreement in which Mr. A Hovnanian (or his legal representative
or estate) would have received, in the event of his disability or death during
his employment with the Company, payments equal to the average of the sum of
his annual base salary and the annual bonus amount earned by him in respect of
the three full preceding calendar years.
For purposes of this table, the following programs were also
considered.
- Base salary continuation
plan payments. The Company does not maintain such plans.
- Contractual
disability/death payments. Only Mr. Ara Hovnanian has this arrangement, which is described
under footnote (3) above.
- Other perquisites and
benefits. There are no existing severance arrangements or
policies which would extend perquisites or other benefits to the NEOs upon a
triggering event that would not otherwise be also available to any employee of
the Company.
(VII) NON-EMPLOYEE DIRECTOR
COMPENSATION FOR FISCAL
2009
The Committee annually reviews the
compensation program for directors who are not employees of the Company and
makes recommendations to the Board of Directors for their approval. The
compensation program for non-employee Directors has not changed since fiscal
2006 when the Committee reviewed a study of non-employee Director compensation
involving the Company’s Peer Group prepared by PM&P. In December 2008, the
Board of Directors approved the following non-employee Director benefits for
fiscal 2009, which reflected no changes since fiscal 2006 except as discussed
below:
- Annual retainer of $40,000 with an additional retainer of
$20,000 for each committee on which a Director serves (each paid 50% in cash
and 50% in stock);
- Annual grant of 5,000 stock options with an additional 2,000
stock options for each committee on which a Director serves; and
- Meeting fees of $3,000 per Board meeting held in person,
$2,000 per telephonic Board meeting, $5,000 per Committee meeting held in
person and $2,500 per telephonic Committee meeting.
For fiscal 2009, after consideration of the
grant date fair value of stock option grants in comparison with historical grant
values and information on general industry director compensation levels, as well
as the added value and guidance the non-employee directors provided in the
strategic decisions concerning the Company’s capital structure and refinancing
of the Company’s debt, the Committee recommended and the Board of Directors
approved, additional stock option grants of 10,000 annual stock options and
4,000 stock options for each committee on which a director serves. The total
value of stock and stock option awards for fiscal 2009 approximates the median
for general industry companies with similar revenue size. The Committee will
continue to review the director compensation program annually to determine
whether such additional stock option grants or other changes may be needed for
fiscal 2010.
For additional information related to
non-employee Director compensation, please also refer to the “Director
Compensation for Fiscal 2009” table
below.
In conjunction with promoting high ethical standards for the distribution
of equity-based incentives, the Committee also established the second Friday in
January of each year as the date for payment of the non-employee director Board
retainer and the date for establishment of the stock price for purposes of
calculation of the stock portion of the non-employee Director Board
retainer.
39
The following table summarizes the compensation of the Company’s
Non-Employee Directors related to their services in fiscal 2009.
Director Compensation for Fiscal
2009
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Value |
|
|
|
|
|
|
Fees |
|
|
|
|
|
|
|
|
|
and Nonqualified |
|
|
|
|
|
|
Earned |
|
|
|
|
|
|
|
Non-Equity |
|
Deferred |
|
|
|
|
|
|
or Paid in |
|
Stock |
|
Option |
|
Incentive Plan |
|
Compensation |
|
All Other |
|
|
|
Name |
Cash
(1) |
|
Awards
(2) |
|
Awards (3)
|
|
Compensation |
|
Earnings |
|
Compensation |
|
Total |
Robert B. Coutts |
$ |
73,501 |
|
$ |
29,999 |
|
$ |
38,640 |
|
— |
|
— |
|
— |
|
$ |
142,140 |
Edward A. Kangas |
$ |
151,001 |
|
$ |
49,999 |
|
$ |
60,720 |
|
— |
|
— |
|
— |
|
$ |
261,720 |
Joseph A. Marengi |
$ |
61,001 |
|
$ |
29,999 |
|
$ |
38,640 |
|
— |
|
— |
|
— |
|
$ |
129,640 |
John J. Robbins |
$ |
91,001 |
|
$ |
29,999 |
|
$ |
38,640 |
|
— |
|
— |
|
— |
|
$ |
159,640 |
Stephen D.
Weinroth |
$ |
146,001 |
|
$ |
49,999 |
|
$ |
60,720 |
|
— |
|
— |
|
— |
|
$ |
256,720 |
(1) “Fees Earned or Paid in Cash”
Column. The amounts in this column represent the combined value of fiscal 2009
annual retainer and meeting fees paid in cash (including approximately 50% of
the total annual retainer fee) as shown below. The remaining approximately 50%
of the total annual retainer fee is paid in shares of the Company’s Class A
Common Stock. For a full description of the annual retainer and meeting fees, share
awards and stock option awards to non-employee directors, see the discussion
preceding this table.
Total Fees Earned and Paid in Cash
(Supplemental Table)
|
|
|
|
FY09 Annual Retainer Fees |
|
|
|
|
FY09 |
|
Cash Payment |
|
|
|
|
Meeting |
|
(represents 50% of the total |
|
Cash |
Name |
Fees |
|
Annual Retainer Fees)
(a) |
|
Total |
Robert B. Coutts |
$ |
43,500 |
|
$30,001 |
|
$ |
73,501 |
Edward A. Kangas |
$ |
101,000 |
|
$50,001 |
|
$ |
151,001 |
Joseph A. Marengi |
$ |
31,000 |
|
$30,001 |
|
$ |
61,001 |
John J. Robbins |
$ |
61,000 |
|
$30,001 |
|
$ |
91,001 |
Stephen D.
Weinroth |
$ |
96,000 |
|
$50,001 |
|
$ |
146,001 |
(a) Subject to rounding. |
|
|
|
|
|
|
|
(2) “Stock Awards”
Column. The amounts in this column represent the remaining 50% of the total
annual retainer fee paid in shares of the Company’s Class A Common Stock for
fiscal 2009 computed in accordance with FASB ASC Topic 718 as shown in the table
below. The assumptions used in the calculation of these amounts are included in
footnotes 3 and 15 to the Company’s audited financial statements for fiscal 2009
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
October 31, 2009.
Total Annual Retainer (Supplemental
Table)
|
|
|
|
|
FY09 Annual Retainer |
|
|
|
|
|
|
|
|
Fees Cash Payment |
|
|
|
|
FY09 Annual Retainer Fees |
|
|
|
(represents 50% of the |
|
Total |
|
Stock Payment (represents |
|
Number |
|
total Annual Retainer |
|
Annual |
|
50% of the total Annual |
|
of Shares |
|
Fees; also shown in |
|
Retainer for |
Name |
Retainer Fees) (a)
(b) |
|
Represented |
|
footnote (1) above)
(b) |
|
Fiscal
2009 |
Robert B. Coutts |
$29,999 |
|
12,820 |
|
$30,001 |
|
$ |
60,000 |
Edward A. Kangas |
$49,999 |
|
21,367 |
|
$50,001 |
|
$ |
100,000 |
Joseph A. Marengi |
$29,999 |
|
12,820 |
|
$30,001 |
|
$ |
60,000 |
John J. Robbins |
$29,999 |
|
12,820 |
|
$30,001 |
|
$ |
60,000 |
Stephen D. Weinroth |
$49,999 |
|
21,367 |
|
$50,001 |
|
$ |
100,000 |
(a) Non-employee
Director stock awards have no vesting restrictions and are valued as of
the market value on the day of grant. |
(b) Subject to
rounding.
|
(3) “Option Awards”
Column. The amounts in this column reflect stock options awarded in fiscal 2009
and are based on the grant date fair value of the option awards computed in
accordance with FASB ASC Topic 718. Assumptions used in this calculation of
these amounts are set forth in footnotes 3 and 15 to the Company’s audited
financial statements for fiscal 2009 included in the Company’s Annual Report on
Form 10-K for the fiscal year ended October 31, 2009.
40
The following table discloses the grant date fair value (based on
Black-Scholes option pricing model) for the total stock options granted to
Non-Employee Directors in fiscal 2009:
|
Number of Options |
|
Option Fair |
|
|
|
Granted (as of June 12, |
|
Value per Share |
|
Total Grant |
Non-Employee Director |
2009 grant date)
(a) |
|
at Grant Date |
|
Date Fair
Value |
Robert B. Coutts |
21,000 |
|
$1.84 |
|
$38,640 |
Edward
A. Kangas |
33,000 |
|
$1.84 |
|
$60,720 |
Joseph A. Marengi |
21,000 |
|
$1.84 |
|
$38,640 |
John J.
Robbins |
21,000 |
|
$1.84 |
|
$38,640 |
Stephen D.
