April 28, 2020
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of The New Home Company Inc. (the “
Although we intend to hold the Annual Meeting in person, we are actively monitoring the public health and travel concerns of our stockholders, directors and employees in light of novel corona virus COVID-19, as well as the related protocols that federal, state and local governments may impose. As part of our precautions, we may consider the possibility of changing the location of the Annual Meeting and/or holding a virtual meeting by means of remote communication. We will announce any alternative arrangements for the annual meeting as promptly as practicable if a decision is made to change the location of the Annual Meeting and/or hold a virtual meeting. If you are planning to attend our meeting, please check the "Investors" section on our website at https://www.NWHM.com. For those who do attend the meeting in person, we will be asked to:observe proper social distancing protocol consistent with guidelines in effect at the time of our Annual Meeting.
Our Annual Meeting is being held for the following purposes: (i) re-electto elect each of H. Lawrence Webb and Paul C. Heeschen Cathey S. Lowe and William A. Witte as Class III directors to serve for a three-year term expiring at our 20202023 annual meeting of stockholders; (ii) to seek an advisory vote on the compensation paid to the Company’s named executive officers (commonly referred to as "Say on Pay"); (iii) to seek an advisory vote on the frequency of future "Say on Pay" advisory votes; (iv) to ratify the selection of Ernst & YoungKPMG LLP as our independent registered public accountantsaccounting firm for 2017;2020; and (iii)(v) to transact such other business as may properly come before the Annual Meeting. The accompanying Notice of Annual Meeting of Stockholders and proxy statement describe these matters. We urge you to read this information carefully.
Our Board of Directors unanimously believes that (i) the election of its fourtwo nominees to serve as our directors, (ii) the approval, on an advisory basis of the compensation paid to the Company's named executive officers ("Say on Pay"), (iii) the approval, on an advisory basis, of a one year frequency of future "Say on Pay" advisory votes, and (iv) the ratification of our Audit Committee’s selection of independent registered public accountantsKPMG LLP are in the best interests of the Company and our stockholders, and, accordingly, recommends a vote “
Your vote is important and it is important that your shares be represented and voted whether or not you plan to attend the Annual Meeting in person. You may vote on the Internet, or if you are receiving a paper copy of the proxy statement, by telephone or by completing and mailing a proxy card. Voting over the Internet, by telephone or by written proxy will ensure your shares are represented at the Annual Meeting.
Thank you for your continued interest in and support of ourThe New Home Company.
Sincerely, |
|
Leonard S. Miller |
 |
President and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 2017
To our stockholders:
The 20172020 Annual Meeting of Stockholders of The New Home Company Inc. (the “
1. | To re-elect each of H. Lawrence Webb and Paul C. Heeschen | Board of Directors. | ||
| 2. | To seek an advisory vote on the compensation paid to the Company’s named executive officers (commonly referred to as "Say on Pay"). | |||
| 3. | To seek an advisory vote on the frequency of future "Say on Pay" advisory votes. | |||
4. | To ratify the selection of | 2020. | ||
5. | To transact such other business as may properly come before the Annual Meeting or any continuation, adjournment or postponement thereof. | |||
The proxy statement accompanying this notice describes each of these items of business in more detail.
Our Board of Directors has fixed the close of business on March 20, 2017April 13, 2020 as the record date for the determination of stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements of the Annual Meeting and only record holders of common stock at the close of business on that day will be entitled to vote. In order to constitute a quorum for the conduct of business at the Annual Meeting, holders of a majority of all outstanding shares of Common Stock of the Company must be present in person or represented by proxy.
Your vote is very important
. It is important that your shares be represented and voted whether or not you plan to attend the Annual Meeting. Whether or not you plan to attend the Annual Meeting, we encourage you to submit your proxy or voting instruction form as soon as possible using one of the following methods: (i) by granting your proxy electronically via the Internet by following the instructions on the Notice of Internet Availability of Proxy Materials or voting instruction form previously mailed to you; or (ii) if you are receiving a paper copy of the proxy statement, by signing, dating and returning by mail the proxy card or voting instruction form provided to you or following the voting instructions on the proxy card or voting instruction form, as applicable.By order of the Board of Directors, |
|
Miek D. Harbur, Secretary |
Important Notice Regarding the Availability of Proxy Materials for the 20172020 Annual Meeting of Stockholders to be Held on May 15, 2017.
THE NEW HOME COMPANY INC.
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 15, 2017
5 | |
8 | |
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS AND CERTAIN BENEFICIAL OWNERS | 14 |
16 | |
27 | |
| PROPOSAL 2 – ADVISORY VOTE ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS | 28 |
| 29 | |
| COMPENSATION OF DIRECTORS | |
PROPOSAL | |
33 | |
37 | |
41 |
THE NEW HOME COMPANY INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 15, 2017
General
Your proxy is solicited on behalf of the board of directors (our “
We have elected to provide access to our proxy materials over the Internet. Accordingly, we are sending a Notice of Internet Availability of Proxy Materials (the “
Some banks, brokers and other nominee record holders may be participating in the practice of "householding" proxy materials. This means that only one copy of our proxy materials or the Notice, as applicable, may have been sent to multiple stockholders in the same house. We will promptly deliver a separate Notice and, if requested, a separate proxy statement and annual report, to each stockholder that makes a request using the procedure set forth on the Notice.
On January 30, 2014, The New Home Company LLC (“
Important Notice Regarding the Availability of Proxy Materials for the 20172020 Annual Meeting of Stockholders to be Held on May 15, 2017.
The Notice of Annual Meeting of Stockholders, this proxy statement, our 20162019 Annual Report (the "Annual Report") and a sample proxy card are available at
Who Can Vote
You are entitled to vote if you were a stockholder of record of our common stock as of the close of business on March 20, 2017.April 13, 2020. At the close of business on March 20, 2017, 20,863,399April 13, 2020, 18,727,165 shares of our common stock were outstanding and entitled
Voting of Shares
Any stockholder as of the record date may vote by attending the Annual Meeting and voting in person, or by submitting a proxy. The method of voting by proxy differs (1) depending on whether you are viewing this proxy statement on the Internet or receiving a paper copy, and (2) for shares held as a record holder and shares held in “street"street name.”
Record Holders
. If you hold your shares of common stock as a record holder and you are viewing this proxy statement on the Internet, you may vote by submitting a proxy over the Internet by following the instructions on the website referred to in the Notice previously mailed to you. You may request paper copies of the proxy statement, Annual Report and proxy card by following the instructions on the Notice. If you hold your shares of common stock as a record holder and you are reviewing a paper copy of this proxy statement, you may vote your shares by completing, dating and signing the proxy card that was included with the proxy statement and promptly returning it in the pre-addressed, postage paid envelope provided to you, or by submitting a proxy over the Internet or by telephone by following the instructions on the proxy card.Street Name. If you hold your shares of common stock in street name, which means your shares are held of record by a broker, bank or nominee, you will receive a notice from your broker, bank or other nominee that includes instructions on how to vote your shares. Your broker, bank or nominee will allow you to deliver your voting instructions over the Internet and may also permit you to vote by telephone.telephone or by mail. In addition, you may request paper copies of the proxy statement and proxy cardvoting instruction form from your broker by following the instructions on the Noticenotice provided by your broker.
Stockholders may provide voting instructions by telephone by calling toll free 1-800-690-6903 from the U.S. or Canada, or via the internet at
www.proxyvote.com at any time before 11:59 p.m. Eastern Time onYOUR VOTE IS VERY IMPORTANT.
You should submit your proxy even if you plan to attend the Annual Meeting. If you properly give your proxy or voting instruction form and submit it to us in time to vote, one of the individuals named as your proxy will vote your shares as you have directed.All shares entitled to vote and represented by properly submitted proxies (including those submitted electronically, telephonically and in writing) received before the polls are closed at the Annual Meeting, and not revoked or superseded, will be voted at the Annual Meeting in accordance with the instructions indicated on those proxies. If, as a record holder, you do not indicate your voting directions on your signed proxy, your shares will be voted according to the recommendation of our Board, as follows:
• | "FOR" the election of H. Lawrence Webb and Paul C. Heeschen to the Board for a three-year term expiring at our 2023 annual meeting of stockholders, | |
• | "FOR" the approval, on an advisory basis, of the compensation of the Company’s named executive officers ("Say on Pay"), | |
• | "ONE YEAR" frequency of future stockholder "Say on Pay" advisory votes ("Say on Frequency"), and | |
• | "FOR" the ratification of the selection of KPMG LLP as our independent registered public accounting firm for the year ending December 31, 2020. |
The proxy gives each of H. Lawrence WebbLeonard S. Miller and John M. Stephens discretionary authority to vote your shares in accordance with his best judgment with respect to all additional matters that might come before the Annual Meeting and any continuation, postponement or adjournment of the Annual Meeting. If you hold your shares in street name and do not give
Revocation of Proxy
If you are a stockholder of record, you may revoke your proxy at any time before your proxy is voted at the Annual Meeting by taking any of the following actions:
• | delivering to our secretary a signed written notice of revocation, bearing a date later than the date of the proxy, stating that the proxy is revoked; | |
• | signing and delivering a new paper proxy, relating to the same shares and bearing a later date than the original proxy; | |
• | authorizing another proxy by telephone or over the Internet (your most recent telephone or Internet authorization will be used); or | |
• | attending the Annual Meeting and voting in person. |
Attendance at the Annual Meeting will not, by itself, revoke a proxy. Written notices of revocation and other communications with respect to the revocation of the Company proxies should be addressed to the mailing address of our principal executive offices:
The New Home Company Inc.
85 Enterprise, Suite 450
Aliso Viejo, California 92656
Attn: Secretary
If your shares are held in “street"street name,”" you may change your vote by submitting new voting instructions to your broker, bank or other nominee. You must contact your broker, bank or other nominee to find out how to do so. See “voting of shares” above"Voting in Person" below regarding how to vote in person if your shares are held in street name.
Attending the Annual Meeting
Stockholders who wish to attend the Annual Meeting will be required to present: (1) verification of ownership of our common stock, such as a bank or brokerage firm account statement and (2) a valid government-issued picture identification, such as a driver’s license or passport. Directions to the Annual Meeting are available at
www.proxyvote.com.No cameras, recording equipment, electronic devices, large bags, briefcases or packages will be permitted in the Annual Meeting.
In accordance with recommendations from the Centers for Disease Control and local and state officials, we will require any attendees to wear a face covering prior to entry to the meeting. The Annual Meeting will be held in our largest open area in our corporate offices with social distancing being observed. We ask that you please consider others and do not enter the meeting if you have symptoms of COVID-19, such as fever or cough. We will have hand sanitizer and sanitizing wipes available on site. As noted in our cover letter to this Proxy Statement, we are monitoring the situation with COVID-19 and if we believe it is necessary, will change to holding a virtual meeting by means of remote communication. However, at this time, we still plan to hold our Annual Meeting at our corporate offices subject to the foregoing guidelines.
Voting in Person
If you plan to attend the Annual Meeting and wish to vote in person, you will be given a ballot at the Annual Meeting. Please note, however, that if your shares are held in “street"street name,”" which means your shares are held of record by a broker, bank or other nominee, and you wish to vote at the Annual Meeting, you must bring to the Annual Meeting a legal proxy from the record holder of the shares, which is the broker or other nominee, authorizing you to vote at the Annual Meeting.
Quorum and Votes Required
At the close of business on March 20, 2017, 20,863,399April 13, 2020, 18,727,165 shares of our common stock were outstanding and entitled to vote. All votes will be tabulated by the inspector of election appointed for the Annual Meeting, who will separately tabulate affirmative and negative votes and abstentions.
Quorum
. A majority in voting power of the outstanding shares of common stock entitled to vote, present in person or represented by proxy, will constitute a quorum at the Annual Meeting. Shares of common stock held by persons attending the Annual Meeting but not voting, shares represented by proxies that reflect abstentions as to a particular proposal and brokerBroker Non-Votes and Abstentions
. Brokers or other nominees who hold shares of common stock in• | Proposal 1 - Election of Directors . Directors will be elected by a plurality of the votes cast. Thus, the | |
| • | Proposal 2 - "Say on Pay". The affirmative vote of a majority of the shares represented in person or by proxy at the Annual Meeting and entitled to vote is required for the approval, on an advisory basis, of the compensation of our named executive officers as disclosed in the proxy statement. Abstentions will have the same effect as voting against this proposal because they represent shares present in person or by proxy and entitled to vote. Broker non-votes will not effect the outcome of the say on pay vote. | |
| • | Proposal 3 - "Say on Frequency". Stockholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. The voting frequency option that receives the highest number of votes cast by stockholders will be deemed the preferred frequency for the advisory vote on executive compensation that has been selected by stockholders. Abstentions and broker non-votes will have no effect on the outcome of this proposal. Consistent with current Securities Exchange Act of 1934, as amended (“Exchange Act”) rules, our proxies will have discretionary authority to vote in accordance with the Board’s recommendation for proxy cards that are returned with no selection made relating to this proposal. Because the advisory vote on the frequency of future say-on-pay votes is advisory and not binding on the Company or the Board, the Board may decide that it is in the best interest of the Company and its stockholders to hold an advisory vote on future say on pay votes more or less frequently than the option indicated by our stockholders. |
• | Proposal 4 - Ratification of the Selection of Our Independent |
Solicitation of Proxies
Our Board is soliciting proxies for the Annual Meeting from our stockholders. We will bear the entire cost of soliciting proxies from our stockholders. In addition to the solicitation by mail, the Company, our officers, employees and agents may solicit proxies by telephone, by facsimile, electronically, including by email or in person.person for which they will receive no additional compensation. We do not expect to use a proxy solicitor to assist in the solicitation of proxies at this year’s annual meeting. Copies of solicitation materials will be furnished to banks, brokers, fiduciaries and custodians holding shares of our common stock in their names that are beneficially owned by our stockholders, so they may forward the solicitation materials to the beneficial owners and secure those beneficial owners’ voting instructions. We may reimburse persons representing beneficial owners for their costs of forwarding the solicitation materials to the beneficial owners.
Stockholder List
A list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder for any purpose germane to the Annual Meeting during ordinary business hours at our corporate headquarters offices located at 85 Enterprise, Suite 450, Aliso Viejo, California 92656 for the ten days prior to the annual meeting, and also at the Annual Meeting.
Explanatory Note
In June 2018, the Securities and Exchange Commission (the "SEC") revised its initialdefinition of "smaller reporting company" by, among other things, increasing the public offering on February 5, 2014. We are an “emerging growth company”float test to qualify as a "smaller reporting company" as defined in Item 10(f) of Regulation S-K of the Jumpstart Our Business StartupsSecurities Act of 2012 (the “
We previously took advantage of the exemption from the requirement to seek non-binding advisory votes on executive compensation.
ELECTION OF DIRECTORS
Board Structure and Nominees
Our Board currently consists of 11eight directors. The directors are divided into three classes; Class I, Class II, and Class III. Each director serves a term of three years. At each Annual Meeting, the term of one class expires. The class of directors with a term expiring at this Annual Meeting, Class III, consists of fourtwo directors.
Based upon the recommendation of our initial public offering, we entered intoNominating and Corporate Governance Committee, our Board has nominated H. Lawrence Webb and Paul C. Heeschen for election as Class III directors to the Board at the Annual Meeting. If elected, each director nominee would serve a three-year term expiring at the close of our 2023 Annual Meeting, or until their successors are duly elected. H. Lawrence Webb and Paul C. Heeschen currently serve on our Board. Biographical information on each of the nominees is furnished below under "Director Biographical Information."
The Company is party to an investor rights agreement (the “
Set forth below is information as of the record dateApril 13, 2020 regarding each nominee andof our directors, including each person whose term of office as a director will continue after the Annual Meeting.nominee. Dates of service prior to January 30, 2014 relate to service on the board of managers of TNHC LLC.
