April 5, 2019
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of The New Home Company Inc. to be held on May 21, 2019June 9, 2020 at 8:30 a.m. local time, at the Renaissance Aliso Viejo Hotel,The New Home Company's Inc.'s corporate office, located at 5085 Enterprise, Suite 450, Aliso Viejo, CA 92656.
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) to elect each of Sam Bakhshandehpour, Michael BerchtoldH. Lawrence Webb and Wayne StelmarPaul C. Heeschen as Class IIIII directors to serve for a three-year term expiring at our 20222023 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 accounting firm for 2019;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 threetwo 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 Ernst & YoungKPMG 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 The New Home Company.
Sincerely, |
|
Leonard S. Miller |
 |
President and Chief Executive Officer |
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 2019
To our stockholders:
The 20192020 Annual Meeting of Stockholders of The New Home Company Inc. will be held on May 21, 2019June 9, 2020 at 8:30 a.m. local time, at the Renaissance Aliso Viejo Hotel,The New Home Company Inc.'s corporate office, located at 5085 Enterprise, Suite 450, Aliso Viejo, CA 92656 (the "
1. | To re-elect each of | |||
| 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 25, 2019April 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 20192020 Annual Meeting of Stockholders to be Held on May 21, 2019.
THE NEW HOME COMPANY INC., 85 Enterprise, Suite 450, Aliso Viejo, California 92656
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 21, 2019
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 | 30 |
PROPOSAL | 32 |
33 | |
37 | |
41 |
THE NEW HOME COMPANY INC.
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 21, 2019
General
Your proxy is solicited on behalf of the board of directors (our "
Board") of The New Home Company Inc., a Delaware corporation (the "Company"), for use at ourWe 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 "
Notice") to our stockholders of record, while brokers and other nominees who hold shares on behalf of beneficial owners will be sending their own similar notice. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request to receive a printed set of the proxy materials. Instructions on how to request a printed copy of the proxy materials by mail or electronically may be found on the Notice and on the website referred to in the Notice, including an option to request paper copies on an ongoing basis. On or about AprilSome 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 ("
TNHC LLC") converted into a Delaware corporation and was renamed The New Home Company Inc., which we refer to as our formation transaction. As used in this proxy statement, unless the context otherwise requires or indicates, references to "the Company," "our Company," "we," "our," and "us" (1) for periods prior to the completion of our formation transaction, refer to TNHC LLC and its subsidiaries and affiliates, and (2) following the completion of our formation transaction, refer to The New Home Company Inc. and its subsidiaries.Important Notice Regarding the Availability of Proxy Materials for the 20192020 Annual Meeting of Stockholders to be Held on May 21, 2019.
The Notice of Annual Meeting of Stockholders, this proxy statement, our 20182019 Annual Report (the "
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 25, 2019.April 13, 2020. At the close of business on March 25, 2019, 20,049,113April 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 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 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 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 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 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 25, 2019, 20,049,113April 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.
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 broker "non-votes" will be counted as present for purposes of determining a quorum.Broker Non-Votes and Abstentions
. Brokers or other nominees who hold shares of common stock in "street name" for a beneficial owner of those shares typically have the authority to vote in their discretion on "routine" proposals when they have not received instructions from beneficial owners. However, without specific instruction from the beneficial owner, brokers or other nominees are not allowed to exercise their voting discretion with respect to the election of directors or for the approval of matters which are considered to be "non-routine." These non-voted shares are referred to as "broker non-votes." Only Proposal• | 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 Auditors. 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 ratification of the selection of |
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 definition of "smaller reporting company" by, among other things, increasing the public float test to qualify as a "smaller reporting company" as defined in Item 10(f) of Regulation S-K of the Securities Act of 1933.We previously took advantage of the exemption from the requirement to seek non-binding advisory votes on executive compensation by virtue of our previous "emerging growth company" status. We ceased to be an "emerging growth company" on December 31, 2019. Accordingly, this year is the first time we have sought non-binding advisory votes on executive compensation ("Say on Pay") and the frequency of "Say on Pay" votes.
ELECTION OF DIRECTORS
Board Structure and Nominees
Our Board currently consists of nineeight 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 II,III, consists of threetwo directors.