Weinroth |
33,000 |
|
$1.84 |
|
$60,720 |
(a) For fiscal 2009, non-employee Directors
were granted 15,000 stock options for serving on the Company’s Board of
Directors and an additional 6,000 stock options for each Board committee
on which the non-employee director
served.
|
The following table shows the total numbers of all unexercised stock
options (exercisable and unexercisable) that each of the non-employee directors
held at the end of fiscal 2009:
Outstanding Option Awards at Fiscal
2009 Year-End (Supplemental Table)
|
|
|
Number of |
|
Number of |
|
Equity Incentive |
|
|
|
|
|
|
|
Securities |
|
Securities |
|
Plan Awards: |
|
|
|
|
|
|
|
Underlying |
|
Underlying |
|
Number of Securities |
|
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Underlying |
|
Option |
|
|
|
Grant date |
|
Options # |
|
Options # |
|
Unexercised Unearned |
|
Exercise |
|
Option |
Name |
(a) |
|
Exercisable |
|
Unexercisable |
|
Options # |
|
Price ($) |
|
Expiration Date |
Robert B. Coutts |
6/13/08 |
|
2,333 |
|
4,667 |
|
— |
|
$6.46 |
|
6/12/18 |
|
6/12/09 |
|
— |
|
21,000 |
|
— |
|
$2.55 |
|
6/11/19 |
|
Edward A. Kangas |
6/13/08 |
|
3,667 |
|
7,333 |
|
— |
|
$6.46 |
|
6/12/18 |
|
6/12/09 |
|
— |
|
33,000 |
|
— |
|
$2.55 |
|
6/11/19 |
|
Joseph A. Marengi |
6/13/08 |
|
2,333 |
|
4,667 |
|
— |
|
$6.46 |
|
6/12/18 |
|
6/12/09 |
|
— |
|
21,000 |
|
— |
|
$2.55 |
|
6/11/19 |
|
John J. Robbins |
11/06/01 |
|
5,000 |
|
— |
|
— |
|
$5.58 |
|
11/05/11 |
|
6/13/08 |
|
2,333 |
|
4,667 |
|
— |
|
$6.46 |
|
6/12/18 |
|
6/12/09 |
|
— |
|
21,000 |
|
— |
|
$2.55 |
|
6/11/19 |
|
Stephen D. Weinroth |
11/06/01 |
|
10,000 |
|
— |
|
— |
|
$5.58 |
|
11/05/11 |
|
6/13/08 |
|
3,667 |
|
7,333 |
|
— |
|
$6.46 |
|
6/12/18 |
|
6/12/09 |
|
— |
|
33,000 |
|
— |
|
$2.55 |
|
6/11/19 |
(a) Stock options vest one-third per year
beginning on the first anniversary of the date of grant. If prior to the
stock option termination date the non-management Director ceases to be a
member of the Board of Directors due to death, disability or Retirement,
the stock option, to the extent not previously vested and exercised,
immediately becomes fully vested and exercisable and remains exercisable
until the earlier of (1) the stock option termination date and (2) the
first anniversary of the non-management Director’s death, disability, or
Retirement. “Retirement” is defined as termination as a member of the
Board of Directors on or after age 60, or on or after age 58 with at least
15 years of Service to the Company immediately preceding such
termination.
|
41
THE AUDIT
COMMITTEE
Membership, Independence, &
Qualifications
Messrs. Kangas, as Chairman, Robbins and
Weinroth are the members of the Audit Committee. In the judgment of the
Company’s Board of Directors, each member of the Audit Committee is independent
as required by both the rules of the NYSE and regulations of the SEC, and an
“audit committee financial expert” in accordance with SEC
regulations.
Responsibilities of the Audit
Committee &
Charter
The Audit Committee oversees the Company’s
financial reporting process on behalf of the Board of Directors and is governed
by its Charter, which was adopted in March 2000 and last amended on February 6,
2008. The Audit Committee Charter is available on the Company’s public website,
www.khov.com, under “Investor Relations/Corporate Governance.”
Policies & Procedures Established
By Audit Committee
In accordance with SEC regulations, the Audit
Committee has established procedures for the appointment, compensation,
retention and oversight of the independent registered public accounting firm
engaged to prepare or issue an audit report or other audit, review, or attest
services. The Company’s independent registered public accounting firm will
report directly to the Audit Committee, and the Audit Committee is responsible
for the resolution of disagreements between such firm and management regarding
financial reporting.
In fiscal year 2003, the Audit Committee
established whistle blowing procedures as required by Section 301 of the
Sarbanes-Oxley Act of 2002 and Section 303A.07(c)(iii) of the NYSE Corporate
Governance Rules. These procedures are discussed in the Company’s Code of Ethics
(Section IV.G.) which is available on the Company’s public website at
www.khov.com under “Investor Relations/Governance.”
Audit and Non-Audit Services
Pre-Approval Policy
The Audit Committee has also established
procedures for the pre-approval of audit and non-audit services provided by an
independent registered public accounting firm. The Company’s “Audit and
Non-Audit Services Pre-Approval Policy” (“Pre-Approval Policy”) was most
recently reviewed and approved by the Audit Committee at its meeting held on
October 15, 2009.
As set forth in the Pre-Approval Policy, audit
services require specific approval by the Audit Committee, except for certain
services that have received general pre-approval by the Audit
Committee.
In accordance with the Pre-Approval Policy,
the Audit Committee annually reviews and pre-approves the services that may be
provided by the independent registered public accounting firm without obtaining
specific pre-approval from the Audit Committee. Prior to establishing the list
of pre-approved services, the Audit Committee determines if the Company’s
independent registered public accounting firm is an effective provider of
services. The Audit Committee may revise the list of general pre-approved
services from time to time, based on subsequent determinations. For fiscal year
2010, there are four categories of services that have received general
pre-approval by the Audit Committee: Audit, Audit-Related, Tax and All Other
Services and the pre-approved dollar amount for such services may not exceed
$100,000 per engagement.
The Audit Committee may delegate to one or
more of its members the authority to approve in advance all significant audit or
permitted non-audit services to be provided by the independent registered public
accounting firm, so long as decisions are presented to the full Audit Committee
at its next scheduled meeting.
THE AUDIT COMMITTEE
REPORT
Management has the primary responsibility for
the financial statements and the reporting process, including the systems of
internal controls. In fulfilling its oversight responsibilities, the Audit
Committee has reviewed the audited financial statements included in the Annual
Report on Form 10-K with management. This review included a discussion of the
quality, not just the acceptability, of the accounting principles, the
reasonableness of significant judgments, and the clarity of disclosures in the
financial statements.
42
The Audit Committee has reviewed with the independent registered public
accounting firm, which is responsible for expressing an opinion on the
conformity of those audited financial statements with generally accepted
accounting principles:
- the overall scope and plans for such accounting firm’s
respective audits of the Company,
- such accounting firm’s judgments as to the quality, not just
the acceptability, of the Company’s accounting principles,
- such accounting firm’s independence from management and the
Company, including matters in the written disclosures and the letter from the
independent registered public accounting firm required by Rule 3526 of the
Public Accounting Oversight Board, “Communication with Audit Committees
Concerning Independence,” and received by the Company, and
- such other matters as are required to be discussed with the
Audit Committee under generally accepted auditing standards and under
Statements on Auditing Standards No. 61, as amended (AICPA, Professional
Standards Vol. I. AU Section 380), as adopted by the Public Company Accounting
Oversight Board, which we refer to as the PCAOB, in Rule 3200T, other
standards of the PCAOB, rules of the Securities and Exchange Commission, and
other applicable regulations.
The Audit Committee, as part of its Charter,
reviews quarterly with management the Company’s financial statements prior to
their being filed with the SEC. In addition, the Audit Committee, in reliance on
the reviews and discussions referred to above, recommended to the Board of
Directors that the audited financial statements be included in the Company’s
Annual Report on Form 10-K for the year ended October 31, 2009, which was filed
with the SEC on December 22, 2009.
|
AUDIT COMMITTEE |
|
|
|
Edward A. Kangas,
Chair |
|
John J. Robbins |
|
Stephen D.
Weinroth |
43
FEES PAID TO PRINCIPAL
ACCOUNTANT
Audit
Fees
The aggregate fees billed by Deloitte &
Touche LLC in each of fiscal years 2009 and 2008 for professional services
rendered for the audit of our consolidated financial statements, for the reviews
of the unaudited condensed consolidated financial statements included in our
Quarterly Reports on Form 10-Q for the quarterly periods during fiscal years
2009 and 2008, the audit of the effectiveness of the Company’s internal control
over financial reporting as of October 31, 2009 and 2008, or for services
normally provided by our independent registered public accounting firm in
connection with statutory or regulatory filings or engagements, including
comfort and consent letters in connection with SEC filings and financing
transactions, were $2,761,000 and zero, respectively. The aggregate fees billed
by Ernst & Young LLP in each of fiscal years 2009 and 2008 for these audit
services were $370,000 and $3,689,000, respectively.
Audit-Related
Fees
The aggregate fees billed by Deloitte &
Touche LLC in each of fiscal years 2009 and 2008 for assurance and related
services that were reasonably related to performance of the audit or review of
the Company’s consolidated financial statements and that are not reported under
“Audit Fees” above were $3,000 and zero, respectively. These services consisted
of employee benefit plan audits, and accounting consultation. The aggregate fees
billed by Ernst & Young LLP in each of fiscal years 2009 and 2008 for these
audit related services were $271,000 and $72,000, respectively.
Tax
Fees
The aggregate fees billed by Deloitte &
Touche LLC in each of fiscal years 2009 and 2008 for professional services
rendered for tax compliance, tax advice and tax planning were $536,000 and
$320,000, respectively. The aggregate fees billed by Ernst & Young LLP in
each of fiscal years 2009 and 2008 for these tax services were $185,000 and
$590,000, respectively.
All Other
Fees
There were no fees billed for products and
services provided by Deloitte & Touche LLC in fiscal year 2009 and Ernst
& Young LLP, in each of fiscal year 2009 and fiscal year 2008, other than
the services described above.
Pre-Approval Policies and
Procedures
All of the services covered under the captions
“Audit-Related Fees”, “Tax Fees” and “All Other Fees” were pre-approved by the
Audit Committee. For a discussion of the Audit Committee’s pre-approval policies
and procedures, see “The Audit Committee” above.
PRINCIPAL ACCOUNTANT
INDEPENDENCE
The Audit Committee has determined that the
provision of all non-audit services performed by Deloitte & Touche LLC and
Ernst & Young LLP were compatible with maintaining the independence of each
firm.
CORPORATE
GOVERNANCE
The Corporate Governance and Nominating
Committee is primarily responsible for reviewing the Company’s existing
Corporate Governance Guidelines and further developing such guidelines and other
policies and procedures that enhance the Company’s corporate
governance.
In accordance with promoting strong corporate
governance, the Company has adopted a Code of Ethics that applies to its
principal executive officer, principal financial officer, controller and all
other associates of the Company, including its Directors and other officers. The
Company has also adopted Corporate Governance
Guidelines.