Name | Age | Position | Class | Director Since | Term Expires |
H. Lawrence Webb(1) | 68 | Chief Executive Officer and Chairman of the Board | III | 2010 | 2017 |
Wayne Stelmar(1) | 62 | Former Chief Investment Officer and Director | II | 2010 | 2019 |
| David Berman | 69 | Director | I | 2014 | 2018 |
Douglas C. Neff(1) | 68 | Director | I | 2014 | 2018 |
| Nadine Watt | 48 | Director | I | 2014 | 2018 |
Sam Bakhshandehpour(2)(3) | 41 | Director | II | 2014 | 2019 |
Michael Berchtold(1) | 53 | Director | II | 2014 | 2019 |
Gregory P. Lindstrom(3)(4) | 63 | Director | II | 2014 | 2019 |
Paul Heeschen(4) | 59 | Director | III | 2014 | 2017 |
Cathey S. Lowe(2)(4) | 63 | Director | III | 2014 | 2017 |
William A. Witte(2)(3) | 65 | Director | III | 2014 | 2017 |
Name | Age | Position | Class | Director | Term |
H. Lawrence Webb | 71 | Executive Chairman of the Board | III | 2010 | 2020 |
| Paul C. Heeschen(1)(3)(4) | 63 | Director | III | 2014 | 2020 |
Gregory P. Lindstrom(2)(3)(4) | 66 | Director | I | 2014 | 2021 |
Cathey Lowe(1)(2)(4) | 66 | Director | I | 2014 | 2021 |
Douglas C. Neff | 71 | Director | I | 2014 | 2021 |
Sam Bakhshandehpour(1)(2)(4) | 44 | Director | II | 2014 | 2022 |
Michael Berchtold(3) | 56 | Lead Independent Director | II | 2014 | 2022 |
Wayne Stelmar | 65 | Director | II | 2010 | 2022 |
_________________
(1) Current member of our Executive Committee
(2) Current member of our Compensation Committee
(3) Current member of our Nominating and Corporate Governance Committee
(4) Current member of our Related Party Review Committee
Board Recommendation
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE “
of Stockholders
Paul C. Heeschen. Mr. Heeschen was appointed as a member of our Board effective upon the completion of our initial public offering. For the past 22 years, he has been a Principal of Heeschen & Associates, a private investment firm. Mr. Heeschen serves as a General Partner of Sequoia Enterprises, LP, D.C.H. LP and Redwood Enterprises VII LP. For the past 22 years, he has been a Principal of Heeschen & Associates, a private investment firm. Mr. Heeschen served as an Executive Chairman of Diedrich Coffee Inc. from February 2010 to May 2010 and Director from January 1996 to May 2010. He served as Non-Executive Chairman of Diedrich Coffee, Inc. from February 2001 to January 2010. Mr. Heeschen has beenwas a Director at PCM, Inc., a NASDAQ-listed publicly traded company, sincefrom February 2006. Mr. Heeschen serves2006 until the company merged with Insight Enterprises, Inc. (NSIT) on the Audit, CompensationAugust 30, 2019 and Nominatingserved on its audit, compensation and Corporate Governance Committees of PCM, Inc. He is a trustee of the Palm Trust.nominating and corporate governance committees. Mr. Heeschen received his Bachelor of Science in Accounting from University of Southern California. Mr. Heeschen is a CPA (inactive). The Board has concluded Mr. Heeschen should serve as a director based on his financing and investment experience and prior executive leadership roles at public and private companies.
Cathey S. Lowe. Ms. Lowe was appointed as a member of our Board effective upon the completion of our initial public offering. Ms. Lowe is a finance professional and, since 2009, is the owner of Cathey Lowe Consulting, LLC, a consulting company that provides financial support to chief executive officers who do not require a full-time chief financial officer or to chief financial officers who lack staffing depth or expertise. Prior to founding Cathey Lowe Consulting, LLC, from 2000 to 2007, Ms. Lowe was the Senior Vice-President of Finance and Corporate Treasurer for The Ryland Group, Inc., a national homebuilder and mortgage company that recently merged with another homebuilder, where she was responsible for identifying and developing the appropriate capital structure for the company. Additionally, she was the Investor Relations Officer and represented Ryland on Wall Street with shareholders, analysts, rating agencies, the stock exchange and the financial media. She also managed the Land Committee and its evaluation and approval process of new land opportunities for Ryland’s homebuilding operations. Prior to joining Ryland, Ms. Lowe worked for Atlantic Richfield Company in various finance and accounting functions for more than 20 years. Ms. Lowe is a CPA. She received her Bachelor of Business Administration in Accounting from the University of Houston, her Master of Science in Organizational Behavior from the University of Texas at Dallas and her Master of Business Administration in Finance from the Anderson School of Management at the University of California, Los Angeles. The Board has concluded Ms. Lowe should serve as a director based on her executive background in accounting and finance, both within and outside the real estate industry, which enables her to contribute valuable financial and accounting expertise and oversight to our Board.
Gregory P. Lindstrom. Mr. Lindstrom was appointed as a member of our Board effective upon the completion of our initial public offering. From 2008 to 2011, Mr. Lindstrom served as Executive Vice President, General Counsel and Board Secretary of The Irvine Company, a California real estate development, investment and operating company. In these positions, Mr. Lindstrom was a member of the four-person Office of the Chairman responsible for all administrative functions of the company, including the legal department. From 1978 to 2008, Mr. Lindstrom was a partner at Latham & Watkins LLP, where, at various times, he served as managing partner of the San Francisco and Orange County offices and as a member of the firm’s Executive Committee. Currently, Mr. Lindstrom is a full-time Alternative Dispute Resolution professional specializing in the resolution of complex business disputes. Mr. Lindstrom received his Bachelor of Arts from the University of California Los Angeles and his J.D. from the University of Chicago. The Board has concluded Mr. Lindstrom should serve
Directors Continuing in Office Until the 2022 Annual Meeting of Stockholders
Family Relationships and Other Information
There are no family relationships between any of our directors or executive officers.
H. Lawrence Webb, Wayne Stelmar, and Tom Redwitz previously served as executives of John Laing Homes. WL Homes LLC (doing business as John Laing Homes) and certain affiliated entities filed with the U.S. Bankruptcy Court for the District of Delaware for bankruptcy protection from creditors in 2009.
Executive Officers
Set forth below is information regarding each of our executive officers as of March 20, 2017.
Name | Age | Position |
H. Lawrence Webb | 71 | Executive Chairman |
Leonard S. Miller | 57 | President and Chief Executive Officer |
John M. Stephens | 51 | Executive Vice President and Chief Financial Officer |
H. Lawrence Webb
. is ourLeonard S. Miller
John M. Stephens. Mr. Stephens has served as Chief Financial Officer since June 2015.2015 and Executive Vice President since August 2019. Prior to joining us, Mr. Stephens served as Senior Vice President, Chief Financial Officer and Principal Accounting Officer of M.D.C. Holdings Inc. from February 2012 to May 2015. He previously was with Standard Pacific Corp., one of the country’s largest homebuilders, serving as Chief Financial Officer from February 2009 through June 2011, Senior Vice President from May 2007 through June 2011, Corporate Controller from November 1996 through February 2009 and Treasurer from May 2001 until October 2002 and from November 2009 through June 2011. Mr. Stephens brings significant and relevant public company financial experience and expertise due to his previous roles at public company homebuilders. Prior to Standard Pacific, Mr. Stephens was an audit manager with the international accounting firm Arthur Andersen LLP.
Composition of our Board of Directors
Our Amended and Restated Certificate of Incorporation provides that, subject to the rights and preferences of any series of outstanding preferred stock, the authorized number of directors shall consist of at least three directors, with the exact number set by our Board. Our Board has set the current authorized directors at 11eight members, and our Board currently consists of 11eight directors. The directors are divided into three classes; Class I, Class II, and Class III. Each director serves a term of
Our Board has adopted corporate governance guidelines to set forth its agreementsCorporate Governance Guidelines concerning overall governance practices. These guidelines can be found in the “Investors”"Investors" section of our website at
Investor Rights Agreement
The Investor Rights Agreement terminates with respect to each Institutional Investor when such Institutional Investor ceases to own 4%provides for board nomination rights and voting obligations. For a discussion of our common stock based on the numberthis agreement, please see "Proposal 1—Election of shares outstanding immediately following our initial public offering.
As permitted by our Corporate Governance Guidelines, the Board adopted a leadLead Independent Director Charter in February 2018 to provide for an independent director. Generally,nonexecutive director to act as Lead Independent Director. Characteristics for the Chair of our Nominating and Corporate Governance Committee presides over the quarterly executive sessionsto consider in making a nomination for Lead Independent Director include: (i) sound judgment and confidence to stand up for proper course of non-employee membersaction in difficult times, (ii) understanding of the Board.Company, its industry and strategy, (iii) forward-looking vision for the Company, (iv) interpersonal skills necessary to: build consensus, foster communication, be a trusted sounding board for directors, and communicate with stockholders on complex issues, and (v) time and desire to properly perform the role. The Lead Independent Director is nominated by the Nominating and Corporate Governance Committee and confirmed by a majority of the independent directors of the Board to serve for such term as determined by those directors or until such earlier time as she or he ceases to be a director, resigns as Lead Independent Director, or is replaced as Lead Independent Director by a majority vote of the independent
directors. Mr. Berchtold currently serves as our Lead Independent Director. The Lead Independent Director receives additional compensation for his or her services, as the Board determines from time to time; currently, such additional compensation for the Lead Independent Director is a $25,000 cash retainer.
The specific responsibilities of the Lead Independent Director when acting as such include the following:
• | Set agendas for and preside over executive sessions of non-employee Directors and independent Directors and report to the Board, as appropriate, concerning those sessions. | |
• | Collaborate with the Chairman and senior management regarding agendas for Board meetings and recommend matters for the Board to consider and information to be provided to the Board. | |
• | Chair all meetings of the Board when the Chairman is not present. | |
• | Serve as a liaison and supplemental channel of communication between Directors and the Chairman and senior management without inhibiting direct communications between the Chairman, senior management and other Directors. | |
• | Serve as a liaison and be available for consultation and communication between the Board and stockholders. | |
• | Organize performance evaluations of the CEO and other directors. | |
• | Advise the Chairman concerning the retention of advisors and consultants who report directly to the Board. |
The Board recognizes the importance of regularly evaluating our particular circumstances to determine if our leadership structure continues to serve the best interests of us and our stockholders. To this end, the Board engages in a regular assessment, at least annually, of whether the then current leadership structure remains the most appropriate for us. Our corporate governance guidelinesCorporate Governance Guidelines permit the Board to fill the positions of Chairman and Chief Executive Officer with one individual or two different individuals and, as noted above, also allow the Board to appoint alead independent director. Lead Independent Director. As a result, the Board has the flexibility to alter its leadership structure in the future to adapt to changing circumstances as and when needed.
Self-Evaluation and Management Evaluations, Executive Sessions
The independent directors of our Board periodically meet in executive session without management or other employees present. At least annually, the Board performs a performance evaluation of management and the CEO. The Board also conducts an annual self-assessment of each individual director's performance, the Board's performance, and the performance of each committee of the Board. Each committee also conducts a similar self-assessment, both at the individual and committee level. The Nominating and Corporate Governance Committee utilizes the results of this self-evaluation process in assessing and determining the characteristics and critical skills required of prospective candidates for election to the Board and making recommendations to the Board with respect to assignments of Board members to various committees.
Board Independence
Our Board has determined that sevenfive of our current directors, Messrs. Berchtold, Bakhshandehpour, Lindstrom, Witte, Heeschen and Mmes. Watt andMs. Lowe, constituting a majority satisfy the listing standards for independence of the New York Stock Exchange (the "NYSE") and Rule 10A-3 under the Securities Exchange Act, of 1934, as amended (the “Exchange Act”), as well as our own corporate governance guidelines.Corporate Governance Guidelines. William A. Witte, our former Director who left our Board in May 2019, was also an independent director prior to his resignation from the Board. Mr. Webb is not considered independent as he is employed by the Company as our Chief Executive Officer.Chairman. Mr. Stelmar is not independent due to his status as a recently retired executive officer and due to the consulting services he provides,provided during 2019, as described under “Certain"Certain Relationships and Related Person Transactions—Transactions withWith Related Persons.”" Mr. Neff is President of IHP Capital Partners, (“IHP”), which is an affiliate of IHP, Capital Partners VI, LLC, the owner of approximately 11.7%13.0% of our stock. Affiliates of IHP are our joint venture partnersCapital Partners is also involved in two joint ventures, which arevarious related party transactions described in more detail under “Certain"Certain Relationships and Related Person Transactions—Transactions withWith Related Persons.” In addition, Mr. Neff’s son is employed by the Company and is compensated in excess of $120,000." Due to the foregoing, Mr. Neff does not satisfy the New York Stock Exchange Standards and has not been determined independent. Mr. Berman is Chairman of Tricon Capital Group Inc. (“Tricon”), an affiliate of TCN/TNHC LP (an entity which owns approximately 9.2% of our common stock). As further described under “Certain Relationships and Related Person Transactions—Transactions with Related Persons” various affiliates of Tricon are our joint venture partners in three joint ventures. Therefore, Mr. Berman does not satisfy the New York Stock Exchange Standards and has not been determined independent.
Board Meetings
Our Board held fivesix meetings during 2016,2019, and all current directors attended at least 75% of the combined total of (i) all Board meetings and (ii) all meetings of committees of our Board of which the director was a member. The Chairman of our Board or his designee, taking into account suggestions from the Lead Independent Director and other Board members, establishes the agenda for each Board meeting and distributes it in advance to each member of our Board. Each Board member is free to suggest the inclusion of items on the agenda. The independent directors of our Board regularly meet in executive session without management or other employees present. Although we have no policy with regard to Board attendance at our annual meetings of stockholders, our directors are invited and generally expected to attend the Company’s annual meeting of stockholders. All of our Board members, except Mr. Witte, attended our 20162019 annual meeting of the stockholders in person or via teleconference.
Board Committees
Our Board maintains a standing Audit Committee, Nominating and Corporate Governance Committee (the "Nominating Committee") and Compensation Committee. In 2019, the Company also formed the Related Party Review Committee and Executive Committee.to review certain related party transactions. To view the charter of each of our Audit Committee, our Nominating and Corporate Governance Committee, and our Compensation Committee, as well as our Independent Director charter, please visit the “Investors”"Investors" section of our website at
Director | Audit | Nominating and Corporate Governance | Compensation | Related Party Review | ||||||
H. Lawrence Webb | ||||||||||
Wayne Stelmar | ||||||||||
Sam Bakhshandehpour | X | X | X | |||||||
Michael J. Berchtold* | X | |||||||||
Paul C. Heeschen | X | C | C | |||||||
Gregory P Lindstrom | X | C | X | |||||||
Cathey Lowe | C | X | ||||||||
| X | ||||||||||
Douglas C. Neff | ||||||||||
_________________
X - Member
C - Chairman
* Lead Independent Director
Pursuant to the terms of the Investor Rights Agreement, as amended (described in more detail under the second paragraph under “Election "Election of Directors – Directors—Board Structure and Nominees” and the section entitled “Corporate Governance—Investor Rights Agreement”Nominees"), so long as the applicable Institutional InvestorIHP beneficially owns shares representing 4% or more of the total voting power, each Institutional InvestorIHP has the right to designate a member to our Board and the Board is required to nominate such individual designated by each such Institutional Investor to our Board.IHP. Our Nominating and Corporate Governance Committee reviews the characteristics and qualifications of each Board member required by the Company’s governance standards,charters and Corporate Governance Guidelines, including suchthe Board membersmember designated by an Institutional Investor,IHP, prior to recommending that the Board nominate any Board member or designee. Our Board evaluates each individual in the context of our Board as a whole, with the objective of assembling a group that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment using its diversity of experience in these various areas. In determining whether to recommend a director for re-election, the independent director members of our Nominating Committee may consider the director’s past attendance at meetings and participation in and contributions to the activities of our Board. While the Company values diversity and the Board considers diversity in its evaluation process, it has not adopted a specific policy regarding Board diversity. Our Nominating Committee may delegate any or all of its responsibilities to a subcommittee of the Nominating Committee to the extent permitted by applicable law.
Consideration of Stockholder-Recommended Director Nominees
Our Nominating Committee also considerswill consider director nominee recommendations for nominees that are timely submitted by stockholders if such recommendations are delivered in the manner prescribed by the advance notice provisions contained in our bylaws. In addition to satisfying the timing, ownership and other requirements specified in our bylaws, a stockholder’s notice must set forth as to each person whom the stockholder proposesstockholders. Stockholders who wish to recommend all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, pursuant to Regulation 14A under the Exchange Act and our bylaws (including, but not limited to, such person’s written consent to being named in the proxy statement as a nominee and to serve as a director if elected). Properly communicated stockholder recommendationsnominee may submit their suggestions to our principal executive offices by sending a letter describing the nominee’s name qualifications to The New Home Company Inc., Attention Secretary, 85 Enterprise, Suite 450, Aliso Viejo, California 92656. Recommendations submitted by stockholders will be considered in the same manner as recommendations received from other sources.
Our bylaws also permit stockholders to nominate directors for election at an annual stockholder meeting. See "Other Matters—Stockholder Proposals and Nominations—Proposals and Nominations Pursuant to Our Bylaws."
Compensation Committee
Our Compensation Committee is comprised of William A. WitteMessrs. Lindstrom (Chair), Sam and Bakhshandehpour and Gregory P. Lindstrom.Ms. Lowe. Our Board has determined that all of the members of our Compensation Committee are “independent”"independent" within the meaning of our director independence standards and the NYSE director independence standards (including those applicable to Compensation Committee members). In order to comply with certain SEC and tax law requirements, the committeeOur Compensation Committee (or a subcommittee thereof) must consistconsists of at least two directors that qualify as “non-employee directors”"non-employee directors" for the purposes of Rule 16b-3 under the Exchange Act and satisfysatisfies the requirements of an “outside director”"outside director" for purposes of section 162(m) of the Internal Revenue Code. The Board has determined that William A. WitteMessrs. Lindstrom (Chair), Sam and Bakhshandehpour and Gregory P. LindstromMs. Lowe each qualify as “non-employee directors”"non-employee directors" and “outside"outside directors.”" Our Compensation Committee met fourfive times in 2016.2019. Our Compensation Committee reviews and establishes the compensation of our senior executives, including our Chief Executive Officer, on an annual basis, has direct access to third party compensation consultants and legal counsel, and administers our equity based plans, including the review and grant of equity awards to eligible employees and consultants under our equity basedequity-based plans. The Compensation Committee also annuallyregularly reviews the compensation of directors for service on the Board and its committees and recommends changes in compensation to the Board as appropriate. The Compensation Committee performs an annual compensation risk assessment and may also, from time to time, review and approve overall compensation programs and performs an annual compensation risk assessment.programs. As discussed below, the Compensation Committee’s independent compensation consultant provides a risk assessment of our compensation practices to help the Compensation Committee perform its annual compensation risk assessment. Following its annual risk assessment for the 20162019 compensation year, in conjunction with advice from its compensation consultant, the Compensation Committee determined that it does not believe the Company’s compensation plans are likely to result in a material and adverse effect on the Company. Our Compensation Committee may delegate any or all of its responsibilities to a subcommittee of the Compensation Committee to the extent permitted by applicable law.