The Company makes available to the public
various corporate governance related information on its public website
(www.khov.com) under “Investor Relations/Governance” and to any shareholder who
requests such information in writing. Information on the website includes the
Company’s Code of Ethics, Corporate Governance Guidelines (including the Related
Person Transaction Policy) and Committee Charters, including the Audit Committee
Charter, the Compensation Committee Charter, and the Corporate Governance and
Nominating Committee Charter.
44
Shareholders, associates of the Company and other interested parties may
communicate directly with the Board of Directors by corresponding to the address
below. Correspondence will be discussed at the next scheduled meeting of the
Board of Directors, or as indicated by the urgency of the matter.
Attn: Board of Directors
of Hovnanian Enterprises, Inc.
c/o Mr. Edward A. Kangas, Director &
Chairman of the Audit Committee
Privileged & Confidential
Hovnanian
Enterprises, Inc.
110 West
Front Street
P.O. Box 500
Red Bank, N.J. 07701
The Company’s non-employee Directors meet without management after each
regularly scheduled meeting of the Board of Directors. The presiding Director is
selected at each meeting by the directors in attendance. Shareholders,
associates of the Company and other interested parties may communicate directly
with non-employee Directors as a group by corresponding to the address below.
Members of the non-employee Director group include: Messrs. Coutts, Kangas,
Marengi, Robbins and Weinroth. All non-employee Directors are “independent” in
accordance with NYSE rules. Mr. Kangas will report to all non-employee Directors
any correspondence which is received by him as indicated by the urgency of the
matter, or at the next scheduled meeting of non-employee Directors.
Attn: Non-Employee
Directors of Hovnanian Enterprises, Inc.
c/o Mr. Edward A. Kangas, Director
& Chairman of the Audit Committee
Privileged & Confidential
Hovnanian Enterprises, Inc.
110 West Front Street
P.O. Box 500
Red Bank, N.J.
07701
In addition, associates of the Company may anonymously report concerns or
complaints via the K. Hovnanian Corporate Governance Hotline or by following the
procedure discussed in the Company’s Code of Ethics.
OVERSIGHT OF RISK
MANAGEMENT
The Company is exposed to a number of risks
and undertakes at least annually an Enterprise Risk Management review to
identify and evaluate these risks and to develop plans to manage them
effectively. The Company’s Executive Vice President and Chief Financial Officer,
Mr. Sorsby (who is himself a member of the Board of Directors) is directly
responsible for the Company’s Enterprise Risk Management function and reports
both to the President and Chief Executive Officer and to the Audit Committee in
this capacity. In fulfilling his risk management responsibilities, the CFO works
closely with members of senior management, including the Senior Vice-President
and General Counsel, Vice-President of Risk Management, Senior Vice-President of
Human Resources, Vice-President of Information Services, Vice-President of Audit
Services, and others.
On behalf of the Board
of Directors, the Audit Committee plays a key role in the oversight of the
Company’s Enterprise Risk
Management function. In that regard, the CFO meets with the Audit Committee at
least four times a year to discuss the risks facing the Company, highlighting
any new risks that may have arisen since they last met. The Audit Committee also
reports to the Board of Directors on a regular basis to apprise them of their
discussions with the CFO regarding the Company’s Enterprise Risk Management
efforts. Finally, the CFO reports directly to the Board of Directors on at least
an annual basis to apprise them directly of the Company’s Enterprise Risk
Management efforts.
LEADERSHIP
STRUCTURE
From 1997 to 2009 the Company had separate
individuals serving as Chairman of the Board and as Chief Executive Officer.
This structure reflected the continuing strong leadership, energy and passion
brought to the Board of Directors by our founder, Mr. K. Hovnanian, and the
day-to-day management direction of the Company under Mr. A. Hovnanian as
President and CEO. Following the death of Mr. K. Hovnanian in September 2009,
the Board of Directors appointed Mr. A. Hovnanian to the additional position of
Chairman,
45
believing that his more
than 30 years of service to the Company, vast industry experience and close
relationship with our founder uniquely qualified him for this role. The Board of
Directors believes that combining these positions under Mr. A. Hovnanian’s
leadership will enable him to carry on the tradition of a strong leader that has
always marked this family-controlled company and to successfully navigate the
Company through the current challenging economic environment, as well as future
challenges.
Although the Board of Directors has not
formally designated a lead independent Director, Mr. Kangas, the chairman of the
Audit Committee, serves as the Director to whom correspondence may be directed
on behalf of both the Board of Directors and the non-employee Directors, as
described above under “Corporate Governance” on pages 44 and 45.
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
The Board has adopted a written Related Person
Transaction Policy (the “Related Person Transaction Policy”) to assist it in
reviewing, approving and ratifying related person transactions and to assist the
Company in the preparation of related disclosures required by the SEC. This
Related Person Transaction Policy supplements the Company’s other policies that
may apply to transactions with related persons, such as the Company’s Corporate
Governance Guidelines and its Code of
Ethics.
The Related Person Transaction Policy provides that all Related Person
Transactions covered by the Related Person Transaction Policy and involving a
director, director nominees, executive officer or greater than 5% shareholder or
an immediate family member of any such person are prohibited, unless approved or
ratified by the disinterested members of the Board of Directors or the Corporate
Governance and Nominating Committee. The Company’s employees, directors,
director nominees, executive officers and their immediate family members are
required to provide prompt and detailed notice of any purported Related Person
Transaction (as defined in the Related Person Transaction Policy) to the
Company’s General Counsel or Chief Financial Officer, who in turn must promptly
forward such notice and information to the Chairperson of the Board of Directors
or the Corporate Governance and Nominating Committee and will advise the
Corporate Governance and Nominating Committee or disinterested directors as to
whether the Related Person Transaction will be required to be disclosed in
applicable regulatory filings. The Company’s General Counsel will document all
non-reportable and reportable Related Person
Transactions.
In reviewing Related Person Transactions for
approval or ratification, the Corporate Governance and Nominating Committee or
disinterested directors will consider the relevant facts and circumstances,
including, without limitation:
- the commercial reasonableness of the terms;
- the benefit and perceived benefit (or lack thereof) to the
Company;
- opportunity costs of alternate transactions;
- the materiality and character of the related person’s direct
or indirect interest, and the actual or apparent conflict of interest of the
related person; and
- with respect to a non-employee director or nominee, whether
the transaction would compromise the director’s (1) independence under the
NYSE rules and Rule 10A-3 of the Exchange Act, if such non-employee director
serves on the Audit Committee; (2) independence under the Company’s Amended
Certificate of Incorporation; (3) status as an outside director under Section
162(m) of the Internal Revenue Code if such non-employee director serves on
the Compensation Committee; or (4) status as a “non-employee director” under
Rule 16b-3 of the Exchange Act if such non-employee director serves on the
Compensation Committee.
The Corporate Governance and Nominating Committee or the disinterested
directors will not approve or ratify a Related Person Transaction unless, after
considering all relevant information, it has determined that the transaction is
in, or is not inconsistent with, the Company’s best interests and the best
interests of its shareholders.
Generally, the Related
Person Transaction Policy applies to any current or proposed transaction in
which:
- the Company was or is to be a participant;
- the amount involved exceeds $120,000; and
- any related person had or will have a direct or indirect
material interest.
A copy of our Related Person Transaction
Policy is available as part of our Corporate Governance Guidelines on our
website at www.khov.com under “Investors Relations/Governance.”
46
Relationships
Mr. K. Hovnanian, the Chairman of the Board of
Directors until his death on September 24, 2009, was the father of Mr. A.
Hovnanian, the President and Chief Executive Officer and now the Chairman of the
Board of Directors. Prior to November 4, 2009, Mr. A. Hovnanian was the
President and Chief Executive Officer and Vice Chairman of the Board of
Directors.
Related Person
Transactions
The related transactions discussed below were
entered into prior to the adoption of our Related Person Transaction Policy and
were approved by the Board of
Directors.
During the year ended October 31, 2003, we
entered into an agreement to purchase land in California for approximately $31.1
million from an entity that is owned by a family relative of our Chief Executive
Officer and our former Chairman of the Board. As of October 31, 2009, we have an
option deposit of $3.2 million related to this land acquisition agreement. In
connection with this agreement, we also have consolidated $9.7 million in
accordance with ASC 810-10 under “Consolidated inventory not owned” in the
Consolidated Balance Sheets. Neither the Company nor the Chief Executive Officer
nor the former Chairman of the Board has or had a financial interest in the
relative’s company from whom the land was
purchased.
During the year ended October 31, 2001, we
entered into an agreement to purchase land from an entity that is owned by a
family relative of our Chief Executive Officer and our former Chairman of the
Board, totalling $26.9 million. As of October 31, 2008, all of this property has
been purchased, and during fiscal 2008, the Company delivered the remaining four
lots that were in inventory. Neither the Company nor the Chief Executive Officer
nor the former Chairman of the Board has or had a financial interest in the
relative’s company from whom the land was
purchased.
During the years ended October 31, 2009, 2008,
2007 and 2006, an engineering firm owned by a relative of our Chief Executive
Officer and our former Chairman of the Board provided services to the Company
totalling $1.7 million, $2.6 million, $3.6 million, and $5.0 million,
respectively. Neither the Company nor our Chief Executive Officer nor our former
Chairman of the Board has or had a financial interest in the relative’s company
from which the services were
provided.
In December 2005, we entered into an agreement
to purchase land in New Jersey from an entity that is owned by family relatives
of our Chief Executive Officer and former Chairman of the Board at a base price
of $25 million. The land will be acquired in four phases over a period of 3
years from the date of acquisition of the first phase. On June 11, 2008, the
parties amended the purchase agreement and closed title to 43 of the 86 homes in
phase one. The purchase of the balance of phase one was deferred, but such
purchase must occur simultaneously with the scheduled closing of any of the
three remaining phases. The purchase prices for all phases are subject to an
increase in the purchase price for the phase of not less than 7% per annum from
February 1, 2008; a deposit in the amount of $500,000 has been made by the
Company. On November 12, 2009, the parties closed title to 83 homes located in
phase two. The purchase prices for all phases are subject to an increase in the
purchase price for the phase of not less than 7% per annum compound interest
increase from February 1, 2008; a deposit in the amount of $500,000 has been
made by the Company. Neither the Company nor the Chief Executive Officer nor the
former Chairman of the Board has or had a financial interest in the relatives’
company from whom the land will be purchased.
47
IMPORTANT NOTICE REGARDING THE
AVAILABILITY OF PROXY MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MARCH
16, 2010.
Our
2010 proxy statement, the Company’s Annual Report to Shareholders for the year
ended October 31, 2009 (which is not deemed to be part of the official proxy
soliciting materials), proxy cards (for Class A Common Stock shareholders and
registered Class B Common Stock shareholders) and any amendments to the
foregoing materials that are required to be furnished to shareholders are
available online at
www.proxyvote.com.
For information on how to obtain directions to
the Company’s 2010 Annual Meeting, please call our Investor Relations department
at 1-800-815-9680.
GENERAL
Solicitation
The solicitation of proxies is being made
primarily by mail, but directors, officers, employees, and contractors retained
by us may also engage in the solicitation of proxies by telephone. The cost of
soliciting proxies will be borne by us. In addition, we may reimburse brokers,
custodians, nominees and other record holders for their reasonable out-of-pocket
expenses in forwarding proxy material to beneficial owners.
Voting
Unless otherwise directed, the persons named in the proxy card(s) intend
to vote all shares represented by proxies received by them in favor of the
election of the nominees to the Board of Directors of the Company named herein
and in favor of the ratification of the selected independent registered public
accounting firm and as recommended by the Board of Directors. All proxies will
be voted as specified.
Each share of Class A Common Stock entitles
the holder thereof to one vote and each share of Class B Common Stock entitles
the holder thereof to ten votes. Votes of Class A Common Stock and Class B
Common Stock will be counted together without regard to class for proposals that
require the affirmative vote of the holders of a majority in voting power of all
common stock represented in person or by proxy at the 2010 Annual Meeting,
voting together. All votes will be certified by the Inspectors of Election, who
are employees of the Company. Abstentions and broker non-votes will have no
effect on the vote for proposal one because such shares are not considered votes
cast. Abstentions will have no effect on the vote for proposal two because
such shares are not considered votes
cast. Brokers may vote shares with respect to
proposal two in the absence of client instructions and thus there will be no
broker non-votes with respect to proposal
two.
Under NYSE rules, brokers may not vote shares on the proposal to approve
the Company’s Amended and Restated 2008 Stock Incentive Plan without specific
instructions on that proposal from their customers. In addition, in order for
the plan to be approved, NYSE rules require the affirmative vote of a majority
of the shares of Class A Common Stock and Class B Common Stock, voting together,
cast on the proposal, provided that a majority of the outstanding shares of
common stock are voted on the proposal. Abstentions are considered votes cast
under NYSE rules with respect to proposal three and thus will have the same
effect as a vote “against” the proposal.
Notwithstanding the foregoing, the Company’s amended Certificate of
Incorporation provides that each share of Class B Common Stock held, to the
extent of the Company’s knowledge, in nominee name by a stockbroker, bank or
otherwise will be entitled to only one vote per share unless the Company is
satisfied that such shares have been held continuously, since the date of
issuance, for the benefit or account of the same named beneficial owner of such
shares (as defined in the amended Certificate of Incorporation) or any Permitted
Transferee (as defined in the amended Certificate of Incorporation). Beneficial
owners of shares of Class B Common Stock held in nominee name wishing to cast
ten votes for each share of such stock must properly complete their voting
instruction card, which is specially designed for beneficial owners of Class B
Common Stock. The Company has also supplied nominee holders of Class B Common
Stock with instructions and specially designed proxy cards to accommodate the
voting of the Class B Common Stock. In accordance with the Company’s amended
Certificate of Incorporation, shares of Class B Common Stock held in nominee
name will be entitled to ten votes per share only if the beneficial owner voting
instruction card and the nominee proxy card relating to such shares is properly
completed, mailed, and received not less than 3 nor more than 20 business days
prior to March 16, 2010. Proxy cards should be mailed to Vote Processing, c/o
Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, N.Y.
11717.
48
Additional
Matters
Management does not intend to present any business at the meeting other
than that set forth in the accompanying Notice of Annual Meeting of
Shareholders, and it has no information that others will attempt to do so. If
other matters requiring the vote of shareholders properly come before the
meeting and any adjournments or postponements thereof, it is the intention of
the persons named in the proxy cards to vote the shares represented by the
proxies held by them in accordance with their judgment on such
matters.
SHAREHOLDER PROPOSALS FOR THE 2011
ANNUAL MEETING
Shareholder proposals for inclusion
in the proxy materials related to the 2011 Annual Meeting of Shareholders must be received by the Company
no later than October 4, 2010. Shareholder proposals submitted after December
16, 2010 will be considered untimely for purposes of SEC Rule
14a-4.
|
By Order of the Board of Directors |
|
HOVNANIAN ENTERPRISES, INC. |
Red Bank, New Jersey
February 1, 2010
49
APPENDIX A
AMENDED AND RESTATED
2008 HOVNANIAN
ENTERPRISES, INC.
STOCK
INCENTIVE PLAN
1. PURPOSE OF THE
PLAN
The purpose of the
Plan is to aid the Company and its Affiliates in recruiting and retaining key
employees, directors and consultants of outstanding ability and to motivate such
employees, directors and consultants to exert their best efforts on behalf of
the Company and its Affiliates by providing incentives through the granting of
Awards. The Company expects that it will benefit from the added interest which
such key employees, directors or consultants will have in the welfare of the
Company as a result of their proprietary interest in the Company’s success. Upon
approval by the Company’s stockholders, the Plan is intended to supersede and
replace the 1999 Hovnanian Enterprises, Inc. Stock Incentive Plan, as amended
and restated prior to the Effective Date (the “1999 Plan”), and equity-based
Awards that were previously granted under the 1999 Plan that remain outstanding
shall be governed pursuant to the terms set forth herein.
2. DEFINITIONS
The following capitalized terms used in the
Plan have the respective meanings set forth in this Section:
(a) Act: The Securities Exchange Act of 1934, as amended, or any
successor thereto.
(b) Affiliate: With respect to the Company, any entity directly or
indirectly controlling, controlled by, or under common control with, the Company
or any other entity designated by the Board in which the Company or an Affiliate
has an interest.
(c) Award: An Option, Stock Appreciation Right or Other Stock-Based Award
granted pursuant to the Plan (including, without limitation, Awards granted
under the 1999 Plan).
(d) Beneficial Owner: A “beneficial owner”, as such term is defined in
Rule 13d-3 under the Act (or any successor rule thereto).
(e) Board: The Board of Directors of the Company.
(f) Change in Control:
The occurrence of any of the following events:
(i) any Person (other than a Person holding securities representing 10%
or more of the combined voting power of the Company’s outstanding securities as
of the Effective Date, or any Family Member of such a Person, the Company, any
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by the shareholders
of the Company in substantially the same proportions as their ownership of stock
of the Company), becomes the Beneficial Owner, directly or indirectly, of
securities of the Company, representing 50% or more of the combined voting power
of the Company’s then-outstanding securities;
(ii) during any period of twenty-four consecutive months (not including
any period prior to the Effective Date), individuals who at the beginning of
such period constitute the Board, and any new director (other than (A) a
director nominated by a Person who has entered into an agreement with the
Company to effect a transaction described in Sections 2(f) (i), (iii) or (iv) of
the Plan or (B) a director nominated by any Person (including the Company) who
publicly announces an intention to take or to consider taking actions
(including, but not limited to, an actual or threatened proxy contest) which if
consummated would constitute a Change in Control) whose election by the Board or
nomination for election by the Company’s shareholders was approved in advance by
a vote of at least two-thirds (2/3) of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute at least a majority thereof;
(iii) the consummation of any transaction or series of transactions under
which the Company is merged or consolidated with any other company, other than a
merger or consolidation which would result in the shareholders of the Company
immediately prior thereto continuing to own (either by
A-1
remaining outstanding or by being converted into voting securities of the
surviving entity) more than 65% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation; or
(iv) the Company undergoes a complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company’s assets, other than a liquidation of the Company into a
wholly-owned subsidiary.
(g) Code: The Internal Revenue Code of 1986, as amended, or any successor
thereto.
(h) Committee: The Compensation Committee of the Board (or a subcommittee
thereof as provided under Section 4), or such other committee of the Board to
which the Board has delegated power to act under or pursuant to the provisions
of the Plan, or the full Board.
(i) Company: Hovnanian Enterprises, Inc., a Delaware corporation, and any
successors thereto.
(j) Disability: Inability of a Participant to perform in all material
respects his duties and responsibilities to the Company, or any Subsidiary of
the Company, by reason of a physical or mental disability or infirmity which
inability is reasonably expected to be permanent and has continued (i) for a
period of six consecutive months or (ii) such shorter period as the Committee
may reasonably determine in good faith. The Disability determination shall be in
the sole discretion of the Committee and a Participant (or his representative)
shall furnish the Committee with medical evidence documenting the Participant’s
disability or infirmity which is satisfactory to the Committee.
(k) Effective Date: February 6, 2008.