Our Compensation Committee reviews and approves or recommends all compensation for all executive officers and all officers as such term is defined in Rule 16a-1, promulgated under the Exchange Act, directors and all such categories of other employees of the Company or its subsidiaries as our Board determines from time to time. For compensation decisions relating to our Chief Executive Officer, our Compensation Committee reviews and approves corporate goals and objectives relating to the compensation of the Chief Executive Officer, evaluates the performance of the Chief Executive Officer in light of those goals and objectives and, based upon this evaluation (either alone or, if directed by the Board, in conjunction with a majority of the independent directors of the Board), sets the Chief Executive Officer’s compensation.
Use of Compensation Consultant and Role of Management
Our Compensation Committee is committed to staying apprised of current issues and emerging trends, and ensuring that our executive compensation program remains aligned with best practice. To this end, our Compensation Committee has engaged the services of Semler Brossy Consulting Group (“SBCG”("SBCG") to assist it in evaluating executive compensation matters. During 2016,2019, SBCG only provided services to our Compensation Committee and such services were related primarily to executive orand non-employee director compensation. SBCG also provided additional services related to compensation of employees below the executive officer level for purposes of providing the Compensation Committee with advice regarding our overall compensation programs, but such amounts did not amount to more than $120,000.including risks related thereto. The Compensation Committee solicited and approved such additional services by SBCG. While conducting assignments, SBCG interacts with our management when appropriate. Specifically, ourOur General Counsel and Senior Vice President of People workedworks with SBCG to provide information regarding the Company and helps prepare its executive compensation policies and practices.
Committee select appropriate performance measures and goals, and advised the Compensation Committee regarding evolving compensation best practices and trends. Specifically, SBCG provided information relating to competitiveness of pay levels, compensation plan design, pool availability, executive ownership guidelines, specific equity grant matters, market trends, risk assessment and management, and technical considerations concerning named executive officers, other executivesofficers and directors. SBCG also reviewed and commented on the Company’s 20162019 proxy statement. During 2016,2019, at the request of the Compensation Committee, a representative of SBCG attended all scheduled quarterly Compensation Committee meetings.
For further information on our executive officers’ compensation, please see “Executive"Executive Compensation.”
Related Party Review Committee
In March 2019 the Board formed the Related Party Review Committee to analyze, evaluate and negotiate, as applicable, related party transactions with entities affiliated with IHP and Douglas C. Neff. The Related Party Review Committee is comprised of H. Lawrence WebbMessrs. Heeschen (Chair), Wayne Stelmar, Michael J. BerchtoldLindstrom, Bakhshandehpour and Douglas C. Neff. Our ExecutiveMs. Lowe. This committee is delegated the power (but not the obligation) to substitute for our Audit Committee evaluates, reviews and determines whether or not to approve certain real estate- and borrowing-relatedunder our related party transactions on behalfpolicy for purposes of our Board.
Compensation Committee Interlocks and Insider Participation
None of our executive officers serves, or has in the past fiscal year served, as a member of the Board or Compensation Committee, or other committee serving an equivalent function, of any entity that has one or more executive officers who
Risk Oversight
One of the key functions of our Board is informed oversight of our risk management process. The involvement of our full Board in determining our business strategy is a key part of its assessment of management’s risk tolerance and also a determination of what constitutes an appropriate level of risk for the Company. Our Board administers oversight for the risk management process function directly, with support from its standing committees, each of which will address risks specific to its area of oversight. For example, oureach year the full Board reviews the Company's business plan with management and discusses risks that could affect the plan and measures to cope with those risks. In addition, management must obtain the approval of the Board before proceeding with any land acquisition above a pre-established threshold. When the Board reviews particular transactions and initiatives that require board approval, or that otherwise merit the Board's involvement, the Board generally includes related risk analysis and contingency plans among the matters addressed with management. Finally, the General Counsel reports to the Board regarding the Company's insurance programs and legal, regulatory, and compliance risks that might expose the Company to liability or loss. In some instances the Board delegates responsibility for the execution of certain elements of risk oversight to the committees in order to ensure appropriate expertise, attention and diligence. The committees oversee the relevant risk areas and report to the Board regularly. Management is responsible for ensuring that the Board and its committees are kept well informed of changing risks.
The Audit Committee considersis responsible for overseeing the integrity of the Company’s financial statements, the Company's accounting and discusses ourfinancial reporting processes, the independent auditor’s qualifications and independence, the performance of the Company’s internal audit function and independent auditor, compliance with legal and regulatory requirements, key compliance risks, major financial and information technology risk exposures, including a review of our relevant insurance policies, and review and approval of related party transactions. In addition, in March 2019, the steps our management takesBoard formed the Related Party Review Committee to monitor and control these exposures, including guidelines and policiesreview transactions related to govern the process by whichIHP. The Compensation Committee performs an annual compensation risk assessment and management is undertaken.with the assistance of its independent compensation consultant, which includes a review of compensation-related risks at all levels of the organization, including those related to employees below the executive officer level. Our Nominating and Corporate Governance Committee provides oversight with respect to corporate governance and evaluates the independence of our directors and the effectiveness of our Corporate Governance GuidelinesGuidelines. The Company believes that the Lead Independent Director, the Board committees, all of which are chaired by and Codeconsist of Business Conductindependent directors, and Ethicsthe full Board of Directors, provide effective oversight of the Company’s business and also oversees management’s succession planning. Also, the Compensation Committee performs an annual compensation risk assessment.
Communication with our Board
Interested persons, including stockholders, may communicate with our Board, including the non-employee directors or the Lead Independent Director, by sending a letter to The New Home Company Inc., Attention: Secretary, 85 Enterprise, Suite 450, Aliso Viejo, California 92656. Our Secretary will submit all correspondence to the Chairman and to any specific director to whom the
correspondence is directed.
Code of Business Conduct and Ethics
Our Board has adopted a codeCode of business conductBusiness Conduct and ethicsEthics that applies to all of our employees, executive officers and directors. Our codeCode of business conductBusiness Conduct and ethicsEthics can be found in the “Investors”"Investors" section on our website at
Employees and Social Governance
The Company is committed to creating and maintaining a community in which its employees are free from all forms of harassment and discrimination. We require employee training and protocols for preventing, reporting and addressing behavior that is not in line with our business standards or our core values, including, but not limited to, discriminatory or harassing behavior and sexual misconduct.
To ensure a positive and productive workplace, we proactively seek feedback from employees and continuously engage in two-way communication with our team members. We conduct an annual employee engagement survey soliciting direct feedback from our employees utilizing a third party survey and analytics provider. Our most recent survey, from December 2019, had approximately 99% participation and reflected that approximately 91% of our employees are positively engaged, which was up from 90% in the 2018 survey. This score is based on affirmative responses to factors such as being proud to work for the Company, a willingness to recommend the Company, and achieving a feeling of personal accomplishment associated with the employee's work. Annually, our CEO shares results in person with all team members at divisional all-employee meetings and each division’s leader is tasked with identifying improvement plans. The insights gained from our employee engagement surveys have helped us drive significant improvements in the way our employees work and engage with one another.
The Company engages in a variety of learning and development opportunities with its employees. Examples of such opportunities include construction best practices training, education for managers on delivering performance feedback, and sales coaching programs. Regionally, department leaders host "lunch and learns" on topics such as the land acquisition process, design and architecture, reading construction plans, and training on department of real estate rules and regulations for our project management teams. In addition, we offer all employees access to an online on-demand micro-learning platform with hundreds of courses on topics that include technology, communication, business acumen, leadership and personal growth.
Further, we believe it is important to treat all employees with dignity and respect. Employee diversity and inclusion are embraced and opportunities for training, growth, and advancement are strongly encouraged.
We also strive to provide a safe and healthy work environment for all employees. We believe that corporate social responsibility is a significant factor for our overall success. This includes adopting ethical practices to direct how we do business while keeping the interests of our stakeholders and the environment in mind, including valuing and challenging the talented men and women who comprise our workforce. To that end, we have the comprehensive Code of Ethics and Business Conduct applicable to all employees (discussed above) and an actively-managed ethics hotline. We are also committed to maintaining high standards in health and safety at all of our sites. We have a health and safety audit system that includes comprehensive independent third-party inspections. Our Risk Management team has a training system and a safety enforcement system in place in the field, which we believe has led to an increase in safety awareness and effectiveness.
The following table shows ownership of our common stock as of March 20, 2017,April 13, 2020, based on 20,863,39918,727,165 shares of common stock outstanding on that date, by (i) each current director and nominee; (ii) oureach named executive officers;officer; (iii) all of our current directors and executive officers as a group; and (iv) each person known to us to own beneficially more than five percent of our capital stock. Except to the extent indicated in the footnotes to the following table, the person or entity listed has sole voting and dispositive power with respect to the shares that are deemed beneficially owned by such person or entity, subject to community property laws, where applicable. Previously, H. Lawrence Webb, Wayne Stelmar, Joseph Davis, Thomas Redwitz and each Institutional InvestorIHP (each a “
Unless otherwise noted, the address of the persons or entities shown in the table below is 85 Enterprise, Suite 450, Aliso Viejo, CA 92656.
| Name | Total Shares Beneficially Owned (1) | Percentage of Outstanding Common Stock (%) |
| Named Executive Officers | ||
H. Lawrence Webb(2)(4) | 938,800 | 4.5% |
Tom Redwitz(3)(4) | 655,799 | 3.1% |
| John M. Stephens | 19,923 | * |
| Non-Employee Directors and Nominees | ||
| Sam Bakhshandehpour | 17,530 | * |
| Michael Berchtold | 40,230 | * |
David Berman(5) | 15,230 | * |
| Paul Heeschen | 24,230 | * |
| Gregory P. Lindstrom | 20,230 | * |
| Cathey S. Lowe | 16,230 | * |
Douglas C. Neff(6) | 2,431,848 | 11.7% |
Wayne Stelmar(4)(7) | 939,534 | 4.5% |
Nadine Watt(8) | 15,230 | * |
| William A. Witte | 65,230 | * |
| All current executive officers and directors (including nominees) as a group (14 persons) | 5,200,044 | 24.2% |
| More than 5% Stockholders | ||
IHP Capital Partners VI, LLC(6) | 2,421,659 | 11.6% |
TCN/TNHC LP(5) | 1,916,327 | 9.2% |
Watt/TNHC LLC(8) | 662,743 | 3.2% |
Joseph D. Davis(4)(9) | 863,278 | 4.1% |
First Manhattan Co.(10) | 2,030,886 | 9.7% |
Second Curve Capital, LLC(11) | 1,696,259 | 8.1% |
Wellington Management Group LLP(12) | 1,666,114 | 8.0% |
Wells Fargo & Company(13) | 1,115,020 | 5.3% |
Name | Total Shares Beneficially Owned(1) | Percentage of Outstanding Common Stock (%) | ||||||
Named Executive Officers | ||||||||
H. Lawrence Webb(2)(3) | 1,109,767 | 5.8% | ||||||
| Leonard S. Miller | 57,743 | * | ||||||
John M. Stephens | 97,443 | * | ||||||
Thomas Redwitz(3)(4) | 663,981 | 3.5% | ||||||
| ||||||||
Non-Employee Directors and Nominees | ||||||||
Sam Bakhshandehpour | 41,626 | * | ||||||
Michael Berchtold | 64,326 | * | ||||||
Paul C. Heeschen | 98,826 | * | ||||||
Gregory P. Lindstrom | 44,326 | * | ||||||
Cathey Lowe | 40,326 | * | ||||||
Douglas C. Neff(5) | 2,455,944 | 13.1% | ||||||
Wayne Stelmar(3)(6) | 1,010,286 | 5.3% | ||||||
All current executive officers and directors (including nominees) as a group (10 persons)(7) | 5,020,613 | 26.0% | ||||||
More than 5% Stockholders | ||||||||
IHP Capital Partners VI, LLC(5) | 2,442,901 | 13.0% | ||||||
FIL Limited(8) | 1,901,862 | 10.2% | ||||||
MidOcean Tactical Credit Fund II, LP(9) | 1,462,938 | 7.8% | ||||||
Second Curve Capital(10) | 1,262,429 | 6.7% | ||||||
| Dimensional Fund Advisors(11) | 1,083,649 | 5.8% | ||||||
| First Manhattan Co.(12) | 1,039,391 | 5.6% | ||||||
Joseph D. Davis(3)(13) | 732,385 | 3.9% | ||||||
_________________
* Less than 1%.
(1) | |
As of |
(2) | Consists of |
(3) | Each of Messrs. Webb, Stelmar, Redwitz and Davis are parties to the Investor Rights Agreement, as a result of which, together with IHP VI (defined below), they may be deemed to have shared voting power over an additional 4,849,553, 4,949,034, 5,295,339, and 5,226,935 shares of our common stock, respectively. Each of Messrs. Webb, Stelmar, Redwitz and Davis disclaims beneficial ownership of the shares held by the other group members. |
(4) | Consists of 443,322 shares of the Common Stock held as of the date hereof by the Redwitz Family Trust Dated April 23, 1999, of which Mr. Redwitz is a trustee (the |
| Upon the March 1, 2019 retirement and resignation of employment by Mr. Redwitz, he is no longer an executive officer of the Company. | |
(5) | |
Mr. Neff has sole voting and dispositive power over |
(6) | Consists of |
(7) | Total does not include the 663,981 shares of |
(8) | Based solely on a Schedule 13G/A filed with the SEC on February |
| (9) | Based solely on a Schedule 13G filed with the SEC on March 12, 2020, Ultramar Credit Holdings, Ltd., MidOcean Tactical Credit Fund II GP, LP, MidOcean Tactical Credit Fund II, LP (collectively, the "MidOcean Entities"), MidOcean Credit Fund Management LP (the "Management Company"), J. Edward Virtue ("Mr. Virtue") and Steven Shenfeld ("Mr. Shenfeld", and collectively with the MidOcean Entities, the Management Company and Mr. Virtue, the "Reporting Persons" under Rule 13d-1(k) of Section 13 of the Act), has shared voting power and dispositive power over |
| Reporting Persons is c/o MidOcean Partners, 320 Park Avenue, Suite 1600, New York, New York 10022. | |
| (10) | Based solely on a Schedule 13G/A filed with the SEC on February 10, |
| (11) | Based solely on a Schedule 13G filed with the SEC on February 12, 2020, Dimensional Fund Advisors LP, an investment adviser registered under Section 203 of the Investment Advisers Act of 1940, has sole voting power over 1,023,827 shares and sole dispositive power over 1,083,649 shares of our common stock. According to its Schedule 13G, Dimensional Fund Advisors LP furnishes investment advice to four investment companies registered under the Investment Company Act of 1940, and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively referred to as the “Funds”). In certain cases, subsidiaries of Dimensional Fund Advisors LP may act as an adviser or sub-adviser to certain Funds. In its role as investment advisor, sub-adviser and/or manager, Dimensional Fund Advisors LP or its subsidiaries (collectively, “Dimensional”) may possess voting and/or investment power over the securities of the Company that are owned by the Funds, and may be deemed to be the beneficial owner of the shares of the Company held by the Funds. However, all securities reported in the Schedule 13G are owned by the Funds. Dimensional disclaims beneficial ownership of such securities. The address of Dimensional Fund Advisors LP is Building One, 6300 Bee Cave Road, Austin, TX 78746. |
| (12) | Based solely on a Schedule 13G/A filed with the SEC on February |
(13) | Consists of 515,441 shares of |
Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 20162019 and 2015,2018, information regarding the compensation awarded to, earned by or paid to our named executive officers ("NEOs"), which for 20162019 consisted of:
| Name and Principal Position | Year | Salary(1) | Bonus(2) | Stock Awards(3) | Option Awards | Non-equity Incentive Plan Compensation(4) | All Other Compensation (5) | Total |
| H. Lawrence Webb Chief Executive Officer | 2016 | $626,923 | -- | $624,999 | -- | $741,000 | $11,108 | $2,004,030 |
| 2015 | $519,231 | $155,000 | $631,151 | -- | $320,000 | -- | $1,625,382 | |
Thomas Redwitz Chief Investment Officer(6) | 2016 | $450,000 | $13,120 | $431,999 | -- | $256,880 | -- | $1,151,999 |
| 2015 | $467,308 | $54,000 | $504,409 | -- | $216,000 | -- | $1,241,717 | |
| John M. Stephens Chief Financial Officer | 2016 | $450,000 | $13,120 | $431,999 | -- | $256,880 | $18,967 | $1,170,966 |
• | H. Lawrence Webb, our Executive Chairman and former Chief Executive Officer, | |
| • | Leonard S. Miller, our President and current Chief Executive Officer ("CEO"), | |
• | John M. Stephens, our Executive Vice President and Chief Financial Officer ("CFO"), and | |
• | Thomas Redwitz, our former Chief Investment Officer. |
Name and Principal Position(1) | Year | Salary | Bonus(2) | Stock Awards(3) | Option Awards(3) | Non-equity Incentive Plan Compensation | All Other Compensation(4) | Total | ||||||||||||||
H. Lawrence Webb | 2019 | $623,077 | -- | $195,148 | $198,856 | -- | $10,450 | $1,027,531 | ||||||||||||||
2018 | $692,308 | -- | $909,989 | -- | -- | $10,490 | $1,612,787 | |||||||||||||||
Leonard S. Miller President and Chief Executive Officer | 2019 | $557,692 | $225,000 | $542,495 | $182,284 | -- | $12,348 | $1,519,819 | ||||||||||||||
| 2018 | $484,615 | $175,000 | $399,982 | -- | -- | $21,063 | $1,080,660 | |||||||||||||||
| John M. Stephens Executive Vice President and Chief Financial Officer | 2019 | $515,385 | $200,000 | $520,792 | $145,827 | -- | $18,321 | $1,400,325 | ||||||||||||||
| 2018 | $500,000 | $175,000 | $399,982 | -- | -- | $20,945 | $1,095,927 | |||||||||||||||
Thomas Redwitz | 2019 | $105,769 | -- | -- | -- | -- | $1,280,216 | $1,385,985 | ||||||||||||||
2018 | $550,000 | -- | $439,986 | -- | -- | -- | $989,986 |
_________________
(1) | Effective August 30, 2019, Mr. Webb transitioned from the Company’s CEO to the Company’s Executive Chairman and Mr. Miller transitioned from the Company’s Chief Operating Officer to its CEO. Effective March 1, 2019, Mr. Redwitz retired and resigned from his position as Chief Investment Officer of the Company. |
(2) | Amounts reflect discretionary bonuses paid to our |
| 2019 performance. | |
(3) | With respect to 2019, amounts reflect the grant date fair value of the restricted stock units, or RSUs, and stock options granted to the |
| 14, 2020. In 2018, our NEOs were granted both RSUs and performance share units, or PSUs. For 2018, the grant date fair value of each PSU award assumes that performance measures are achieved at the target. The Compensation Committee determined that, as of December 31, 2019, the performance objectives for such PSUs had not been met and therefore the PSUs did not vest and were forfeited. The grant date values associated with the PSUs above that were forfeited are $545,993, $239,989, $239,989, and $263,991 for Messrs. Webb, Miller, Stephens, and Redwitz, respectively. | |
(4) |
Amounts shown in this column represent other compensation in the form of (A) 401(k) match in 2019 for Mr. Miller of $1,538 and for Mr. Stephens of $8,202 and (B) cell allowance, auto allowance and toll reimbursements that were $10,000 or more in the aggregate. |
| Amounts also include, for Mr. Redwitz, |
Narrative to Summary Compensation Table
Components of Compensation
The individual components of our executive compensation program consist primarily of (i) base salary, (ii) annual cash-based bonus opportunities, (iii) long-term equity incentives and (iv) retirement savings opportunities and limited other employee benefits.