(l) Fair Market Value: On a given date, the closing price of the Shares
as reported on such date on the Composite Tape of the principal national
securities exchange on which such Shares are listed or admitted to trading, or,
if no Composite Tape exists for such national securities exchange on such date,
then on the principal national securities exchange on which such Shares are
listed or admitted to trading, or, if the Shares are not listed or admitted on a
national securities exchange, the arithmetic mean of the per Share closing bid
price and per Share closing asked price on such date as quoted on the National
Association of Securities Dealers Automated Quotation System (or such market in
which such prices are regularly quoted), or, if there is no market on which the
Shares are regularly quoted, the Fair Market Value shall be the value
established by the Committee in good faith. If no sale of Shares shall have been
reported on such Composite Tape or such national securities exchange on such
date or quoted on the National Association of Securities Dealer Automated
Quotation System on such date, then the immediately preceding date on which
sales of the Shares have been so reported or quoted shall be used.
(m) Family Member:
(i) any Person holding securities representing 10% or more of the
combined voting power of the Company’s outstanding securities as of the
Effective Date;
(ii) any spouse of such a person;
(iii) any descendant of such a person;
(iv) any spouse of any descendant of such a person; or
(v) any trust for the benefit of any of the aforementioned
persons.
(n) ISO: An Option that is also an incentive stock option granted
pursuant to Section 6(d) of the Plan.
(o) LSAR: A limited stock appreciation right granted pursuant to Section
7(d) of the Plan.
(p) 1999 Plan: The 1999 Hovnanian Enterprises, Inc. Stock Incentive Plan,
as amended and restated prior to the Effective Date 1999.
(q) Other Stock-Based Awards: Awards granted pursuant to Section 8 of the
Plan.
(r) Option: A stock option granted pursuant to Section 6 of the
Plan.
(s) Option Price: The purchase price per Share of an Option, as
determined pursuant to Section 6(a) of the Plan.
A-2
(t) Participant: An employee, director or consultant of the Company or
any of its Affiliates who is selected by the Committee to participate in the
Plan.
(u) Performance-Based Awards: Certain Other Stock-Based Awards granted
pursuant to Section 8(b) of the Plan.
(v) Person: A “person”, as such term is used for purposes of Section
13(d) or 14(d) of the Act (or any successor section thereto).
(w) Plan: The 2008 Hovnanian Enterprises, Inc. Stock Incentive
Plan.
(x) Shares: Shares of common stock of the Company.
(y) Stock Appreciation Right: A stock appreciation right granted pursuant
to Section 7 of the Plan.
(z) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of
the Code (or any successor section thereto).
3. SHARES SUBJECT TO THE
PLAN
Subject to
Sections 4, 6(f) and 9 of the Plan (and giving effect to the Company’s stock
split on March 26, 2004), the total number of Shares which may be issued under
the Plan pursuant to grants of ISOs or other Awards (inclusive of Shares
previously issued under the 1999 Plan) is 16,972,128 and the maximum number of
Shares for which Options, Stock Appreciation Rights, restricted Shares or
restricted Share units may be granted during a fiscal year (inclusive of any
such Awards previously granted under the 1999 Plan) to any Participant shall be
2,000,000. The Shares may consist, in whole or in part, of unissued Shares or
treasury Shares. The issuance of Shares or the payment of cash upon the exercise
of an Award or in consideration of the cancellation or termination of an Award
shall reduce the total number of Shares available under the Plan, as applicable.
Notwithstanding the forgoing, in the event that any Awards under the Plan
terminate or lapse (or have terminated or lapsed) for any reason from and after
November 1, 2007 (including, without limitation, due to a voluntary or
involuntary forfeiture of such Awards), the number of Shares subject to such
terminated or lapsed Awards shall not be available for future Award grants under
the Plan and the total number of Shares available for issuance under the Plan
shall instead be reduced by such number of Shares. The number of Shares
available for issuance under the Plan may also be increased by utilizing Shares
otherwise available for issuance under the terms of the Company’s Amended and
Restated Senior Executive Short-Term Incentive Plan (the “STIP”), provided that
any Shares so utilized shall reduce the number of Shares available for issuance
under the STIP.
4.
ADMINISTRATION
The Plan
shall be administered by the Committee, which may delegate its duties and powers
in whole or in part to any subcommittee thereof consisting solely of at least
two individuals who are each intended to qualify as “non-employee directors”
within the meaning of Rule 16b-3 under the Act (or any successor rule thereto),
“outside directors” within the meaning of Section 162(m) of the Code (or any
successor section thereto) and “independent directors” within the meaning of the
applicable rules, if any, of any national securities exchange on which Shares
are listed or admitted to trading; provided, however, that any action permitted
to be taken by the Committee may be taken by the Board, in its discretion. The
Committee is authorized to interpret the Plan, to establish, amend and rescind
any rules and regulations relating to the Plan, and to make any other
determinations that it deems necessary or desirable for the administration of
the Plan. The Committee may correct any defect or omission or reconcile any
inconsistency in the Plan in the manner and to the extent the Committee deems
necessary or desirable. Any decision of the Committee in the interpretation and
administrations of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned (including, but not limited to Participants and their beneficiaries or
successors). Determinations made by the Committee under the Plan need not be
uniform and may be made selectively among Participants, whether or not such
Participants are similarly situated. Awards may, in the discretion of the
Committee, be made under the Plan in assumption of, or in substitution for,
outstanding awards previously granted by the Company or its Affiliates or a
company acquired by the Company or with which the Company combines. The number
of Shares underlying such substitute awards shall be counted against the
aggregate number of Shares available for Awards under the Plan. The Committee
shall require payment of any minimum amount it may determine to be necessary to
withhold for federal, state, local
A-3
or other, taxes as a
result of the exercise or vesting of an Award. Unless the Committee specifies
otherwise, the Participant may elect to pay a portion or all of such minimum
withholding taxes by (a) delivery in Shares or (b) having Shares withheld by the
Company from any Shares that would have otherwise been received by the
Participant. The number of Shares so delivered or withheld shall have an
aggregate Fair Market Value sufficient to satisfy the applicable minimum
withholding taxes. If the chief executive officer of the Company is a member of
the Board, the Board by specific resolution may constitute such chief executive
officer as a committee of one which shall have the authority to grant Awards of
up to an aggregate of 1,000,000 Shares (giving effect to the Company’s stock
split on March 26, 2004, and otherwise subject to the provisions of Section 9 of
the Plan) in each fiscal year to Participants who are (i) not subject to the
rules promulgated under Section 16 of the Act (or any successor section thereto)
or (ii) covered employees (or anticipated to become covered employees) as such
term is defined in Section 162(m) of the Code; provided, however, that such
chief executive officer shall notify the Committee of any such grants made
pursuant to this Section 4.
5. LIMITATIONS
No Award may be granted under the Plan after
the tenth anniversary of the Effective Date, but Awards theretofore granted may
extend beyond that date.
6. TERMS AND CONDITIONS OF
OPTIONS
Options granted
under the Plan shall be, as determined by the Committee, non-qualified or
incentive stock options for federal income tax purposes, as evidenced by the
related Award agreements, and shall be subject to the foregoing and the
following terms and conditions and to such other terms and conditions, not
inconsistent therewith, as the Committee shall determine:
(a) Option Price. The Option Price per Share shall be determined by the
Committee, but shall not be less than 100% of the Fair Market Value of a Share
on the date an Option is granted (other than in the case of Options granted in
substitution of previously granted awards, as described in Section
4).
(b) Exercisability. Options granted under the Plan shall be exercisable
at such time and upon such terms and conditions as may be determined by the
Committee, but in no event shall an Option be exercisable more than ten years
after the date it is granted. The Committee may, in its discretion, accelerate
the date after which Options may be exercised in whole or in part. If the chief
executive officer of the Company is a member of the Board, the Board by specific
resolution may constitute such chief executive officer as a committee of one
which shall have the authority to accelerate the date after which Options may be
exercised in whole or in part.
(c) Exercise of Options. Except as otherwise provided in the Plan or in
an Award agreement, an Option may be exercised for all, or from time to time any
part, of the Shares for which it is then exercisable. For purposes of Section 6
of the Plan, the exercise date of an Option shall be the later of the date a
notice of exercise is received by the Company and, if applicable, the date
payment is received by the Company pursuant to clauses (i), (ii), (iii) or (iv)
in the following sentence. The purchase price for the Shares as to which an
Option is exercised shall be paid to the Company in full not later than at the
time that the Shares being purchased are delivered to or at the direction of the
Participant, in each case at the election of the Participant to the extent
permitted by law and as designated by the Committee, (i) in cash, (ii) in Shares
having a Fair Market Value equal to the aggregate Option Price for the Shares
being purchased and satisfying such other requirements as may be imposed by the
Committee; provided, that such Shares have been held by the Participant for no
less than six months (or such other period as established from time to time by
the Committee in order to avoid adverse accounting treatment applying generally
accepted accounting principles), (iii) partly in cash and partly in such Shares,
(iv) through the delivery of irrevocable instruments to a broker to deliver
promptly to the Company an amount equal to the aggregate Option Price for the
Shares being purchased or (v) through net settlement in Shares. No Participant
shall have any rights to dividends or other rights of a shareholder with respect
to Shares subject to an Option until the Participant has given written notice of
exercise of the Option, paid in full for such Shares and, if applicable, has
satisfied any other conditions imposed by the Committee pursuant to the
Plan.
(d) ISOs. The Committee may grant Options under the Plan that are
intended to be ISOs. Such ISOs shall comply with the requirements of Section 422
of the Code (or any successor section thereto). No ISO may be granted to any
Participant who at the time of such grant, owns more than 10% of the
A-4
total combined voting power of all classes of stock of the Company or of
any Subsidiary, unless (i) the Option Price for such ISO is at least 110% of the
Fair Market Value of a Share on the date the ISO is granted and (ii) the date on
which such ISO terminates is a date not later than the day preceding the fifth
anniversary of the date on which the ISO is granted. Any Participant who
disposes of Shares acquired upon the exercise of an ISO either (i) within two
years after the date of grant of such ISO or (ii) within one year after the
transfer of such Shares to the Participant, shall notify the Company of such
disposition and of the amount realized upon such disposition. All Options
granted under the Plan are intended to be nonqualified stock options, unless the
applicable Award agreement expressly states that the Option is intended to be an
ISO. If an Option is intended to be an ISO, and if for any reason such Option
(or portion thereof) shall not qualify as an ISO, then, to the extent of such
nonqualification, such Option (or portion thereof) shall be regarded as a
nonqualified stock option granted under the Plan; provided that such Option (or portion
thereof) otherwise complies with the Plan’s requirements relating to
nonqualified stock options. In no event shall any member of the Committee, the
Company or any of its Affiliates (or their respective employees, officers or
directors) have any liability to any Participant (or any other Person) due to
the failure of an Option to qualify for any reason as an ISO.