Summary of Our Compensation Design and Governance Practices
What We Do
✔ | Incentivize Long-Term Performance: We grant equity awards to motivate long-term performance and to align the interests of our executive officers with those of our stockholders. |
✔ | Maintain Rigorous Stock Ownership Guidelines: Our minimum stock ownership guidelines encourage ownership and further align the interests of our executive officers with those of our stockholders (i.e., 6x base salary for our Executive Chairman, 3x base salary for the CEO, and 2x base salary for all other NEOs). |
| ✔ | Balance Short-Term vs. Long-Term Compensation: We balance short-term compensation with long-term compensation to focus our senior executives on the achievement of both operational and financial goals and longer-term strategic objectives. |
| ✔ | Independent Consultant: Since our initial public offering in 2014, our Compensation Committee has engaged an independent compensation consultant that does not provide any other services to us. |
| ✔ | Clawback Policy: We have a policy that provides for recoupment of incentive compensation in the event of an accounting restatement as a result of misconduct of an executive officer. |
| ✔ | Prohibit Hedging and Pledging: We have an anti-hedging policy applicable to all employees (including our executive officers and directors) that prohibits purchases of our stock on margin, calls or similar options on our stock, or selling our stock short; we also have an anti-pledging policy. |
| ✔ | Appropriate Severance: We provide an appropriate level of severance protection (including termination in connection with a change in control) to ensure continuity of service and alignment of the executive’s interests with those of stockholders. |
| ✔ | Equity Grant Timing Policy: We have adopted a policy regarding the timing of equity grants. |
What We Do Not Do
 | Provide Single-Trigger Change in Control Features in any Outstanding Compensation Program |
| Provide Tax Gross Ups on Change in Control or other Benefits |
| Provide Excessive Executive Perquisites |
| Guarantee Base Salary Increases or Incentive Payments for Named Executive Officers |
| Permit Re-Pricing of Underwater Stock Options without Stockholder Approval |
Role of the Compensation Committee
The Compensation Committee is responsible for reviewing and approving, on an annual basis, the corporate goals and objectives with respect to the compensation of our NEOs, as described in the Compensation Committee Charter. The Compensation Committee relies on its own review and the advice of its independent compensation consultant in establishing executive officer pay. The Compensation Committee seeks the input of the CEO and in some cases, the full Board, in making executive officer pay decisions, but all decisions are made by the Compensation Committee.
Independent Compensation Consultant to the Compensation Committee
The Compensation Committee has engaged SBCG as its independent compensation consultant. SBCG’s duties include preparation of material for the Compensation Committee's executive officer pay analysis, review of our peer group, recommendations for non-employee director compensation, discussion and analysis of potential incentive programs, risk assessment of the Company’s compensation programs, and work on behalf of the Compensation Committee to review management's recommendations to the Compensation Committee about executive officer pay matters. In analyzing market compensation data for executives at public homebuilders, SBCG typically regresses such peer data to the Company’s size given that most public homebuilders are significantly larger than the Company, particularly given consolidation in the industry in recent years.
For more information about the role of the Compensation Committee and its use of its Independent Compensation Consultant, see “Corporate Governance—Board Committees—Compensation Committee”.
Pay Design and Compensation Elements
The Company completed its initial public offering in February2014. Since 2014, we entered into amendedthe Company has had an independent compensation committee that has been advised by SBCG, our independent compensation consultant. The Company’s NEOs were initially made up of the Company’s four founders, H. Lawrence (Larry) Webb, Wayne Stelmar, Thomas Redwitz, and restated employment agreements with eachJoe Davis. Over several years, these founders have transitioned and/or retired and the Company hired John Stephens as its CFO in mid-2015 and Leonard Miller, as Chief Operating Officer, in 2017. In August 2019, Mr. Webb transitioned from his role as CEO to Executive Chairman, and Mr. Miller succeeded him, becoming President and CEO. From its beginnings, as a founder-led company to its current structure, the Company’s compensation design elements have matured. For example, the Company instituted use of our namedperformance-based equity in its long term incentive program starting in 2018. However, for the 2019 compensation year, the Company and its Compensation Committee have been cognizant of challenges in the Company’s operational environment, including changes in the housing market, particularly for higher priced housing in California and the transition to more affordable product offerings. These factors contributed to its executive officers, pursuantcompensation decisions for 2019, including its decision to set bonus target opportunities at 50% for meeting target performance and utilize options vs. PSUs to allow for a longer time frame to meet objectives.
Our compensation programs have been comprised of the following compensation elements:
| • | Base salary. The base salaries of our executive officers are intended to provide a competitive level of fixed compensation in order to attract, retain and motivate talented executive officers. Base salaries are generally set based on each executive officer's responsibilities, performance, skills, and experience as compared with relevant market data. | |
| • | Annual Incentive Program. In furtherance of our compensation philosophy to award incentive bonuses based on performance, we design our annual incentive programs to motivate and reward executive officers for achieving pre-established company performance objectives (which has traditionally been a pre-tax income target). | |
| • | Long-term Incentive Awards. The Compensation Committee believes that a significant portion of each executive officer's compensation should be in the form of long-term equity incentive compensation. While our annual incentive programs reward executive officers for actions that impact short- and mid-term performance, the Compensation Committee recognizes that long-term equity incentive awards also serve the interests of our stockholders by: |
o | giving these key employees the opportunity to participate in the long-term appreciation of our common stock; | |
o | encouraging executive officers to create and sustain stockholder value over longer periods because the value of equity awards is directly attributable to changes in the price of our common stock over time; and | |
o | promoting executive officer retention because the full value of equity awards cannot be realized until vesting occurs, which generally requires continued employment for multiple years. |
Overview of 2019 Executive Compensation and Compensation Philosophy
As a result of a challenging operational environment in late 2018 due to, in part, a change in the markets in which the annual base salariesCompany builds (particularly in California), the Company’s transition to more affordable product offerings, and legacy assets with lower returns, the Company was required to take approximately $30 million in impairments and did not meet its short-term performance goals for Messrs. Webbthe fiscal year 2018. Due to this changing operational environment, during 2019, the Company shifted some of its focus to strengthening its balance sheet, improving cash flow generation, and Redwitz were established at $500,000deleveraging. Accordingly, in early 2019, the Compensation Committee sought to reduce executive compensation spend and $450,000, respectively. Mr. Stephens became our Chief Financial Officer on June 26, 2015. We enteredtake into an employment agreement with Mr. Stephens pursuant to which his annual base salary was established at $450,000. The termsaccount the importance of other goals of the employment agreements entered into by Messrs. Webb, RedwitzCompany, including deleveraging and Stephens are describedincreasing cash flow, as well as the lower levels of projected profitability due to the drop in more detail below under “—Employment Agreements.”
| • | Targeted bonus payouts for the 2019 bonus program were set at 50% of the executives’ historical targeted cash bonuses for meeting the annual pre-tax income target. | |
| • | In response to low stock trading price, the grant date value of the February 2019 annual stock grants was reduced to less than 50% of the prior year’s grant in an effort to reduce the dilutive impact of equity-based compensation to the Company's stockholders. | |
| • | Due to a shift in focus for 2019 to reducing leverage and increasing cashflow and in the interest of executive retention to offset meaningfully lower compensation for the year, the committee granted a combination of time-based RSUs and options instead of time-based RSUs and performance-based share units (“PSUs”) to allow longer runway for Company to achieve its goals (i.e., a ten year option exercise period vs. a PSU strictly tied to specific profitability measures over a 2-3 year period). The Committee also considered the fact that the 2-year goals set for the PSUs granted in 2018 were unlikely to be met by the end of 2019 as a result of the impairments and change in market and thus none of such PSUs were likely to vest. |
Later in the year, in August 2019, Mr. Miller succeeded Mr. Webb as CEO (the “CEO Transition”). At that time, Mr. Stephens was also promoted to Executive Vice President in addition to continuing as CFO. Mr. Webb transitioned to the role of Executive Chairman. While still focused on the goal of reducing executive compensation spend in light of the Company’s operational environment, the Committee believed it was also appropriate in connection with the CEO Transition to ensure officer continuity and retention following the change in leadership. Therefore, Messrs. Miller and Stephens received increases to their base salaries, their employment agreements were renewed for an additional three-year term, and they each received 100,000 RSUs which cliff vest on the third anniversary of August 1, 2019. Mr. Webb’s salary was reduced commensurate with his reduction in 2015. Effective March 5, 2016,responsibilities in his new role. The Committee made these decisions to ensure the long-term retention and continued leadership by Messrs. Miller and Stephens particularly following the CEO Transition.
2019 Compensation Decisions by Compensation Element
Base Salary
The Compensation Committee reviews executive compensation and formally approves the compensation program for the year typically during its February meeting. Typically, base salary increases, if any, are determined at this meeting. The Compensation Committee approved an increase toin the annual base salary for Mr. Webb’s salaryMiller from $500,000 to $650,000. No changes were made$550,000, effective upon the first pay period following February 11, 2019, due to his promotion to President and assumption of all day-to-day aspects of the Company's operations. In an effort to reduce executive compensation spend for the 2019 fiscal year, the Committee determined not to increase base salaries for the other NEOs during its February 2019 meeting.
As discussed above, in August 2019, Mr. Webb transitioned from CEO to Executive Chairman and Mr. Miller assumed the role of CEO in addition to his role as President. Also, in connection with this planned succession, Mr. Stephens was promoted to Executive Vice President in addition to his current role of CFO in acknowledgment of his contributions to the other named executive officers’ salariesCompany as well as his additional leadership required to aid in 2016.
SBCG provided our Compensation Committee and Board with advice, including compensation data related to executives at public homebuilders, which the Compensation Committee considered in making its salary determinations.
Named Executive Officer | August 2019 Base Salary | February 2019 Base Salary | 2018 Base Salary | % Change* |
H. Lawrence Webb | $450,000 | $700,000 | $700,000 | (36)% |
| Leonard S. Miller | $600,000 | $550,000 | $500,000 | 20% |
John Stephens | $550,000 | $500,000 | $500,000 | 10% |
Thomas Redwitz | $-(1) | $-(1) | $550,000 | n/a |
* Percentage increase/decrease from 2018 to August 2019, when the transition occurred.
_________________
| (1) | In February 2019, Mr. Redwitz notified the Board of his retirement and resignation as Chief Investment Officer, effective March 1, 2019. Accordingly, his base salary was not evaluated or changed in 2019. |
Annual Cash Incentive
In 2019, each of the NEOs participated in an annual bonus compensation program under our Executive Incentive Compensation Plan.
The 20162019 target bonuses were initially approved in February 2019. Subsequently, in connection with the CEO Transition and in consultation with SBCG, including a review of market data for Messrs. Webb, Redwitzexecutives at public homebuilders, the Compensation Committee determined to increase Mr. Miller’s bonus target to 120% of his new base salary (increased from 100% of base salary in his prior role) and Stephens were 150%Mr. Webb’s bonus target was reduced to $550,000 (or approximately 122% of his new base salary). Mr. Stephens’ bonus target as a percentage of salary remained unchanged at 100%, 75%, and 75% respectively,but increased in amount due to his increase in salary. In each of the executive’s 2016 annual base salary. Each was eligible to receive a bonus rangingforegoing cases, the revised bonuses applied pro rata from 50% to 200%the effective date of the executive’sCEO Transition through year end. In addition, consistent with the 2019 Annual Incentive Program approved in February 2019, the NEO bonuses were only to be funded at 50% for achieving the Company’s pretax income goal (i.e., the payout for meeting target performance is 50% of the bonus based ontarget). A summary of the followingpotential bonus payouts for meeting 2019 Target Performance for each of the executive officers is summarized below:
Named Executive Officer | 2019 Modified Target Bonus ($) | 2019 Modified Target Bonus (as % of Base Salary) |
| From January 1, 2019 – August 29, 2019 | ||
H. Lawrence Webb | $700,000 | 100% |
| Leonard S. Miller | $275,000 | 50% |
John Stephens | $250,000 | 50% |
| Thomas Redwitz(1) | n/a | n/a |
| From August 30, 2019 – December 31, 2019 | ||
| H. Lawrence Webb | $275,000 | 61% |
| Leonard S. Miller | $360,000 | 60% |
| John Stephens | $275,000 | 50% |
| Thomas Redwitz(1) | n/a | n/a |
_________________
| (1) | In February 2019, Mr. Redwitz notified the Board of his retirement and resignation as Chief Investment Officer, effective March 1, 2019. Accordingly, Mr. Redwitz was not eligible to participate in the bonus program. |
The Committee established threshold, target, and maximum goals for pretax income shown in the table below. Payouts for achievement between goals is determined by straight line interpolation, with no payout schedule:
Performance | % of Target Performance Goal | Payout (% of Target) |
| Maximum | 125% | 200% |
| Target | 100% | 100% |
| Threshold | 75% | 50% |
| < Threshold | <75% | 0% |
Performance | % of Target Performance Goal | Payout (% of Target Bonus) |
Maximum | > 200% | 100% |
| 150% | 75% | |
Target | 100% | 50% |
| 70% | 35% | |
Threshold | 40% | 20% |
< Threshold | < 40% | 0% |
In addition, the Compensation Committee determined, in consultation withhad the Chief Executive Officer and its Compensation Consultant,discretion to pay an additional $13,120 toadjust each of Messrs. Stephens and Redwitz due to their respective performance and contributions over the coursepayout by +/- 30% of the 2016 year.
For 2019, the Company did not achieve the threshold pretax income goal and accordingly, the annual bonus compensation program under our Executive Incentive Compensation Plan which compensated the named executive officers based on achievement of a pre-established pretax income goal for 2015. In 2015, we achieved approximately 80%yielded no bonuses to any of the target performance goal, resulting in the payment of 80% of each executive’s target bonus. However, the 2014 named executive officers did not receive a bonus for 2014. Therefore, in consideration of the Compensation Committee’s evaluation of the overall performance and trajectory of the Company,NEOs. In early February 2020, the Compensation Committee, in consultation with the full Board and SBCG, determined that, notwithstanding that the 2019 incentive threshold had not been met, that management had made significant progress with respect to important strategic goals of the Company in 2019, including generating $121.3 million of cash flow from operations, reducing the Company’s net debt-to-capital ratio by 980 basis points to 49.2%, and successfully negotiating an extension of its Compensation consultant,unsecured credit facility, among others. The Committee considered that the failure to meet the pretax income goal was in large part attributable to their efforts to reduce leverage and increase liquidity (at the expense of margin), as well as market conditions in California and the impact of legacy assets which produced lower margins and returns and inventory impairments. The Committee also considered the importance of retaining management during a more challenging operational environment for the Company and due to the recent leadership transition. In addition, the Committee further noted that due to Mr. Webb’s high stock ownership and his status as a founder, that retention was less of a concern with respect to Mr. Webb. Accordingly, the Committee determined not to pay Mr. Webb, who had been CEO for a majority of the year, any bonus, but determined to awardpay Messrs. Miller and Stephens discretionary bonuses of $225,000 and $200,000, respectively, in the interest of executive retention and to each namedacknowledge their continued value to the Company and respective contributions in 2019.
Equity Compensation
Overview and Background
As discussed in “--Overview of 2019 Compensation and Compensation Philosophy” above, due to a challenging operational environment in late 2018, the Company did not meet its short-term performance goals for the fiscal year 2018 and also did not anticipate that it would meet the 2019 goals set for the PSUs granted in 2018. As a result, the Committee determined to reduce the grant date value of the equity awards to executives in order to reduce executive officercompensation spend and the dilutive impact to shareholders. In the interest of still providing a bonus equalmeaningful incentive to his 2015 target bonus. Furthermore,executives, the Compensation Committee decided to grant stock options instead of PSUs to give executives a longer runway to achieve its goals (i.e. a ten year option exercise period vs. a PSU tied to specific financial measures over a 2-3 year period).
Annual awards are usually granted based on a specified dollar amount, with the number of shares for each award determined by dividing the dollar amount by the closing market price of our stock on the grant date, rounded down to the nearest whole unit. When making the determinations for 2019 equity grants, the Committee started with the framework they had adopted for the equity program in 2018. In 2018, the Committee, in consultation with its independent compensation consultant, concluded thatSBCG, established target long-term incentive values for each NEO as follows: $910,000 for Mr. Webb, $400,000 for Mr. Miller, $400,000 for Mr. Stephens, and $440,000 for Mr. Redwtiz utilizing a formula of 130% of base salary for Mr. Webb, as CEO, and 80% of base salary for the other executive officers. To determine the number of shares granted to each executive, the Committee used the closing price per share of the Company’s chiefcommon stock two trading days following the 2017 fiscal earnings release (February 16, 2018 at a price of $11.68/share), in accordance with our equity grant timing policy. In 2018, the equity awards were comprised 60% of PSUs and 40% time-based RSUs.
| February 2018 Long-Term Incentive Awards and Values | ||||
Named Executive Officer | Target Value of PSUs | Number of Target PSUs | Target Value of RSUs | Number of RSUs |
H. Lawrence Webb | $546,000 | 46,746 | $364,000 | 31,164 |
| Leonard S. Miller | $240,000 | 20,547 | $160,000 | 13,698 |
John Stephens | $240,000 | 20,547 | $160,000 | 13,698 |
Thomas Redwitz | $264,000 | 22,602 | $176,000 | 15,068 |
February 2019 Grants
In February 2019, the committee established the following target long-term incentive values for each NEO: $600,000 for Mr. Webb, $550,000 for Mr. Miller (using a formula of 100% of his base salary), and $440,000 for Mr. Stephens (using a formula of 88% of his base salary). The Committee established Mr. Webb’s 2019 equity target in consideration of his impending Executive Chairman role rather than as a formula of his salary as CEO. Mr. Redwitz did not receive any equity awards on account of his retirement and resignation from the Company effective March 1, 2019.
Since the Company’s stock price at the time of grant in February 2019 was trading significantly below the February 2018 levels, during its February 2019 meeting, the committee decided to utilize the Company’s stock price at the time of the February 2018 grants ($11.68) to determine the number of RSUs and approximate the number of options to be granted in February 2019 to reduce the year-over-year dilutive impact of the NEOs’ equity grants to stockholders. Since the share price on the date of grant was $5.76, the aggregate grant date fair value of each of the NEOs’ equity grants were well below their indicated target values.
In the interest of executive officer, was paid compensation below market in 2015retention and thereforeto allow for a more meaningful incentive and longer runway for the Company to achieve its goals (i.e. a ten year option exercise period vs. a PSU tied to specific financial measures over a 2-3 year period), the committee determined to grant executives a mix of time-based RSUs and stock options, as opposed to a mix of RSUs and PSUs. The award Mr. Webbcomprised approximately 37% RSUs and 63% options, with an additional $75,000 bonus.
| February 2019 Long-Term Incentive Awards and Values | ||||
Named Executive Officer | Number of RSUs | Number of Stock Options | Target Long-Term Incentive Value | Grant Date Value of Award(1) |
H. Lawrence Webb | 20,548 | 81,801 | $600,000 | $317,213 |
| Leonard S. Miller | 18,836 | 74,984 | $550,000 | $290,780 |
John Stephens | 15,068 | 59,987 | $440,000 | $232,619 |
Thomas Redwitz | n/a | n/a | n/a | n/a |
_________________
(1) | Amounts reflect the grant date fair value of the restricted stock units, or RSUs, and stock options granted to the NEOs, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718. |
August 2019 Grants
As discussed above, in August 2019, the Company’s CEO (and founder), subjectMr. Webb, transitioned from CEO to the executive's continued employment until the change in control.
The total number and grant date values of shares underlying each stock option and RSU granted to the following percentagesNEOs for the full year 2019 is set forth in the table below:
| 2019 Long-Term Incentive Awards and Values | |||||
Named Executive Officer | Value of RSUs(1) | Number of RSUs | Value of Stock Options(1) | Number of Stock Options | Total Value of 2019 Award(1) |
H. Lawrence Webb | $195,148 | 38,242 | $198,856 | 81,801 | $394,004 |
| Leonard S. Miller | $542,495 | 118,836 | $182,284 | 74,984 | $724,779 |
John Stephens | $520,792 | 115,068 | $145,827 | 59,987 | $666,619 |
Thomas Redwitz | n/a | n/a | n/a | n/a | n/a |
_________________
(1) | Amounts reflect the grant date fair value of the restricted stock units, or RSUs, and stock options granted to the NEOs, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718. |
Equity Grant Agreements
Starting in February 2017, our named executed officers have been granted RSUs under the each executives’ annual base salaries in effect on the date of grant:
2018 Performance Share Units
As mentioned above, in February 2018, the Compensation Committee granted PSUs to the NEOs. The Compensation Committee selected two metrics for the PSUs: average return on equity and cumulative earnings per share, each weighted 50%. Both metrics were measured over a two-year performance period which commenced on January 1, 2018 and ended on December 31, 2019. The vesting, if at all, of these PSUs was based percentage attainment of specified threshold, target, and maximum performance objectives as set forth in the table below:
| % of Target | % of Shares Earned |
| 120% | 150% |
| 100% | 100% |
| 80% | 50% |
| <80% | 0% |
In February 2020, the Compensation Committee, in consultation with management and the Board, determined that the performance objectives had not been met and therefore the PSUs did not vest and were forfeited.
Redwitz Separation and Consulting Agreements
Effective March 1, 2019, Mr. Redwitz resigned as Chief Investment Officer and executed a separation agreement and general release of claims with the Company pursuant to which Mr. Redwitz received a cash severance payment of $1,100,000, payable in a single cash lump sum, as well as company-paid continued healthcare coverage to the earlier of (i) the twelve-month anniversary of March 1, 2019 or (ii) the date that Mr. Redwitz obtains substantially similar health care coverage. Under the separation agreement, Mr. Redwitz forfeited any Company equity awards, to the extent unvested as of the March 1, 2019 effective date.
Also effective March 1, 2019, Mr. Redwitz and the Company entered into a consulting agreement pursuant to which Mr. Redwitz serves as a consultant to the Company for an initial one-year term commencing on the Effective Date, subject to continuation by the mutual agreement of Mr. Redwitz and the Company. Under the consulting agreement, Mr. Redwitz receives the following payments and benefits: (i) a monthly consulting fee of $10,000, (ii) each outstanding vested Company stock option held by Mr. Redwitz as of the Effective Date (each, a "Pre-Consulting Stock Option") will remain outstanding and exercisable in accordance with its terms (based on Mr. Redwitz’s continued provision of consulting services thereafter rather than continued employment) and (iii) reimbursement for reasonable business expenses incurred in connection with the provision of consulting services in accordance with Company policy. As of March 1, 2020, the Company and Mr. Redwitz agreed to continue operating under the terms of the RSU Awards made underconsulting agreement on a month to month basis. For the 2014 Plan,months April 2020 and May 2020, the 2016 RSU Agreement does not provide for (i) pro-rated vesting upon the executive's retirement or (ii) full vesting immediately priorCompany and Mr. Redwitz have agreed to a changereduced consulting fee of $5,000 per month.
If the consulting agreement and Mr. Redwitz’s consulting services are terminated by either party for any reason (other than by the Company for cause), including due to the Company’s decision not to renew the agreement, then each remaining Pre-Consulting Stock Option will remain exercisable for three months following the termination date (but in control.
Each of the separation agreement and the consulting agreement also requires Mr. Redwitz’s continued compliance with restrictive covenants and the Company’s continued compliance with indemnification and insurance obligations each included in Mr. Redwitz’s employment agreement.
Equity Grant Practices
It is the Company's policy that equity grants shall generally occur on pre-established dates, pursuant to our equity grant guidelines, with employee annual grants generally occurring on the later of the seconddate that is two full trading daydays after the public release of fiscal year-end earnings, or (if later)during a time not around our fiscal year-end or quarterly earnings release) the Monday following the date the Compensation Committee approves the awards. The Compensation Committee approves annual awards for all employees. All new hire and promotion grants are also approved by the Compensation Committee. Such awards are generally made effective on the latest of (i) approval by the Compensation Committee, (ii) the employee’s date of hire/promotion or (iii) as of the first open trading day under the Company’s insider trading policy after the employee’s date of hire/promotion if such hire/promotion date is not open for trading under the Company’s insider trading policy, as applicable. Annual and initial awards for non-employee directors are approved by the Company’s Board of Directors, which may include automatic grants under a director compensation program or policy approved by the Board. Annual awards for directors are generally granted on the date of the applicable annual shareholder meeting. Initial awards are generally granted on the date the new director is appointed or elected to the Board, if such appointment date is a date that is open for trading under the Company’s insider trading policy, or as of the first open trading day after the new director is appointed or elected if such date is not open for trading under the Company’s insider trading policy. Annual awards are usually granted based on a specified dollar amount, with the number of shares for each RSU grantaward determined by dividing the dollar amount by the closing market price of our stock on the grant date, rounded down to the nearest whole unit.
Clawback Policy
The Company maintains a clawback policy which requires certain cash and equity incentive compensation to be repaid to the grantee’s continuous service.Company by current and former executive officers meeting the definition set forth in Rule 16a-1(f) of the Exchange Act ("Covered Persons") if awarded in the event of the Company being required to prepare an accounting restatement resulting from material noncompliance with financial reporting requirements under the federal securities laws as a result of willful, fraudulent, intentional or grossly negligent misconduct by such Covered Person or by the Company. The Clawback Policy also authorizes the Compensation Committee to recoup incentive compensation, including time-based equity, from any of the Company's employees and Covered Persons (a "grantee") in the event such grantee has engaged in "detrimental conduct" (including, among other things, the commission of an act of fraud, the unauthorized removal of Company property, any acts of violence, improper disclosure of Company information, failure to perform duties as described in a written document, a material breach of the Company's Code of Business Conduct and Ethics, any other act or omission which constitutes "cause" for termination under an individual's employment or severance agreement, if any) for a period of 24 months following the date of the occurrence of such detrimental conduct. The Compensation Committee grantedis authorized to implement and interpret the awards in complianceCompany's Clawback Policy.
Employment Agreements
The Company has entered into employment agreements with our equity grant practices policy discussed above.
The employment agreementsAmended Employment Agreements also provide for, among other things:
| • | eligibility for annual cash performance bonuses based on the satisfaction of performance | |
| • | eligibility for equity-based compensation awards on the same terms and conditions as other senior executive officers; and | |
| • | participation in any employee benefit plans and programs that are maintained from time to time for our other officers. |
The employment agreementsAmended Employment Agreements also contain customary employee non-solicitation provisions that apply during the term of the agreements and for two years after the termination of the executive’s employment. The employment agreementsAmended Employment Agreements also contain standard confidentiality provisions that apply during the term of the agreements and after the termination of the executive’s employment.
Other Elements of Compensation
We maintain a 401(k) retirement savings plan for our employees, including our named executive officers,NEOs, who satisfy certain eligibility requirements. Currently, we match contributions made by participants in the 401(k) plan up to a specified percentage of the employee contributions, and these matching contributions vest ratably depending on length of service with the Company.
All of our full-time employees, including our named executive officers,NEOs, are eligible to participate in our health and welfare plans, including: medical, dental and vision benefits; medical and dependent care flexible spending and health savings accounts; short-term and long-term disability insurance; and life insurance. We believe these health and welfare benefits are necessary and appropriate to provide a competitive compensation package to our named executive officersNEOs and employees generally.
During the 20162019 fiscal year, certain members of management, (at the director level and above), including named executive officers,NEOs, are eligible for up to $1,800$1,200 in reimbursements annually for mobile phone usage and a car allowance of up to $7,200 annually. Named executive officers areNEOs may also be reimbursed for highway toll charges.
We do not maintain any defined benefit pension plans or nonqualified deferred compensation plans.
No Tax Gross-Ups
We do not make gross-up payments to cover our named executive officers’NEOs’ personal income taxes that may pertain to any of the compensation paid or provided by us.
Executive Compensation Arrangements Upon Certain Departures
Under the current employment agreements with our named executive officers,NEOs, we pay the following amounts upon qualifying departures from service with us. We may terminate the employment of a named executive officersuch individuals at any time with or without cause, and the executive may terminate his employment with or without good reason.
Termination for cause or resignation without good reason
.If we terminate a named executive officer’san executive's employment for cause, or if the named executive officer resigns without good reason, the named executive officer will be entitled to receive any earned but unpaid annual base salary, any earned but unpaid prior-year bonus, reimbursement of expenses incurred prior to the date of termination, accrued vacation and any other paid-time-off and any benefits that have been earned and accrued prior to the date of termination (referred to as the “Earned Benefits”"Earned Benefits").
Termination without cause or resignation for good reason or due to disability or death
Employment Agreements.
Equity Award Agreements. Our forms of RSU, stock option and PSU agreements provide for accelerated vesting in the event of certain executive officer’s annual base salary, plus (ii)departures.
All RSUs granted to executives that are currently outstanding have been granted under the highest annual bonus paid2016 Plan. The agreements under the 2016 Plan do not provide for vesting upon the executive's retirement or “single trigger” vesting immediately prior to a change in control. On February 11, 2019, the Compensation Committee adopted a revised form of restricted stock unit award agreement, the 2019 RSU Agreement, for RSUs granted to the named executive officer duringofficers commencing in 2019 under the previous three calendar years. These severance benefits will be payable only if2016 Plan. The 2019 RSU Agreement differs from prior RSU agreements in that it provides that in the named executive officer signs and does not revoke a waiver and release of any claims against us. On February 16, 2017,event the employment agreements of Messrs. Webb, Stephens and Redwitz were amended to add a provision pursuant to which each of Messrs. Webb, Stephens and Redwitz has the opportunity to receive his
Under our 2019 Stock Option Agreement, upon the executive’s termination of service without "cause" or for "good reason", or a termination of service due to death or disability, then the stock option will vest and become exercisable with respect to the number of shares underlying the option that would have become vested and exercisable on the first vesting date after such termination of service, had the executive remained in service through such date. However, if such amounttermination without cause or for good reason occurs on or within 24 months following a change in control, then the option will accelerate and become fully vested and exercisable as of the date of termination. If the executive’s service is greater thanterminated due to his "retirement", then the highest annual bonus paidoption will vest and become exercisable with respect to the number of shares underlying the option equal to (i) the number of shares underlying the option that would have become vested and exercisable on the first vesting date after such termination of service, had the executive remained in service through such date, multiplied by (ii) the product of (A) 1/12, and (B) the number of whole months between the vesting date immediately preceding such termination of service and the date of termination.
Finally, under our form of PSU Agreement, if the executive experiences a termination of employment without "cause" or for "good reason" or due to death or disability during the previous three calendar years.