(e) Attestation. Wherever
in this Plan or any agreement evidencing an Award a Participant is permitted to
pay the exercise price of an Option or taxes relating to the exercise of an
Option by delivering Shares, the Participant may, subject to procedures
satisfactory to the Committee, satisfy such delivery requirement by presenting
proof of beneficial ownership of such Shares, in which case the Company shall
treat the Option as exercised without further payment and/or shall withhold such
number of Shares from the Shares acquired by the exercise of the Option, as
appropriate.
(f) Repricing
of Options. Notwithstanding any other provisions under the Plan, no
action shall be taken under the Plan to (i) lower the exercise prices of any
Company stock options after they are granted, (ii) exchange stock options for
stock options with lower exercise prices or for other Awards (other than
pursuant to Section 9 hereof) or (iii) take any other action that is treated as
a “repricing” of stock options under generally accepted accounting principles;
provided,
however, that such actions shall be permitted to the extent approved by
at least a majority of the Board’s “independent directors” (as defined for
purposes of The New York Stock Exchange listed company rules). Any such approved
action shall be treated as a grant of a new Award to the extent required under
Sections 162(m), 422 or 424 of the Code (for individuals who are “covered
employees” under Section 162(m) of the Code at the time of such action, or for
stock options that are intended to retain their status as ISOs).
7. TERMS AND CONDITIONS OF STOCK
APPRECIATION RIGHTS
(a) Grants. The Committee also may grant (i) a Stock Appreciation Right
independent of an Option or (ii) a Stock Appreciation Right in connection with
an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to
clause (ii) of the preceding sentence (A) may be granted at the time the related
Option is granted or at any time prior to the exercise or cancellation of the
related Option, (B) shall cover the same number of Shares covered by an Option
(or such lesser number of Shares as the Committee may determine) and (C) shall
be subject to the same terms and conditions as such Option except for such
additional limitations as are contemplated by this Section 7 (or such additional
limitations as may be included in an Award agreement).
(b) Terms. The exercise price per Share of a Stock Appreciation Right
shall be an amount determined by the Committee but in no event shall such amount
be less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount permitted by applicable laws,
rules, restated By-laws or policies of regulatory authorities or stock
exchanges. Each Stock Appreciation Right granted independent of an Option shall
entitle a Participant upon exercise to an amount equal to (i) the excess of (A)
the Fair Market Value on the exercise date of one Share over (B) the exercise
price per Share, times (ii) the number of Shares covered by the Stock
Appreciation Right. Each Stock Appreciation Right granted in conjunction with an
Option, or a portion thereof, shall entitle a Participant to surrender to the
Company the unexercised Option, or any portion thereof, and to receive from the
Company in exchange therefor an amount equal to (i) the excess of (A)
the
A-5
Fair Market Value on the exercise date of one Share over (B) the Option
Price per Share, times (ii) the number of Shares covered by the Option, or
portion thereof, which is surrendered. The date a notice of exercise is received
by the Company shall be the exercise date. Payment shall be made in Shares or in
cash, or partly in Shares and partly in cash (any such Shares valued at such
Fair Market Value), all as shall be determined by the Committee. Stock
Appreciation Rights may be exercised from time to time upon actual receipt by
the Company of written notice of exercise stating the number of Shares with
respect to which the Stock Appreciation Right is being exercised. No fractional
Shares will be issued in payment for Stock Appreciation Rights, but instead cash
will be paid for a fraction or, if the Committee should so determine, the number
of Shares will be rounded downward to the next whole Share.
(c) Limitations. The Committee may impose, in its discretion, such
conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) Limited Stock Appreciation Rights. The Committee may grant LSARs that
are exercisable upon the occurrence of specified contingent events. Such LSARs
may provide for a different method of determining appreciation, may specify that
payment will be made only in cash and may provide that any related Awards are
not exercisable while such LSARS are exercisable. Unless the context otherwise
requires, whenever the term “Stock Appreciation Right” is used in the Plan, such
term shall include LSARs.
8. OTHER STOCK-BASED
AWARDS
(a) Generally. The Committee, in its sole discretion, may grant or sell
Awards of Shares, Awards of restricted Shares and Awards that are valued in
whole or in part by reference to, or are otherwise based on the Fair Market
Value of, Shares (“Other Stock-Based Awards”). Such Other Stock-Based Awards
shall be in such form, and dependent on such conditions, as the Committee shall
determine, including, without limitation, the right to receive one or more
Shares (or the equivalent cash value of such Shares) upon the completion of a
specified period of service, the occurrence of an event and/or the attainment of
performance objectives. Other Stock-Based Awards may be granted alone or in
addition to any other Awards granted under the Plan. Subject to the provisions
of the Plan, the Committee shall determine to whom and when Other Stock-Based
Awards will be made, the number of Shares to be awarded under (or otherwise
related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards
shall be settled in cash, Shares or a combination of cash and Shares; and all
other terms and conditions of such Awards (including, without limitation, the
vesting provisions thereof and provisions ensuring that all Shares so awarded
and issued shall be fully paid and non-assessable).
(b) Performance-Based Awards. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section 8 may be
granted in a manner which is intended to be deductible by the Company under
Section 162(m) of the Code (or any successor section thereto)
(“Performance-Based Awards”). A Participant’s Performance-Based Award shall be
determined based on the attainment of written performance goals approved by the
Committee for a performance period established by the Committee (i) while the
outcome for that performance period is substantially uncertain and (ii) no more
than 90 days after the commencement of the performance period to which the
performance goal relates or, if less, the number of days which is equal to 25
percent of the relevant performance period. The performance goals, which must be
objective, shall be based upon one or more of the following criteria: (i)
earnings before or after taxes (including earnings before interest, taxes,
depreciation and amortization); (ii) net income; (iii) operating income; (iv)
earnings per Share; (v) book value per Share; (vi) return on shareholders’
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) changes in net assets (whether or not multiplied
by a constant percentage intended to represent the cost of capital); and (xix)
return on assets. The foregoing criteria may relate to the Company, one or more
of its Affiliates or one or more of its divisions or units, or any combination
of the foregoing, and may be applied on an absolute basis and/or be relative to
one or more peer group companies or indices, or any combination thereof, all as
the Committee shall determine. In addition, to the degree consistent with
Section 162(m) of the Code (or any successor section thereto), the performance
goals may be calculated without regard to extraordinary items. In any event, the
performance goals
A-6
shall be based on an objective formula or standard. The maximum amount of
Shares that may be granted as subject to a Performance-Based Award denominated
in Shares shall be 2,000,000 Shares per fiscal year for any Participant. The
maximum amount payable in respect of a Performance-Based Award that is not
denominated in Shares during a fiscal year to any Participant shall be equal to
the greater of (x) $15,000,000 and (y) 2.5 percent (2.5%) of the Company’s
income before income taxes, as reported in the Company’s audited consolidated
financial statements for the year in respect of which the Performance-Based
Award is to be payable or distributed, as applicable. The Committee shall
determine whether, with respect to a performance period, the applicable
performance goals have been met with respect to a given Participant and, if they
have, shall so certify and ascertain the amount of the applicable
Performance-Based Award. No Performance-Based Awards will be paid for such
performance period until such certification is made by the Committee. The amount
of the Performance-Based Award actually paid to a given Participant may be less
than the amount determined by the applicable performance goal formula, at the
discretion of the Committee. The amount of the Performance-Based Award
determined by the Committee for a performance period shall be paid to the
Participant at such time as determined by the Committee in its sole discretion
after the end of such performance period; provided, however, that a Participant
may, if and to the extent permitted by the Committee and consistent with the
provisions of Section 162(m) of the Code, elect to defer payment of a
Performance-Based Award.
9. ADJUSTMENTS UPON CERTAIN
EVENTS
Notwithstanding
any other provisions in the Plan to the contrary, the following provisions shall
apply to all Awards granted under the Plan:
(a) Generally. In the event of any change in the outstanding Shares after
the Effective Date by reason of any Share dividend or split, reorganization,
recapitalization, merger, consolidation, spin-off, combination or exchange of
Shares or other corporate exchange or change in capital structure, any
distribution to shareholders of Shares other than regular cash dividends or any
similar event, the Committee in its sole discretion and without liability to any
person shall make such substitution or adjustment, if any, as it deems to be
equitable, as to (i) the number or kind of Shares or other securities issued or
reserved for issuance as set forth in Section 3 of the Plan or pursuant to
outstanding Awards, (ii) the Option Price, (iii) the maximum number or amount of
Awards that may be granted to any Participant during a fiscal year and/or (iv)
any other affected terms of such Awards.
(b) Change in Control. Except as otherwise provided in an Award
agreement, in the event of a Change in Control, the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount
in exchange for the cancellation of an Award which, in the case of Options and
Stock Appreciation Rights, may equal the excess, if any, of value of the
consideration to be paid in the Change in Control transaction to holders of the
same number of Shares subject to such Options or Stock Appreciation Rights (or,
if no consideration is paid in any such transaction, the Fair Market Value of
the Shares subject to such Options or Stock Appreciation Rights) over the
aggregate exercise price of such Options or Stock Appreciation Rights and/or
(iii) the requiring of the issuance of substitute Awards that will substantially
preserve the value, rights and benefits of any affected Awards previously
granted hereunder) as of the date of the consummation of the Change in
Control.
10. NO RIGHT TO
EMPLOYMENT
The granting
of an Award under the Plan shall impose no obligation on the Company or any
Subsidiary to continue the employment of a Participant and shall not lessen or
affect the Company’s or Subsidiary’s right to terminate the employment of such
Participant.
11. SUCCESSORS AND
ASSIGNS
The Plan shall
be binding on all successors and assigns of the Company and a Participant;
including without limitation, the estate of such Participant and the executor,
administrator or trustee of such estate, or any receiver or trustee in
bankruptcy or representative of the Participant’s creditors.
A-7
12. NONTRANSFERABILITY OF
AWARDS
Unless otherwise
determined by the Committee, an Award shall not be transferable or assignable by
the Participant otherwise than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, a Participant may transfer an
Option (other than an ISO) in whole or in part by gift or domestic relations
order to a family member of the Participant (a “Permitted Transferee”) and,
following any such transfer such Option or portion thereof shall be exercisable
only by the Permitted Transferee, provided that no such Option or portion
thereof is transferred for value, and provided further that, following any such
transfer, neither such Option or any portion thereof nor any right hereunder
shall be transferable other than to the Participant or otherwise than by will or
the laws of descent and distribution or be subject to attachment, execution or
other similar process. For purposes of this Section 12, “family member” includes
any child, stepchild, grandchild, parent, stepparent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law or sister-in-law, including adoptive
relationships, any person sharing the Participant’s household (other than a
tenant or employee), trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the Participant)
control the management of assets and any other entity in which these persons (or
the Participant) own more than 50% of the voting interests. An Award exercisable
after the death of a Participant may be exercised by the legatees, personal
representatives or distributees of the Participant.
13. AMENDMENTS OR
TERMINATION
The
Committee may amend, alter or discontinue the Plan, but no amendment, alteration
or discontinuation shall be made which, (a) without the approval of the
shareholders of the Company, would (except as is provided in the Plan for
adjustments in certain events), increase the total number of Shares reserved for
the purposes of the Plan or change the maximum number of Shares for which Awards
may be granted to any Participant or (b) without the consent of a Participant,
would impair any of the rights or obligations under any Award theretofore
granted to such Participant under the Plan; provided, however, that the
Committee may amend the Plan in such manner as it deems necessary to permit the
granting of Awards meeting the requirements of the Code or other applicable
laws. Notwithstanding anything to the contrary herein, the Committee may not
amend, alter or discontinue the provisions relating to Section 9(b) of the Plan
after the occurrence of a Change in Control.
Without limiting the
generality of the foregoing, to the extent applicable, notwithstanding anything
herein to the contrary, this Plan and Awards issued hereunder shall be
interpreted in accordance with Section 409A of the Code and Department of
Treasury regulations and other interpretative guidance issued thereunder,
including without limitation any such regulations or other guidance that may be
issued after the Effective Date. Notwithstanding any provision of the Plan to
the contrary, in the event that the Committee determines that any amounts
payable hereunder will be taxable to a Participant under Section 409A of the
Code and related Department of Treasury guidance prior to payment to such
Participant of such amount, the Company may (a) adopt such amendments to the
Plan and Awards and appropriate policies and procedures, including amendments
and policies with retroactive effect, that the Committee determines necessary or
appropriate to preserve the intended tax treatment of the benefits provided by
the Plan and Awards hereunder and/or (b) take such other actions as the
Committee determines necessary or appropriate to avoid the imposition of an
additional tax under Section 409A of the Code.
14. INTERNATIONAL
PARTICIPANTS
With
respect to Participants who reside or work outside the United States of America
and who are not (and who are not expected to be) ‘covered employees’ within the
meaning of Section 162(m) of the Code, the Committee may, in its sole
discretion, amend the terms of the Plan or Awards with respect to such
Participants in order to conform such terms with the requirements of local law
or to obtain more favorable tax or other treatment for a Participant, the
Company or an Affiliate.
15. CHOICE OF
LAW
The Plan shall be
governed by and construed in accordance with the laws of the State of
Delaware.
16. EFFECTIVENESS OF THE
PLAN
The Plan shall be
effective as of the Effective Date, subject to the approval of the Company’s
shareholders.
A-8
17. SECTION
409A
Notwithstanding
other provisions of the Plan or any Award agreements thereunder, no Award shall
be granted, deferred, accelerated, extended, paid out or modified under this
Plan in a manner that would result in the imposition of an additional tax under
Section 409A of the Code upon a Participant. In the event that it is reasonably
determined by the Committee that, as a result of Section 409A of the Code,
payments or deliveries of shares in respect of any Award under the Plan may not
be made at the time contemplated by the terms of the Plan or the relevant Award
agreement, as the case may be, without causing the Participant holding such
Award to be subject to taxation under Section 409A of the Code, the Company will
make such payment or delivery of shares on the first day that would not result
in the Participant incurring any tax liability under Section 409A of the Code.
In the case of a Participant who is a “specified employee” (within the meaning
of Section 409A(a)(2)(B)(i) of the Code), payments and/or deliveries of shares
in respect of any Award subject to Section 409A of the Code that are linked to
the date of the Participant’s separation from service shall not be made prior to
the date which is six (6) months after the date of such Participant’s separation
from service from the Company and its affiliates, determined in accordance with
Section 409A of the Code and the regulations promulgated thereunder. The Company
shall use commercially reasonable efforts to implement the provisions of this
Section 17 in good faith; provided that neither the Company, the Committee nor
any of the Company’s employees, directors or representatives shall have any
liability to Participants with respect to this Section 17.
A-9
HOVNANIAN ENTERPRISES, INC. 110
WEST FRONT STREET P.O. BOX 500 RED BANK, NJ
07701 |
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your
voting instructions and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the meeting date. Have your proxy
card in hand when you access the web site and follow the instructions to
obtain your records and to create an electronic voting instruction
form.
ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS If
you would like to reduce the costs incurred by our company in mailing
proxy materials, you can consent to receiving all future proxy statements,
proxy cards and annual reports electronically via e-mail or the Internet.
To sign up for electronic delivery, please follow the instructions above
to vote using the Internet and, when prompted, indicate that you agree to
receive or access proxy materials electronically in future
years.
VOTE BY PHONE -
1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions
up until 11:59 P.M. Eastern Time the day before the meeting date. Have
your proxy card in hand when you call and then follow the
instructions.
VOTE BY MAIL Mark, sign and date your proxy card
and return it in the postage-paid envelope we have provided or return it
to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
If you
vote over the Internet or by telephone, please do not mail your
card.
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TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M18836-P87247 KEEP
THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
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HOVNANIAN ENTERPRISES,
INC.
Proposals to be voted on at our
Annual Meeting are listed below along with the Board of Director's
recommendations.
The Board of Directors recommends
that you vote FOR each of the nominees listed in proposal 1 and FOR
proposals 2 and 3.
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For All
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Withhold All
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For
All Except
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authority to vote for any individual nominee(s), mark “For All Except” and
write the number(s) of the nominee(s) on the line
below.
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1. |
Election of
directors.
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Nominees:
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01) Ara K.
Hovnanian 02) Robert B. Coutts 03) Edward A. Kangas 04) Joseph A.
Marengi
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05) John J.
Robbins 06) J. Larry Sorsby 07) Stephen D. Weinroth
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2. |
Ratification of the selection of
Deloitte & Touche LLP as our independent registered public accounting
firm for fiscal 2010. |
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Approval of amendments to our
Amended and Restated 2008 Stock Incentive Plan. |
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Consideration of such other
business as may properly come before the Annual Meeting and any
adjournments thereof. |
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For
address changes and/or comments, please check this box and write them on
the back where indicated.
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Yes
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Please
indicate if you plan to attend this meeting.
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Please
mark, sign, date and return the proxy card promptly. This Proxy must be
signed exactly as name appears hereon. Executors, administrators,
trustees, etc., should give full title as such. If the signer is a
corporation, please sign the full corporate name by a duly authorized
officer.
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Signature
[PLEASE SIGN WITHIN BOX]
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Signature
(Joint Owners)
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DIRECTIONS TO THE 2010 ANNUAL MEETING OF
SHAREHOLDERS OF HOVNANIAN ENTERPRISES, INC.
Please call our
Investor Relations department at 1-800-815-9680 for directions to the
Company's
2010 Annual Meeting.
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual
Report are available at www.proxyvote.com.
PROXY
HOVNANIAN ENTERPRISES, INC.
Class A Common Stock
This Proxy is Solicited on Behalf of the Board
of Directors
The undersigned
hereby constitutes and appoints Peter S. Reinhart and Paul W. Buchanan, and each
of them, his true and lawful agents and proxies with full power of substitution
in each, to represent the undersigned at the Annual Meeting of Shareholders of
HOVNANIAN ENTERPRISES, INC. to be held at the offices of Simpson Thacher &
Bartlett LLP, 425 Lexington Avenue, New York, N.Y. 10017, at 10:30 a.m. on March
16, 2010, and at any adjournments thereof, upon the matters set forth in the
Notice of Annual Meeting and Proxy Statement dated February 1, 2010 and upon all
other matters properly coming before said meeting.
This proxy, when properly executed, will
be voted (1) FOR the election of the nominees to the Board of Directors; (2) FOR
the ratification of the selection of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the year ending October 31,
2010; (3) FOR the approval of amendments to the Company's Amended and Restated
2008 Stock Incentive Plan; and (4) on any other matters in accordance with the
discretion of the named proxies and agents, if no instructions to the contrary
are indicated in items (1), (2) and (3).
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Changes/Comments: |
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(If you
noted any Address Changes/Comments above, please mark corresponding box on
the reverse side.)