Prohibitions on Hedging and Pledging Company Stock
In order to avoid creating conflicts between an executive's interests and those of other stockholders, our Insider Trading Policy prohibits all covered persons, including executives, from hedging the economic risk of owning Company shares and
does not allow pledging of Company stock.Executive Stock Ownership Guidelines
In November 2016, the Compensation Committee adopted stock ownership guidelines applicable to the Chief Executive Officer and all other “executive officers” definedexecutive officers. These guidelines were modified on August 30, 2019 in accordanceconnection with Rules 3b-7 and 16a-1(f) of the Exchange Act.CEO Transition. Under such stock ownershipthese guidelines, as amended, each executive officer must hold 100% of all “net shares”"net shares" received from the vesting, delivery or exercise of equity awards granted by us until the executive beneficially owns shares of our common stock equal to six (6)times base salary, in the case of the Executive Chairman, three times base salary, in the case of the Chief Executive Officer, and two (2) times the base salary in the case of any other executive officer (the “exec"executive ownership threshold”threshold"). The “net shares”"net shares" means those shares of common stock that remain after
2020 Developments
During its regularly scheduled Compensation Committee meeting in February 2020, the Committee approved the compensation arrangement for Messrs. Webb, Miller and Stephens for the 2020 fiscal year, including the annual cash incentive program and long-term incentive program.
2020 Salaries. Given that the committee had recently approved a salary increase to each of Messrs. Miller and Stephens in conjunction with the CEO transition and the Company continued to operate in a challenging environment, no increases to base salaries were approved for the 2020 year.
2020 Cash Incentive Program. In consultation with SBCG, the Compensation Committee determined to restructure its annual cash incentive program for the 2020 fiscal year. In 2019, the Company did not achieve the threshold pretax income goal and accordingly, the annual bonus compensation program yielded no bonuses to any of the NEOs. Despite this, the full Board and the Compensation Committee determined that, notwithstanding that the 2019 incentive threshold had not been met, that management had made significant progress with respect to important strategic goals of the Company in 2019, including generating $121.3 million of cash flow from operations, reducing the Company’s net debt-to-capital ratio by 980 basis points to 49.2%, and successfully negotiating an extension of its unsecured credit facility, among others. The Compensation Committee determined it was appropriate to incorporate some of these factors in its pre-established cash incentive program for 2020. Accordingly, the Compensation Committee and its compensation consultant developed a pre-established "score card" which includes multiple key strategic measures for 2020. The Compensation Committee approved specific targets for homebuilding revenue, gross margin, pretax income, SG&A rate, and strategic business objective measures, which were each given a 20% weighting, all while achieving a certain maximum net debt-to-capital ratio. At the end of the year, the Compensation Committee will assess performance against each of the key measures and use those assessments to make year-end bonus decisions for the executives in its discretion. The Compensation Committee determined that this approach of structured discretion was appropriate because, similar to 2019, the funding of the 2020 bonuses would only be at 50% for achieving target performance. In addition, the maximum payment pursuant to the program is at 100% of target. Below summarizes each executive's target bonuses, along with the effect of the discount due to funding at 50% ("2020 Modified Annual Target Bonus"), and the percentage of base salary if the executives achieve target performance:
Named Executive Officer | 2020 Target Bonus ($) | 2020 Modified Annual Target Bonus ($) | 2019 Modified Annual Target Bonus (as % of Base Salary) |
H. Lawrence Webb | $550,000 | $275,000 | 61% |
| Leonard S. Miller | $720,000 | $360,000 | 60% |
John Stephens | $550,000 | $275,000 | 50% |
2020 Equity Grants. Similar to its February 2019 grants, the executives' February 2020 equity grant value represented a significant discount to what the Compensation Committee and SBCG believed was an appropriate target equity grant for its executives, but was deemed appropriate in order to reduce the dilutive impact of the grant on shareholders. Accordingly, because the grant value was significantly reduced and to allow for a more meaningful incentive and longer runway for the Company to achieve its goals (i.e. a ten year option exercise period vs. a PSU tied to specific financial measures over a 2-3 year period), the Compensation Committee determined to grant executives a mix of time-based RSUs and stock options, consistent with 2019. The Compensation Committee also considered the importance of executive retention. For 2020, the Compensation Committee determined to weigh the mix of RSUs to stock options more heavily in favor of RSUs due to the increased dilutive effect of stock options as compared to RSUs. The award comprised approximately 65% RSUs and 35% options. The Compensation Committee granted such stock options and RSUs on February 18, 2020 (two trading days following our 2019 fiscal year-end earnings release in accordance with the Company's equity grant practices policy). These RSU and stock option awards vest in equal annual installments on each of the first, second and third anniversaries of the grant date, subject to the grantee’s continuous service with the Company. The table below summarizes the equity awards and associated values of the February 2020 grants all of which were granted under the 2016 Plan.
Named Executive Officer | Value of RSUs(1) | Number of RSUs | Value of Stock Option(1) | Number of Stock Options | Total Value of 2020 Award(1) |
H. Lawrence Webb | $238,901 | 44,571 | $128,715 | 57,534 | $367,616 |
| Leonard S. Miller | $238,901 | 44,571 | $128,715 | 57,534 | $367,616 |
John Stephens | $192,713 | 35,954 | $103,830 | 46,411 | $296,543 |
________________
(1) | Amounts reflect the grant date fair value of the restricted stock units, or RSUs, and stock options granted to the NEOs, as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718. |
Outstanding Equity Awards at Fiscal Year End
The following tables set forth summary information regarding the outstanding equity awards held by our named executive officers atas of December 31, 2016:
Option Awards(1) | Stock Awards | ||||
| Name | Number of Securities Underlying Unexercised Options Exercisable | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested(2) | Market Value of Shares or Units of Stock That Have Not Vested(3) |
| H. Lawrence Webb | 227,273 | $11.00 | 01/30/2024 | 62,189 | $728,233 |
| Thomas Redwitz | 181,818 | $11.00 | 01/30/2024 | 42,985 | $503,354 |
| John Stephens | - | - | - | 52,530 | $615,126 |
Option Awards | Stock Awards | |||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable(2) | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested(6) ($) | ||||||||||||
H. Lawrence Webb | 227,273 | - | 11.00 | 01/30/2024 | 84,297(3) | 392,824 | ||||||||||||
| - | 81,801 | 5.76 | 02/20/2029 | - | - | |||||||||||||
| Leonard S. Miller | - | 74,984 | 5.76 | 02/20/2029 | 140,359(4) | 654,073 | ||||||||||||
Thomas Redwitz | 181,818 | - | 11.00 | 01/30/2024 | - | - | ||||||||||||
John Stephens | - | 59,987 | 5.76 | 02/20/2029 | 137,632(5) | 641,365 | ||||||||||||
_________________
(1) | Each of the options vested on January 30, 2017 and were granted from the 2014 Plan. |
| (2) | |
(3) | Remaining unvested shares vest: 10,388 on February 16, 2020, 6,850 on February 20, 2020, 25,279 on February 24, 2020, 10,388 on February 16, 2021, 6,849 on February 20, 2021, 6,849 on February 20, 2022, and 17,694 on August 1, 2022. All outstanding RSUs |
| (4) | Remaining unvested shares vest: 4,566 on February 16, 2020, 6,279 on February 20, 2020, 12,391 on March 13, 2020, 4,566 on February 16, 2021, 6,279 on February 20, 2021, 6,278 on February 20, 2022 and 100,000 on August 1, 2022. All outstanding RSUs |
| executive to one share of the Company’s common stock. | |
(5) | Remaining unvested shares vest: 4,566 on February 16, 2020, 5,023 on February 20, 2020, 13,432 on February 24, 2020, 4,566 on February 16, 2021, 5,023 on February 20, 2021, 5,022 on February 20, 2022, and 100,000 on August 1, 2022. All outstanding RSUs vest in three equal installments on each of the first three anniversaries of the grant date (with the exception of 100,000 RSUs granted on August 1, 2019, that cliff vest on the third anniversary of the grant date) subject to continued service on the applicable vesting date, and when vested, each unit entitles the executive to one share of the Company’s common stock. |
(6) | Based on the |
The following table provides information as of December 31, 2016,2019, about compensation plans under which shares of our common stock may be issued to employees, consultants or non-employee directors of our Board upon exercise of options, vesting of RSUs, PSUs, or under any other rights under all of our existing equity compensation plans.
| Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | ||
| (a) | (b) | (c) | |||
| Plans approved by stockholders | 1,310,775 | $11.00 | 815,497 | ||
| Plans not approved by stockholders | - | - | - | ||
| Total | 1,310,775 | $11.00 | 815,497 | ||
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Plans approved by stockholders | 1,660,133 | $ | 9.78 | 996,100 | ||||||||
Plans not approved by stockholders | - | - | - | |||||||||
Total | 1,660,133 | $ | 9.78 | 996,100 | ||||||||
_________________
(a) | |
Represents an aggregate of |
(b) | Represents the weighted-average exercise price of the |
(c) | Represents the aggregate number of securities remaining available for issuance under |
ADVISORY VOTE ON THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
Background to the Advisory Vote
We are required by the Securities Exchange Act of 1934, as amended ("Exchange Act") to provide our stockholders with the opportunity to approve, on a non-binding, advisory basis, the compensation of our named executive officers ("NEOs"). Because we were previously an “emerging growth company” this is the first year that we are requesting approval of stockholders of the compensation of our NEOs.
Proposal and Background
At this annual meeting, we are asking our stockholders to approve, on a non-binding, advisory basis, the following resolution (commonly referred to as "Say on Pay"):
RESOLVED, that the stockholders of The New Home Company Inc. hereby approve the compensation of the Company’s named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the compensation tables and accompanying narrative disclosures set forth in this proxy statement.
We are a “smaller reporting company” and have elected to provide scaled compensation-related disclosures permitted as a “smaller reporting company”. While we do not have a “Compensation Discussion and Analysis” section in our proxy statement, we encourage stockholders to review the “Executive Compensation” section of this proxy statement, including the summary compensation table and related narrative disclosure.
Our overall compensation program applicable to NEOs is intended to attract and retain qualified executives for the Company through fluctuating business cycles, provide them with incentives to achieve our strategic, operational and financial goals, increase shareholder value and reward long-term financial success.
Our executive compensation programs are designed to have the following attributes:
• | Alignment of long-term interests of our executives with those of our shareholders; | |
• | Meaningful executive stock ownership guidelines that require our executives to own significant levels of Company shares; | |
• | Balance of cash compensation with equity compensation so that each executive has a significant personal financial stake in the Company’s share price performance (in general, we seek to provide a significant portion of total compensation to NEOs in the form of equity-based compensation); | |
• | Balance of short-term compensation with long-term compensation to focus our senior executives on the achievement of both operational and financial goals and longer-term strategic objectives; | |
• | Consideration of external market data and use of an independent compensation consultant when designing compensation programs; | |
• | An anti-hedging policy applicable to all employees (including our executive officers and directors) that prohibits purchases of our stock on margin, calls or similar options on our stock, or selling our stock short; | |
• | An appropriate level of severance protection to ensure continuity of service; | |
| • | No single-trigger change in control features in any of our programs; | |
| • | No gross ups for any excise or other penalty taxes related to compensation paid; and | |
| • | Clawback of certain cash and equity incentive compensation. |
Effects of Advisory Vote
Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or awarded to our named executive officers and will not be binding on the Board or the Compensation Committee. However, the Board will consider the outcome of the vote when making future executive compensation decisions.
Board Recommendation
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"APPROVAL OF THE RESOLUTION SET FORTH ABOVE REGARDING THE COMPENSATION OF OUR NAMED EXECUTIVE OFFICERS. UNLESS INSTRUCTED OTHERWISE ON YOUR PROXY CARD, THE PERSONS NAMED IN THE ACCOMPANYING FORM OF PROXY WILL VOTE ALL PROXIES “FOR” THE PROPOSAL.
Assuming the presence of a quorum at the Annual Meeting, under our Bylaws, the affirmative vote of a majority of the Shares present in person or by proxy and entitled to vote on the proposal is necessary for its approval. As a result, abstentions will be treated as votes against the proposal, whereas broker non votes will have no effect on the outcome of the vote.
ADVISORY VOTE ON THE FREQUENCY OF FUTURE "SAY ON PAY" ADVISORY VOTES
Stockholders will be given the opportunity to vote on the following advisory resolution:
Background
We are seeking an advisory, non-binding determination from our stockholders as to the frequency with which stockholders would have an opportunity to provide an advisory approval of the executive compensation of our NEOs. Because we were previously an “emerging growth company” this is the first year we are requesting a determination from stockholders as to the frequency with which we will conduct future say-on-pay votes. Our first advisory say-on-pay vote is being conducted at this Annual Meeting. See “Proposal 2—Advisory Vote on the Compensation of Named Executive Officers.” We are providing stockholders the option of selecting a frequency of one, two or three years, or abstaining.
Summary
While we will continue to monitor developments in this area, the Board currently believes that it is appropriate to seek an advisory vote on executive compensation every year. We believe that this frequency is appropriate because it will enable our stockholders to vote, on an advisory basis, on the most recent executive compensation information that is presented in our proxy statement, leading to a more meaningful and coherent communication between the Company and our stockholders on the compensation of our NEOs.
The Board’s determination was further based on the premise that this recommendation could be modified in future years if it becomes apparent that an annual frequency vote is not meaningful, is burdensome or is more frequent than recommended by best corporate governance practices.
Board Recommendation
Based on the factors discussed, the Board determined to recommend that future say-on-pay votes occur every year until the next advisory vote on the frequency of future say-on-pay votes, which will be conducted at least every six years. Stockholders are not being asked to approve or disapprove the Board’s recommendation, but rather to indicate their preference among the following frequency options: one year, two years or three years, or to abstain from voting.
Effects of Advisory Vote
This vote is advisory, and therefore not binding on the Company, the Compensation Committee or the Board. However, the Board will consider the outcome of the vote when determining how frequently to conduct future advisory say-on-pay votes. Following the Annual Meeting, the Company will announce its decision in light of this vote as to how frequently it will include a stockholder vote on the compensation of executives in its proxy materials until the next required vote on the frequency of say-on-pay vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS SELECT EVERY "ONE YEAR" ON THE FREQUENCY OF FUTURE SAY-ON-PAY VOTES. CONSISTENT WITH CURRENT EXCHANGE ACT RULES, OUR PROXIES WILL HAVE DISCRETIONARY AUTHORITY TO VOTE IN ACCORDANCE WITH THE BOARD’S RECOMMENDATION AND ACCORDINGLY UNLESS YOU GIVE CONTRARY INSTRUCTIONS, THE SHARES REPRESENTED BY YOUR RETURNED PROXY WILL BE VOTED FOR “ONE YEAR”.
Stockholders will be able to specify one of four choices for this proposal on the proxy card: one year, two years, three years, or abstain. The voting frequency option that receives the highest number of votes cast by stockholders will be deemed the frequency for the advisory vote on executive compensation that has been selected by stockholders. Abstentions and broker non-votes will have no effect on the outcome of this proposal.
Non-Employee Director Compensation Philosophy and Program
Our Compensation Committee is responsible for the periodic review of compensation and benefits paid to non-employee directors, and the determination of the compensation of all non-employee directors is approved by our Board, following consultation with SBCG. We believe that compensation for non-employee directors should be competitive and should align the interests of our directors with our stockholders’ interests through the payment of a portion of director compensation in RSUs.
Below is the non-employee director compensation program beginning witheffective as of April 30, 2019, at which time our Board approved increases to the Company’s 2016 fiscal year.Committee Chair and Committee member retainers from our 2018 director compensation program. Under this revised program, the non-employee directors arewere eligible to receive the following cash and equity compensation:
Annual Cash Retainer | $45,000 |
Annual Equity Grant | $60,000 in value of RSUs |
Committee Cash Retainers | |
Audit | $ |
Compensation | $18,000 (Chair); $9,000 (Other Members) |
Nominating | $15,000 (Chair); $6,000 (Other Members) |
Related Party Review | $ |
| $ |
Each Board member who serves on the board and is re-elected as a director, or is a continuing director, is granted his or her annual RSU award on the date of such annual meeting (each an “Annual Grant”"Annual Grant"). Subject to the terms and conditions of the underlying equity incentive plan and RSU Agreement, eachEach Annual Grant vests in full on the earlier of (i) the date of the next annual meeting of the Company’s stockholders following the applicable grant date (it being understood that the Annual Grant shall vest on the date of such annual meeting whether or not the director is re-elected at such meeting, so long as the director serves through such meeting) and (ii) the first anniversary of the applicable grant date, subject in each case to continued service.
We also reimburse our non-employee directors for reasonable out-of-pocket expenses incurred in connection with the performance of their duties as directors, including, without limitation, travel expenses in connection with their attendance in-person at Board and committee meetings. Directors who are employees do not receive any compensation for their services as directors.
Director Stock Ownership Guidelines
Under our stock ownership guidelines, established in connection with our initial public offering, further amended in March 2015 and in July 2016, each non-employee director must hold 100% of all shares received from the vesting, delivery or exercise of equity awards granted by us until the non-employee director beneficially owns shares of our common stock equal to three times the annual cash retainer, payable, which, as of the current date, is $135,000 (the “ownership threshold”"ownership threshold"). We use, (i) with respect to shares underlying equity awards granted to the director by us, the share price that was used to value the equity awards when granted or current market price, whichever is greater and (ii) with respect to shares otherwise acquired, the price at which such shares were acquired or current market price, whichever is greater, as applicable, to determine the number of shares required to meet the ownership threshold. In addition, the shares subject to the ownership threshold requirement are net of any shares of common stock that remain after payment, as and if applicable, of (i) the exercise price of stock options or purchase price of other awards and all applicable withholding taxes, including shares sold or netted with respect thereto, and (ii) all applicable transaction costs.costs ("net shares"). Each non-employee director is expected to achieve his or her threshold ownership requirement within three years of joining the Board or the third anniversary of the date of an increase in the ownership threshold. Becausethreshold; provided that in the event of an increase in retainer which has the effect of increasing the ownership threshold, the director shall then be required to hold 100% of the net shares until such time as such increased in 2016, non-employeeownership threshold is met and shall not be deemed to be out of compliance with this policy unless he or she sells net shares prior to reaching such increased ownership threshold. As of April 13, 2020, all of our directors shall have until 2019 to meetmet the ownership threshold.
Non-Employee Director Compensation Table
The table below summarizes the compensation received by our non-employee directors for the year ended December 31, 2016.2019. All of our non-employee directors were appointed to the Board effective upon the closing of our initial public offering.
| Name | Fees Earned or Paid in Cash | Stock Awards (1)(2) | All Other Compensation(3) | Total | |||||||||||||
| Sam Bakhshandehpour | $59,500 | $59,999 | - | $119,499 | |||||||||||||
| Michael Berchtold | $60,000 | $59,999 | $1,000 | $120,999 | |||||||||||||
| David Berman | $45,000 | $59,999 | - | $104,999 | |||||||||||||
| Paul Heeschen | $51,000 | $59,999 | - | $110,999 | |||||||||||||
| Gregory P. Lindstrom | $66,000 | $59,999 | - | $125,999 | |||||||||||||
| Cathey S. Lowe | $71,000 | $59,999 | - | $130,999 | |||||||||||||
| Douglas C. Neff | $60,000 | $59,999 | - | $119,999 | |||||||||||||
| Nadine Watt | $45,000 | $59,999 | - | $104,999 | |||||||||||||
| William A. Witte | $68,500 | $59,999 | - | $128,499 | |||||||||||||
| (1) | The amounts shown equal the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718. Each non-employee director received an award of 5,970 RSUs on February 29, 2016 under our 2014 Plan and each subject to vesting in full on the first anniversary of their respective grant date. We provide information regarding the assumptions used to calculate the value of all equity awards made to executive officers in Note 12, Stock-Based Compensation, to our consolidated audited financial statements included in our Form 10-K filed with the SEC on February 23, 2017. The grant date fair market value of each RSU granted on February 29, 2016 was $10.05. | ||||||||||||||||
| (2) | The following table sets forth the outstanding equity awards held by each of our non-employee directors as of December 31, 2016. | ||||||||||||||||
| Director | RSUs Outstanding at December 31, 2016 | ||||||||||||||||
| Sam Bakhshandehpour | 5,970 | ||||||||||||||||
| Michael Berchtold | 5,970 | ||||||||||||||||
| David Berman | 5,970 | ||||||||||||||||
| Paul Heeschen | 5,970 | ||||||||||||||||
| Gregory P. Lindstrom | 5,970 | ||||||||||||||||
| Cathey S. Lowe | 5,970 | ||||||||||||||||
| Douglas C. Neff | 5,970 | ||||||||||||||||
| Nadine Watt | 5,970 | ||||||||||||||||
| William A. Witte | 5,970 | ||||||||||||||||
| (3) | Represents a donation made by the Company to the Berchtold Family Endowed Scholarship at St. Martin’s University. | ||||||||||||||||
Name |
| Fees Earned or Paid in Cash |
| Stock Awards(1)(2) |
| All Other Compensation(3) |
| Total | |||||||||
Sam Bakhshandehpour |
| $65,972 |
| $59,998 |
| - |
| $125,970 | |||||||||
Michael Berchtold |
| $82,347 |
| $59,998 |
| - |
| $142,345 | |||||||||
Paul C. Heeschen |
| $77,694 |
| $59,998 |
| - |
| $137,692 | |||||||||
Gregory P. Lindstrom |
| $71,722 |
| $59,998 |
| - |
| $131,720 | |||||||||
Cathey Lowe |
| $79,222 |
| $59,998 |
| - |
| $139,220 | |||||||||
Douglas C. Neff |
| $52,083 |
| $59,998 |
| - |
| $112,081 | |||||||||
Wayne Stelmar |
| $52,083 |
| $59,998 |
| $57,244 |
| $169,325 | |||||||||
| William A. Witte | $28,805 | - | - | $28,805 | |||||||||||||
_________________
(1) | The amounts shown equal the grant date fair value of the RSUs computed in accordance with FASB ASC Topic 718. Each non-employee director received an award of 13,043 RSUs on May 21, 2019 under the Plan and each subject to vesting in full on the earlier of the 2020 Annual Meeting of Stockholders and first anniversary of their respective grant date. We provide information regarding the assumptions used to calculate the value of all equity awards made to executive officers in Note 13, Stock-Based Compensation, to our consolidated audited financial statements included in our Form 10-K filed with the SEC on February 14, 2020. The grant date fair market value of each RSU granted on May 21, 2019 was $4.60. | ||||||||||||||||
(2) | The following table sets forth the outstanding equity awards held by each of our non-employee directors as of December 31, 2019. | ||||||||||||||||
Director | RSUs Outstanding at December 31, 2019 |
Sam Bakhshandehpour | 13,043 |
Michael Berchtold | 13,043 |
Paul C. Heeschen | 13,043 |
Gregory P. Lindstrom | 13,043 |
Cathey Lowe | 13,043 |
Douglas C. Neff | 13,043 |
Wayne Stelmar | 13,043 |
| William A. Witte(4) | - |
_________________
| (3) | Includes $48,000 in consulting fees earned by Mr. Stelmar as a consultant for the Company and other income of $9,244 which includes health benefits reimbursement payable pursuant to his consulting agreement with the Company which expired in August 2019. | ||||||||||||||||
| (4) | The term of William A. Witte expired on May 21, 2019, as he was not renominated for reelection at our 2019 Annual Meeting of Stockholders. | ||||||||||||||||
RATIFICATION OF SELECTION OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTANTS
The Audit Committee of our Board has selected Ernst & Youngappointed KPMG LLP (“
Stockholder ratification of the selection of Ernst & YoungKPMG as our independent registered public accountants is not required by our bylaws or otherwise. However,Although we are not required to do so, we are seeking stockholder ratification of KPMG's appointment as our Boardindependent registered public accounting firm. If KPMG's appointment is submittingnot ratified, the selection of Ernst & Young to the stockholders for ratification as a matter of corporate practice. If the stockholders fail to ratify the selection, our Audit Committee will reconsider whether or not to retain that firm.KPMG, but still may retain them. Even if the selectionappointment of KPMG is ratified, ourthe Audit Committee, in its discretion, may directchange the appointment of a different independent accounting firm at any time during the year if our Audit Committeeit determines that such a change would be in our and our stockholders’ best interests.
Board Recommendation
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE “
Assuming the presence of a quorum at the Annual Meeting, under our Bylaws, the affirmative vote of a majority of the Shares present in person or by proxy and entitled to vote on the proposal is necessary for its approval. As a result, abstentions will be treated as votes against the proposal, whereas broker non votes will have no effect on the outcome of the vote.
Audit and Related Fees
Ernst & Young LLP ("EY") provided audit, audit-related and tax services to us during the fiscal years ended December 31, 20162019 and 20152018 as follows:
| Type of Fees | 2016 | 2015 | |||||
| Audit Fees | $ | 501,823 | $ | 519,750 | |||
| Audit-Related Fees | 389,000 | 346,000 | |||||
| Tax Fees | 117,029 | 130,528 | |||||
| All Other Fees | 1,995 | 2,910 | |||||
| Total | $ | 1,009,847 | $ | 999,188 | |||
Type of Fees | 2019 | 2018 | ||||||
Audit Fees | $ | 710,000 | $ | 714,963 | ||||
Audit-Related Fees | 248,000 | 222,000 | ||||||
Tax Fees | 175,288 | 154,194 | ||||||
All Other Fees | - | - | ||||||
Total | $ | 1,133,288 | $ | 1,091,157 | ||||
Audit Fees
These are fees for professional services performed by Ernst & YoungEY for the audit of our annual financial statements, consents, comfort letters and services that are normally provided in connection with statutory and regulatory filings or engagements, including work performed in connection with the Company’s publicsecurities offerings, registration statements and responding to comment letters from the SEC.
The audit fees for 2019 and 2018 included $0 and $79,963, respectively, for fees related to comfort letters, registration statements and other agreed upon procedures.
Audit-Related Fees
These are fees for and related to the audit of six of our unconsolidated joint ventures for each 2019 and 2018 which fees are paid for entirely by our unconsolidated joint ventures.
Tax Fees
These are fees for professional services performed by Ernst & YoungEY with respect to tax compliance, tax advice and tax planning. This includes the preparation of our and our consolidated subsidiaries’ original and amended tax returns and refund claims, payment planning, tax audit assistance and tax work stemming from “Audit-Related”"Audit-Related" items. ThisThese fees also includesinclude fees for preparation of original and amended tax returns, payment planning and tax audit assistance for our unconsolidated joint ventures, which fees are paid for or reimbursed by our unconsolidated joint ventures. Approximately $77,829For 2019, $110,624 of the fees related to consulting and the Company’s consolidated return and filings for wholly owned subsidiaries and $64,664 related to our unconsolidated joint ventures. For 2018, $118,662 of the fees related to the Company’s consolidated return and filings for wholly owned subsidiaries and approximately $39,200$35,532 related to our unconsolidated joint ventures.
All Other Fees
There were no fees for other permissible work performed by Ernst & YoungEY that doesdid not meet the above category descriptions and includes fees and expenses related to an online subscription to Ernst & Young's internal accounting literature database.
Pre-Approval Policies and Procedures
Under its charter, our Audit Committee, or the ChairmanChair of our Audit Committee, must pre-approve all engagements of our independent registered public accounting firm. Our Audit Committee approved all audit and non-audit services in 20162019 and 2015.
Change in Independent Registered Public Accountants
Dismissal of previous independent registered public accounting firm:
On March 18, 2020, the Audit Committee dismissed EY as the Company’s independent registered public accounting firm.
The reports of EY on the Company’s consolidated financial statements as of and for the fiscal years ended December 31, 2019 and 2018 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2019 and 2018 and the subsequent period through March 18, 2020, (i) there were no “disagreements” (as defined in Item 304(a)(1)(iv) of Regulation S-K) with EY on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, any of which disagreements, if not resolved to the satisfaction of EY, would have caused EY to make reference thereto in connection with its reports on the consolidated financial statements for such fiscal years; and (ii) there were no “reportable events” (as defined in Item 304(a)(1)(v) of Regulation S-K).
Letter of Ernst & Young LLP:
The Company provided EY with a copy of the Current Report on Form 8-K (the "Form 8-K") which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on March 23, 2020 and requested that EY furnish the Company with a letter addressed to the SEC stating whether EY agreed with the disclosures contained in the Form 8-K or, if not, stating the respects in which it did not agree. The Company received the requested letter from EY and a copy of the letter, dated March 23, 2020, was filed as Exhibit 16.1 to the Form 8-K.
We provided the above disclosures under "Dismissal of previous independent registered public accounting firm" and "Letter of Ernst & Young LLP" to EY and confirmed EY is in agreement with the statements contained therein.
Engagement of new independent registered public accounting firm:
Effective March 21, 2020, the Audit Committee approved the engagement of KPMG to serve as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2020. The decision to change the Company’s principal independent accountants was the result of a competitive bid proposal received by management and the Audit Committee as well as the Company’s focus on streamlining its cost structure and reducing its general and administrative expenses. During the fiscal years ended December 31, 2019 and 2018 and through the appointment of KPMG on March 21, 2020, neither the Company nor anyone on its behalf consulted with KPMG regarding:
(i) | the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, nor did KPMG provide a written report or oral advice to the Company that KPMG concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or |
(ii) | any matter that was either the subject of a “disagreement” (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions), or a “reportable event” (as defined in Item 304(a)(1)(v) of Regulation S-K). |
We provided the above disclosure under "Engagement of new independent registered accounting firm" to KPMG and confirmed KPMG is in agreement with the statements contained therein.
Annual Review of Auditor
At least annually, the Audit Committee reviews the Company's independent registered public accounting firm to decide whether to retain such firm on behalf of the Company. Prior to engaging KPMG, EY had been the Company's independent registered accounting firm (including its predecessor The New Home Company LLC) since 2010. In undertaking its annual review, and in making its determination to engage a new independent registered public accounting firm, the Audit Committee engaged with both firms' partners and senior leadership. The Audit Committee considered several factors in determining whether to engage KPMG, including KPMG's professional qualifications and that of the proposed lead audit partner and other key engagement partners, KPMG's fees compared to EY's fees, KPMG's independence and independence policies, and KPMG's depth of understanding of the Company's business, industry, and accounting policies and practices (including its process to rotate the lead audit partner in accordance with Public Company Accounting Oversight Board ("PCAOB") standards). As a result of this evaluation, the Audit Committee and Board approved the dismissal of EY and the appointment of KPMG.
Audit Committee Report
Following is the report of the Audit Committee with respect to The New Home Company’s audited consolidated balance sheets as of December 31, 20162019 and 2015,2018, and the related consolidated statements of operations, equity and cash flows for each of the three years in the period ended December 31, 20162019 and the notes thereto. The material in this report is not “soliciting"soliciting material,”" is not deemed “filed”"filed" with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 as amended, or the Securities Exchange Act of 1934, as amended.
Responsibilities and Activities. The Audit Committee operates under a written charter adopted by the board of directors.directors and currently has three members. Each member of the Audit Committee is “independent,”"independent," as required by the applicable listing standards of NYSE and the rules of the SEC. The primary roleOur Board has also determined that each Audit Committee member is "financially literate" under the NYSE rules and that Ms. Lowe and Mr. Heeschen each qualifies as an audit committee financial expert, as defined by applicable SEC rules.
Management of the Audit Committee is to oversee ourCompany has responsibility for preparing the Company’s financial reporting process on behalf ofstatements, including the board of directors. The Company’s independent registered public accounting firm,internal control over financial reporting. Ernst & Young LLP, iswho acted as independent registered public accountant for the Company for the fiscal years 2018 and 2019, was responsible for performing an audit of ourthe Company’s annual consolidated financial statements in accordance with generally accepted accounting principles ("GAAP") and for issuing a report on those statements. Ernst & Young LLP also reviewed the Company’s interim financial statements in accordance with applicable auditing standards. The Audit Committee is responsible for overseeing the integrity of the Company’s financial statements and expressing an opinion as tointernal control structure on behalf of the conformityBoard of such financial statements with U.S. generally accepted accounting principles.
During these meetings and in carrying out its role, the Audit Committee, among other activities:
• | conducts at each regular meeting separate executive sessions with the Company’s Chief Financial Officer, Corporate Controller and General Counsel; and the auditor, to discuss matters relevant to their respective duties and roles; | |
• | reviews the audit plan and process, including considerations relating to risks for material misstatements in the financial statements; | |
• | oversees management’s performance of its overall risk management process and assessment, and discusses with management identified significant risks in the Company’s business and operations, including but not limited to, cyber-security risks, product/construction defect liability risks, and financing risks, along with corresponding mitigating factors, and receives periodic updates upon request or as deemed appropriate; | |
• | receives and discusses regular reports from the General Counsel and other executives on material legal, compliance and ethics matters, | |
• | receives and discusses regular reports from its internal audit provider, Protiviti, on internal control evaluation activities and from the auditor on the results of its audits and other procedures; | |
• | discusses critical accounting policies of the Company; | |
• | considers the reasonableness of significant financial reporting estimates and judgments made in connection with the financial statements, including the quality (and not just acceptability) of the Company’s accounting policies; | |
• | considers the potential effects of new accounting standards and initiatives and changes to the audit process resulting therefrom, including, for example, the effects of the new audit report standards relating to the disclosure and discussion of critical accounting matters on the Company’s financial statements; | |
• | reviews and approves the Company’s policy for the pre-approval of audit and permitted non-audit services by the auditor and reviews and approves fees and services; | |
• | reviews communications from, and management’s response to, governmental agencies for matters of material significance; and | |
• | reviews the type and presentation of information, including earnings guidance, to be included in the Company’s earnings releases and supplemental financial disclosures. |
Members of the Audit Committee are not full-time employees of the Company and are not performing the functions of management or auditors or accountants. As such, it is not the duty or responsibility of the Audit Committee or its members to conduct "field work" or other types of auditing or accounting reviews or procedures or to set auditor independence standards.
Members of the Audit Committee necessarily rely on the information provided to them by management and the independent accountants. Accordingly, the Audit Committee’s considerations and discussions referred to above do not assure that the audit of the Company’s financial statements has been carried out in accordance with GAAP or that the Company’s auditors are in fact "independent."
Review with Management. The Audit Committee reviewed and discussed our audited financial statements (including the quality of our accounting principles) with management. Our management is responsible for the preparation, presentation and integrity
Review and Discussions with Independent Accountants. The Audit Committee has reviewed and discussed our audited financial statements (including the quality of the Company’s accounting principles) with Ernst & Young LLP. The Audit Committee has discussed with Ernst & Young LLP the Company's independent registered public accounting firm, the matters required to be discussed by applicable standards of the Public Accounting Oversight Board.PCAOB. Further, the Audit Committee reviewed Ernst & Young LLP’s Reports of Independent Registered Public Accounting Firm included in our Annual Report on Form 10-K related to its audit of the Company’s consolidated financial statements.