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SEE
REVERSE
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SEE
REVERSE
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SIDE
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CONTINUED AND TO BE SIGNED ON
REVERSE SIDE
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SIDE
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HOVNANIAN ENTERPRISES, INC. 110
WEST FRONT STREET P.O. BOX 500 RED BANK, NJ
07701 |
VOTE BY INTERNET - www.proxyvote.com Use the Internet to transmit your
voting instructions and for electronic delivery of information up until
11:59 P.M. Eastern Time the day before the meeting date. Have your proxy
card in hand when you access the web site and follow the instructions to
obtain your records and to create an electronic voting instruction
form.
ELECTRONIC DELIVERY OF FUTURE PROXY
MATERIALS If
you would like to reduce the costs incurred by our company in mailing
proxy materials, you can consent to receiving all future proxy statements,
proxy cards and annual reports electronically via e-mail or the Internet.
To sign up for electronic delivery, please follow the instructions above
to vote using the Internet and, when prompted, indicate that you agree to
receive or access proxy materials electronically in future
years.
VOTE BY PHONE -
1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions
up until 11:59 P.M. Eastern Time the day before the meeting date. Have
your proxy card in hand when you call and then follow the
instructions.
VOTE BY MAIL Mark, sign and date your proxy card
and return it in the postage-paid envelope we have provided or return it
to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
If you
vote over the Internet or by telephone, please do not mail your
card.
|
TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
|
|
M18838-P87247 KEEP
THIS PORTION FOR YOUR RECORDS
|
|
DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
|
HOVNANIAN ENTERPRISES,
INC.
Proposals to be voted on at our
Annual Meeting are listed below along with the Board of Director's
recommendations.
The Board of Directors recommends
that you vote FOR each of the nominees listed in proposal 1 and FOR
proposals 2 and 3.
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For All
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Withhold All
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For
All Except
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To withhold
authority to vote for any individual nominee(s), mark “For All Except” and
write the number(s) of the nominee(s) on the line
below.
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Vote on Directors |
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1. |
Election of
directors.
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Nominees:
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01) Ara K.
Hovnanian 02) Robert B. Coutts 03) Edward A. Kangas 04) Joseph A.
Marengi
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05) John J.
Robbins 06) J. Larry Sorsby 07) Stephen D. Weinroth
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Vote on
Proposal
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For
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Against
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Abstain
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2. |
Ratification of the selection of
Deloitte & Touche LLP as our independent registered public accounting
firm for fiscal 2010. |
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3. |
Approval of amendments to our
Amended and Restated 2008 Stock Incentive Plan. |
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4. |
Consideration of such other
business as may properly come before the Annual Meeting and any
adjournments thereof. |
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For
address changes and/or comments, please check this box and write them on
the back where indicated.
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Yes
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No
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Please
indicate if you plan to attend this meeting.
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Please
mark, sign, date and return the proxy card promptly. This Proxy must be
signed exactly as name appears hereon. Executors, administrators,
trustees, etc., should give full title as such. If the signer is a
corporation, please sign the full corporate name by a duly authorized
officer.
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Signature
[PLEASE SIGN WITHIN BOX]
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Date
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Signature
(Joint Owners)
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Date
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DIRECTIONS TO THE 2010 ANNUAL MEETING OF
SHAREHOLDERS OF HOVNANIAN ENTERPRISES, INC.
Please call our
Investor Relations department at 1-800-815-9680 for directions to the
Company's
2010 Annual Meeting.
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual
Report are available at www.proxyvote.com.
PROXY
HOVNANIAN ENTERPRISES, INC.
Class B Common Stock
This Proxy is Solicited on Behalf of the Board
of Directors
The undersigned
hereby constitutes and appoints Peter S. Reinhart and Paul W. Buchanan, and each
of them, his true and lawful agents and proxies with full power of substitution
in each, to represent the undersigned at the Annual Meeting of Shareholders of
HOVNANIAN ENTERPRISES, INC. to be held at the offices of Simpson Thacher &
Bartlett LLP, 425 Lexington Avenue, New York, N.Y. 10017, at 10:30 a.m. on March
16, 2010, and at any adjournments thereof, upon the matters set forth in the
Notice of Annual Meeting and Proxy Statement dated February 1, 2010 and upon all
other matters properly coming before said meeting.
This proxy, when properly executed, will
be voted (1) FOR the election of the nominees to the Board of Directors; (2) FOR
the ratification of the selection of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the year ending October 31,
2010; (3) FOR the approval of amendments to the Company's Amended and Restated
2008 Stock Incentive Plan; and (4) on any other matters in accordance with the
discretion of the named proxies and agents, if no instructions to the contrary
are indicated in items (1), (2) and (3).
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Address
Changes/Comments: |
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(If you
noted any Address Changes/Comments above, please mark corresponding box on
the reverse side.)
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SEE
REVERSE
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SEE
REVERSE
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SIDE
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CONTINUED AND TO BE SIGNED ON
REVERSE SIDE
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SIDE
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HOVNANIAN ENTERPRISES, INC. 110
WEST FRONT STREET P.O. BOX 500 RED BANK, NJ
07701 |
VOTE BY MAIL Mark, sign and date your proxy card
and return it in the postage-paid envelope we have provided or return it
to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY
11717.
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TO VOTE, MARK
BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
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M18840-P87247 KEEP
THIS PORTION FOR YOUR RECORDS
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DETACH AND RETURN THIS PORTION ONLY |
THIS PROXY CARD IS VALID ONLY WHEN
SIGNED AND DATED.
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HOVNANIAN ENTERPRISES,
INC.
Proposals to be voted on at our
Annual Meeting are listed below along with the Board of Director's
recommendations.
The Board of Directors recommends
that you vote FOR each of the nominees listed in proposal 1 and FOR
proposals 2 and 3.
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For All
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Withhold All
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For
All Except
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To withhold
authority to vote for any individual nominee(s), mark “For All Except” and
write the number(s) of the nominee(s) on the line
below.
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Vote on Directors |
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1. |
Election of
directors.
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Nominees:
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01) Ara K.
Hovnanian 02) Robert B. Coutts 03) Edward A. Kangas 04) Joseph A.
Marengi
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05) John J.
Robbins 06) J. Larry Sorsby 07) Stephen D. Weinroth
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Vote on
Proposal
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For
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Against
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Abstain
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2. |
Ratification of the selection of
Deloitte & Touche LLP as our independent registered public accounting
firm for fiscal 2010. |
|
o |
o |
o |
|
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|
|
|
|
|
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|
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3. |
Approval of amendments to our
Amended and Restated 2008 Stock Incentive Plan. |
|
o |
o |
o |
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|
|
|
|
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|
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4. |
Consideration of such other
business as may properly come before the Annual Meeting and any
adjournments thereof. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
address changes and/or comments, please check this box and write them on
the back where indicated.
|
|
|
|
o |
|
|
|
|
|
|
|
|
Yes
|
No
|
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|
|
Please
indicate if you plan to attend this meeting.
|
|
o
|
o |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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Please
mark, sign, date and return the proxy card promptly. This Proxy must be
signed exactly as name appears hereon. Executors, administrators,
trustees, etc., should give full title as such. If the signer is a
corporation, please sign the full corporate name by a duly authorized
officer.
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
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Signature
[PLEASE SIGN WITHIN BOX]
|
Date
|
|
Signature
(Joint Owners)
|
Date
|
|
DIRECTIONS TO THE 2010 ANNUAL MEETING OF
SHAREHOLDERS OF HOVNANIAN ENTERPRISES, INC.
Please call our
Investor Relations department at 1-800-815-9680 for directions to the
Company's
2010 Annual Meeting.
Important Notice Regarding the
Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Annual
Report are available at www.proxyvote.com.
PROXY
HOVNANIAN ENTERPRISES,
INC.
Nominee Holder of Class B Common
Stock
This Proxy is Solicited on Behalf of the
Board of Directors
The undersigned
hereby constitutes and appoints Peter S. Reinhart and Paul W. Buchanan, and each
of them, his true and lawful agents and proxies with full power of substitution
in each, to represent the undersigned at the Annual Meeting of Shareholders of
HOVNANIAN ENTERPRISES, INC. to be held in the offices of Simpson Thacher &
Bartlett LLP, 425 Lexington Avenue, New York, N.Y. 10017, at 10:30 a.m. on March
16, 2010, and at any adjournments thereof, upon the matters set forth in the
notice of meeting and Proxy Statement dated February 1, 2010 and upon all other
matters properly coming before said meeting.
This proxy, when properly executed, will
be voted (1) FOR the election of the nominees to the Board of Directors; (2) FOR
the ratification of the selection of Deloitte & Touche LLP as the Company's
independent registered public accounting firm for the year ending October 31,
2010; (3) FOR the approval of amendments to the Company's Amended and Restated
2008 Stock Incentive Plan; and (4) on any other matters in accordance with the
discretion of the named proxies and agents, if no instructions to the contrary
are indicated in items (1), (2) and (3).
According to the certification of the
beneficial owner of the shares represented by this proxy, such beneficial owner
(A) has been the beneficial owner of _______ of such shares continuously since
the date of their issuance or is a Permitted Transferee (as defined in paragraph
4(A)(i) of paragraph FOURTH of the Company's amended Certificate of
Incorporation) of any such beneficial owner and (B) has not been the beneficial
owner of _______ of such shares continuously since the date of their issuance
nor a Permitted Transferee of any such beneficial owner.
If no certification is made by the
beneficial owner of the shares represented by this proxy, it will be deemed that
all shares of Class B Common Stock represented by this proxy have not been held
continuously, since the date of issuance, for the benefit or account of the same
beneficial owner of the shares represented by this proxy or any Permitted
Transferee.
|
Address
Changes/Comments: |
|
|
|
|
|
|
|
|
|
(If you
noted any Address Changes/Comments above, please mark corresponding box on
the reverse side.)
|
|
SEE
REVERSE
|
|
SEE
REVERSE
|
SIDE
|
CONTINUED AND TO BE SIGNED ON
REVERSE SIDE
|
SIDE
|