Conclusion.
Based on the review and discussions referred to above, the Audit Committee recommended to theAUDIT COMMITTEE OF THE BOARD OF DIRECTORS
Cathey Lowe (Chairperson)
Sam Bakhshandehpour
Paul C. Heeschen
Related Person Transaction Policy
The Board has adopted a written Related Person Transaction Policy (the “
The Audit Committee has excluded each of the following related person transactions under the Policy: (a) compensation to an executive officer or director if the compensation is required to be reported in the Company’s proxy statement pursuant to Item 402 of Regulation S-K; (b) compensation to an executive officer if such compensation would have been required to be reported under Item 402 if the executive was a “named"named executive officer”officer" and such compensation has been approved by the Compensation Committee, or recommended by the Compensation Committee to the Board for approval. This exception, however, does not apply if the executive officer is also an immediate family member;approval; or (c) transactions that are in the Company’s ordinary course of business and where the interest of the related person arises only: (i) from the related person’s position solely as a director of another corporation or organization that is a party to the transaction; or (ii) from the direct or indirect ownership by such related person and all other related persons, in the aggregate, of less than a 10% equity interest in another person (other than a partnership) which is a party to the transaction; or (iii) from both such position described in (i) and such ownership described in (ii); or (iv) from the related person’s position as a limited partner in a partnership in which the related person and all other related persons, in the aggregate, have an interest of less than 10%, and the related person is not a general partner of and does not have another position in the partnership.
Under the Policy, a related person means (i)(a) an executive officer or director of us,the Company, or a nominee for election as a director; (ii)(b) any person who is known to be the beneficial owner of more than 5% of our securities,common stock, (c) any immediate family member of any of the foregoing persons, or shares the same household as such person, or (d) any entity thatin which the foregoing persons is wholly owned byemployed as an executive officer or controlled byis a general partner, managing member or principal in a position of having control of significant influence or in which any of the foregoing persons.persons has a 5% of greater beneficial ownership, or (e) any entity in which any director, executive officer, nominee or more than 5% beneficial owner is employed. A “related"related person transaction”transaction" is a transaction or series of transactions in which we participate (whether or not we are a party) and in which a related person has a direct or indirect material interest. A transaction involving more than $120,000 is presumed to be a material transaction.
Transactions With Related Persons
Investor Rights and Registration Rights Agreements
On February 5, 2014, we entered into the Investor Rights Agreement with Messrs. Webb, Stelmar, Davis and Redwitz and the Institutional Investors.Agreement. For more information on this agreement, see “Corporate Governance—Investor Rights Agreement.”
Joint Ventures
We have entered into agreements with our unconsolidated joint ventures to provide management services related to the underlying projects. Pursuant to management agreements for each project, we receive a management fee based on each project’s revenues. During the yearyears ended December 31, 2016,2019 and 2018, we earned $8.2$1.9 million and $3.4 million, respectively, in management fees, $0.6 million of which, $0 and $0.2 million was included in “due"due from affiliates”affiliates" in our consolidated balance sheets.
As of December 31, 2016,2019 and 2018, the Company had investments in certain unconsolidated joint ventures totaling $20.2$21.9 million and $18.5 million, respectively, where our joint venture partner is an affiliate of a member of our Board or significant shareholder, as discussed below.
David Berman, one of our former non-employee directors, is Executive Chairman of Tricon Capital Group Inc., an affiliate of TCN/TNHC LP (“
During 2018, the Company entered into two agreements with the Bedford joint venture for the option to purchase lots from the joint venture in phased takedowns. The first agreement contracts land for a gross purchase price of $10.0 million, with profit participation and master marketing fees due to seller as outlined in the contract. During the 2019 third quarter, the Company entered into an amendment to this agreement to reduce the gross purchase price of the land to $9.3 million. As of December 31, 2019, the company has taken down all of the contracted lots and paid $0.1 million in master marketing fees. At December 31, 2019 and 2018, a nonrefundable deposit of $0 and $0.9 million, respectively, related to this contract was outstanding. The second agreement contracts lots for a gross purchase price of $10.5 million, with profit participation and master marketing fees due to the seller pursuant to the agreement. As of December 31, 2019, the Company has taken down 92% of the optioned lots and paid $0.2 million in master marketing fees. At December 31, 2019 and 2018, a nonrefundable deposit of $0 and $1.4 million, respectively, related to this contract was outstanding.
Douglas C. Neff, one of our non-employee directors, is President of IHP Capital Partners, the general partner of the manager of IHP Capital Partners VI, LLC (“
(1) | Actual equity interests may differ due to the current phase of the underlying joint venture project's life cycle. Each of the above percentages reflect the percentage of capital the joint venture member is generally obligated to contribute (subject to adjustment under the joint venture agreement) and generally (subject to waterfall provisions including preferred returns on invested capital) aligns with the joint venture member's percentage of distributions. In some cases our share of profit and losses may be greater than our contribution percentage. |
During the 2017 third quarter, the Company amended the Russell Ranch joint venture agreement pursuant to which it, among other things, agreed to acquire lots in Phase 1 of the Russell Ranch project (the "Phase 1 Purchase"). These lots were taken down in July 2018 for an aggregate purchase price of $34.0 million. During 2019, the Company entered into a second amendment to the Russell Ranch joint venture agreement between the Company and IHP. Prior to the execution of the second amendment, each of IHP and the Company had contributed its maximum capital commitments. Pursuant to the second amendment, the parties agreed to fund additional required capital in the aggregate amount of approximately $26 million for certain remaining backbone improvements for the Project (the “Phase 1 Backbone Improvements”) as follows: 50% by IHP and 50% by the Company (“Amendment Additional Capital”). The Amendment Additional Capital will be returned to IHP and the Company ahead of any other contributed capital; provided that none of the Amendment Additional Capital accrues a preferred return that base capital contributions are generally afforded under the joint venture agreement. To the extent of overruns on the Phase 1 Backbone Improvements, the Company is required to fund such overrun capital (“TNHC Overrun Capital”); provided that such contributions shall receive capital account credit. Pursuant to the second amendment, the distribution of cash flow under the agreement was amended to provide that Amendment Additional Capital would be returned prior to TNHC Overrun Capital, which would, in turn, be returned ahead of the base capital preferred return and base capital. The parties also amended the purchase and sale contract for the Phase 1 Purchase to provide relief from the profit participation provisions of this transaction under certain circumstances.
The Company has also purchased land from entities affiliated with Mr. Neff and IHP. In 2017, the Company entered into an agreement with an IHP affiliate to purchase lots in a Northern California masterplan community for a total purchase price of $16.1 million in a phased takedown structure with customary profit participation and master marketing fees due to seller. As of December 31, 2019, the Company had taken down all of the lots under this contract and paid $0.4 million in master marketing fees. As of December 31, 2019, IHP was also no longer affiliated with this development.
Also in 2017, the Company entered into agreements with IHP affiliates to purchase finished lots in Northern California with customary profit participation structured as an optioned takedown.
In 2018, the Company purchased finished lots in Northern California from an IHP affiliate for a gross purchase price of $8.0 million with additional customary profit participation, marketing fees and certain reimbursements due to the seller. At December 31, 2019, the Company had paid $0.3 million in master marketing fees and reimbursed the land seller $0.2 million in costs related to this contract. As of December 31, 2019, IHP is no longer affiliated with this development. Also during 2018, the Company entered an agreement to purchase land in a master-plan community in Arizona for an estimated purchase price of $3.8 million plus customary profit participation and marketing fees. As of December 31, 2019, the Company has an outstanding, nonrefundable deposit of $0.3 million related to this contract, had not taken down any lots. As of December 31, 2019, IHP is no longer affiliated with this development.
Other Related Person Transactions
On February 14, 2019, the Company entered into a consulting agreement (the “Consulting Agreement”)and separation agreement with Thomas Redwitz. For information about these arrangements see "Executive Compensation—Redwitz Separation and Consulting Agreements".
In connection with his retirement on February 17, 2017, the Company entered into a consulting agreement with Mr. Stelmar, a current Board member and member of our executive committee and former Chief Investment Officer, pursuant to which Mr. Stelmar servesserved as a consultant to the Company for an initial one-year term that commenced on February 17, 2017. Under the Consulting Agreement,Company. The contract expired in August 2019 and was not extended. For his consulting services, Mr. Stelmar recevieswas compensated $48,000 and $90,000 for the following paymentsyears ended December 31, 2019 and benefits: (i) a monthly consulting fee of $16,800; (ii)2018, respectively. The agreement provided for continued vesting of each outstandinghis unvested Company equity awards on the basis of his continued provision of consulting services. Accordingly, Mr. Stelmar's outstanding restricted stock unit equity award held by Mr.
John Neff, the son of one of our non-employee directors, Douglas C. Neff, iswas employed by the Company as a Director of Land Acquisition Manager. DuringAcquisition. He terminated his employment as of March 6, 2020. During the year ended December 31, 2016,2019, the Company compensated John Neff with approximately $150,000$163,000, including base salary and bonus. During the year ended December 31, 2018, the Company compensated John Neff with approximately $172,000 in cash, including base salary and bonus, and $7,500$15,000 of RSUs which vest ratably over three years with vesting subject to continued service (using the grant date fair value of the RSUs as computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718, or ASC Topic 718.718). 428 RSUs were forfeited upon John's termination of employment. We provide information regarding the assumptions used to calculate the value of all equity awards in Note 12,13, Stock-Based Compensation, to our consolidated audited financial statements included in our Form 10-K filed with the SEC on February 23, 2017).14, 2020. In addition, John Neff participatesparticipated in the Company’s general welfare plans, including health benefits, retirement savings opportunities and limited other employee benefits.
Joan Marcus-ColvinMarcus Webb (formerly Joan Marcus-Colvin) is an employee of the Company as our Chief Marketing Officer, who reports to our President and Chief InvestmentExecutive Officer, Thomas Redwitz.Leonard Miller. Ms. Marcus-Colvin shares a household withWebb is married to H. Lawrence Webb. During the year ended December 31, 2016,2019, the Company compensated Ms. Marcus-ColvinWebb with approximately $357,000$340,000 in cash, including base salary and bonus, and $96,000$36,000 of RSUs which vest ratably over three years with vesting subject to continued service, (usingand $40,000 in NQSOs which vest and become exercisable ratably over three years subject to Ms. Webb's continued service. During the grant date fair valueyear ended December 31, 2018, the Company compensated Ms. Webb with approximately $421,000 in cash, including base salary and bonus, $75,000 of RSUs which vest ratably over three years with vesting subject to continued service, and $25,000 in PSUs which are eligible to vest 0% - 150% of the RSUstarget amount based on performance metrics measured from January 1, 2018 through December 31, 2019. It was determined as computed in accordance with Financial Accounting Standards Board
In June 2015, the Company entered into an agreement that effectively transitioned Joseph Davis' role within the Company from that of Chief Investment Officer to that of a sub-committeenon-employee consultant to the Company. For his consulting services, Mr. Davis was compensated $36,000 and $60,000 for the years ended December 31, 2019 and 2018, respectively. On June 26, 2019 his contract was amended to extend its term one year and reduce his scope of services and compensation to $1,000 per month. He also received Company-subsidized benefits coverage until June 26, 2019. At December 31, 2019, no fees were due to Mr. Davis for his consulting services. Additionally, the Company entered into a construction agreement effective September 7, 2017, with The Joseph and Terri Davis Family Trust Dated August 25, 1999 ("Davis Family Trust") of which Joseph Davis is a trustee. The agreement was a fee building contract pursuant to which the Company acted in the capacity of a general contractor to build a single family detached home on land owned by the Davis Family Trust. Construction of the Compensation Committeehome was completed during the 2019 first quarter. For its services, the Company received a contractor's fee of 3% of the cost of the construction work and improvements to be completed as outlined in the contract and the Davis Family Trust reimbursed the Company's field overhead costs. During the years ended December 31, 2019 and 2018, the Company billed the Davis Family Trust $0.5 million and $3.0 million, respectively, including reimbursable construction costs and the Company's contractor's fees which are included in fee building revenues in our consolidated statements of operations. Contractor's fees comprised $15,000 and $83,000 of Messrs. Lindstromthe total billings for the years ended December 31, 2019 and Witte.
FMR LLC beneficially owned 10% of the Company's common stock during 2018, and an affiliate of FMR LLC ("Fidelity") provides investment management and record keeping services to the Company’s 401(k) Plan. For the year ended December 31, 2018, the Company paid Fidelity approximately $14,000 for 401(k) Plan record keeping and investment management services. The participants in the Company's 401(k) Plan paid Fidelity approximately $6,000 during 2018 for record keeping and investment management services. For the year ended December 31, 2019, FMR LLC owned less than 10% of the Company's common stock. Based solely on that certain Schedule 13G/A filed on November 12, 2019, FMR LLC no longer owns any of our common stock.
Delinquent Section 16(a) Beneficial Ownership Reporting Compliance
Based solely on our review of the copies of such forms furnished to us and the written representations from certain of the reporting persons that no other reports were required, we believe that allnone of our executive officers, directors and greater than ten percent beneficial owners during the fiscal year ended December 31, 2016 complied2019 were delinquent in complying with the reportingfiling requirements of Section 16(a).
Stockholder Proposals and Nominations
Proposals Pursuant to Rule 14a-8
. Pursuant to Rule 14a-8 under the Exchange Act, stockholders may present proper proposals for inclusion in the proxy statement and for consideration at our next Annual Meeting of stockholders. To be eligible for inclusion in theProposals and Nominations Pursuant to Our Bylaws
. Under our bylaws, in order to nominate a director or bring any other business before the stockholders at theHouseholding of Proxy Materials
The SEC has adopted rules that permit companies and intermediaries (such as banks and brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement addressed to those stockholders. This process, which is commonly referred to as “householding,”"householding," potentially means extra convenience for stockholders and cost savings for companies.
In accordance with the rules and regulations adopted by the SEC, we have elected to provide access to our proxy materials to our stockholders via the internet. Accordingly, a notice of internet availability of proxy materials has been mailed to our stockholders. Stockholders have the ability to access the proxy materials at
www.proxyvote.com, or request that a printed set of the proxy materials be sent to them, by following the instructions set forth on the Notice mailed to them. Some banks, brokers and other nominee record holders may be participating in the practice of "householding" proxy materials. This means that only one copy of our proxy materials or the Notice, as applicable, may have been sent to multiple stockholders in the same house. We will promptly deliver a separate Notice and, if requested, a separate proxy statement and annual report, to each stockholder that makes a request using the procedure set forth on the Notice. Stockholders who currently receive multiple copies of proxy materials at their address and would like to request householding of their communications, or wouldWhere You Can Find More Information
The Company files annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission under the Exchange Act. We make available free of charge on or through our Internet website, in the “Investors”"Investors" section of our website at
WE WILL PROVIDE, WITHOUT CHARGE, ON THE WRITTEN REQUEST OF ANY STOCKHOLDER, A COPY OF OUR 20162019 ANNUAL REPORT ON FORM 10-K, WITHOUT EXHIBITS, INCLUDING THE FINANCIAL STATEMENTS AND THE FINANCIAL STATEMENT SCHEDULES REQUIRED TO BE FILED WITH THE SEC PURSUANT TO RULE 13A-1.13a-1. STOCKHOLDERS SHOULD DIRECT SUCH REQUESTS TO THE COMPANY’S SECRETARY AT 85 ENTERPRISE, SUITE 450, ALISO VIEJO, CA 92656, OR BY EMAIL AT INVESTORRELATIONS@NWHM.COM.
Incorporation by Reference
Notwithstanding anything to the contrary set forth in any of our previous filings under the Securities Act of 1933, as amended, or the Exchange Act, which might incorporate future filings made by us under those statutes, the Audit Committee Report will not be incorporated by reference into any of those prior filings, nor will any such report be incorporated by reference into any future filings made by us under those statutes. In addition, references to our website in this proxy statement are not intended to function as hyperlinks and information on our website, other than our proxy statement, Annual Report, notice and form of proxy, is not part of the proxy soliciting material and is not incorporated herein by reference.
This proxy statement contains “forward-looking statements”"forward-looking statements" (as defined in the Private Securities Litigation Reform Act of 1995). These statements are based on our current expectations and involve risks and uncertainties, which may cause results to differ materially from those set forth in the statements. The forward-looking statements may include statements regarding actions to be taken by us. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. Forward-looking statements should be evaluated together with the many uncertainties that affect our business, particularly those mentioned in the risk factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 20162019 and accompanies this proxy statement and in our subsequent periodic reports on Form 10-Q and our current reports on Form 8-K.
Other Business
As of the date of this proxy statement, our Board knows of no other business that will be presented for consideration at the Annual Meeting. If other proper matters are presented at the Annual Meeting, however, it is the intention of the proxy holders named in the Company’s form of proxy to vote the proxies held by them in accordance with their
best judgment.
By Order of our Board |
 |
Miek Harbur |
Corporate Secretary |
Aliso Viejo, CA
April 28, 2020