Based upon the recommendation of our Nominating and Corporate Governance Committee, our Board has nominated Sam Bakhshandehpour, Michael BerchtoldH. Lawrence Webb and Wayne StelmarPaul C. Heeschen for election as Class IIIII 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 20222023 Annual Meeting, or until their successors are duly elected. Sam Bakhshandehpour, Michael BerchtoldH. Lawrence Webb and Wayne StelmarPaul 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(as amended, the "
Set forth below is information as of April 4, 2019April 13, 2020 regarding each of our directors, including each director 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 | 70 | Chief Executive Officer and Chairman of the Board | III | 2010 | 2020 |
| Wayne Stelmar | 64 | Director | II | 2010 | 2019 |
Gregory P. Lindstrom(2)(3) | 65 | Director | I | 2014 | 2021 |
Cathey Lowe(1)(2) | 65 | Director | I | 2014 | 2021 |
| Douglas C. Neff | 70 | Director | I | 2014 | 2021 |
Sam Bakhshandehpour(1)(2) | 43 | Director | II | 2014 | 2019 |
Michael Berchtold(3)(4) | 55 | Director | II | 2014 | 2019 |
Paul C. Heeschen(1)(3) | 61 | Director | III | 2014 | 2020 |
| William A. Witte | 67 | Director | III | 2014 | 2020 |
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 Audit Committee
(2) Current member of our Compensation Committee
(3) Current member of our Nominating and Corporate Governance Committee
(4) Current Lead Independent Director
Board Recommendation
OUR BOARD UNANIMOUSLY RECOMMENDS A VOTE "
FOR"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.
William A. Witte. Mr. Witte was appointed as a member of our Board effective upon the completion of our initial public offering. Mr. Witte is the Chairman and Chief Executive Officer of Related California, an urban and multifamily housing development company in California, for which he has been responsible for the strategic direction of the company, overall management of the firm, pursuit of new development opportunities, and oversight of planning, financing and construction of Related California's development portfolio. Prior to joining The Related Companies in 1989, Mr. Witte served as Deputy Mayor for Housing and Neighborhoods for San Francisco under Mayor Art Agnos, where he oversaw all housing, development and redevelopment activities for the City. From 1981 to 1988, Mr. Witte served as Director of Housing and Economic Development for San Francisco under Mayor Dianne Feinstein. He also served as an appointed Commissioner of the San Francisco Housing Authority from 1989 to 1990. Mr. Witte is Vice-Chairman of the Lusk Center for Real Estate Advisory Board at USC and a member of the Board of Overseers of the Graduate School of Design at the University of Pennsylvania. He serves on the advisory boards of The Fisher Center for Real Estate and Urban Economics Policy at the Haas School of Business at U.C. Berkeley and the Orange County Human Relations Community Partners. Mr. Witte received his Bachelor of Arts in Urban Studies and his Master in City Planning, both from the University of Pennsylvania. The Board has concluded Mr. Witte should serve as a director based on his depth of experience leading a successful real estate development company and his familiarity with local governmental approaches to housing and development.
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 on the Board based on his executive and legal background in the real estate industry and his management experience in a large, global law firm.
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, RedwitzWayne Stelmar, and StelmarTom 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 25, 2019.
Name | Age | Position |
H. Lawrence Webb | 71 | Executive |
Leonard S. Miller | 57 | President and Chief |
John M. Stephens | 51 | Executive Vice President and Chief Financial Officer |
H. Lawrence Webb
. is ourLeonard S. Miller. Mr. Miller was appointed Chief Executive Officer on August 30, 2019 and President effectiveon January 23, 2019 and served as Chief Operating Officer onfrom March 13, 2017.2017 to August 2019. Prior to becoming a member of our executive team, from April 2004 to March 2017, Mr. Miller worked at M.D.C Holdings Inc. under the Richmond American Homes brand where he had regional and divisional responsibility for several markets in the western United States. Before his tenure at Richmond, starting in 1994, Mr. Miller held several positions at Genstar Land Company, which later became a part of Newland Communities. Earlier in his career, Mr. Miller worked for a small San Diego-based land developer that specialized in small mixed-use developments. In addition to his work in the homebuilding and development industries, Mr. Miller spent four years in public accounting with the CPA firm Arthur Young. Mr. Miller has served on numerous boards in leadership roles including service as president of both the Building Industry Association of Southern California and Riverside. He holds a BS degree in Accounting from the University of Southern California, as well as an MBA from San Diego State University.
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., 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 nineeight members, and our Board currently consists of nineeight 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 II,III, consists of threetwo directors.
Our Board has adopted Corporate Governance Guidelines concerning overall governance practices. These guidelines can be found in the "Investors" section of our website at
https://www.NWHM.com. In addition, these guidelines are available in print to any stockholder who requests a copy. Please direct all requests to The New Home Company Inc., Attention: Secretary, 85 Enterprise, Suite 450, Aliso Viejo, California 92656.Investor Rights Agreement
The Investor Rights Agreement provides for board nomination rights and voting obligations. For a discussion of this agreement, please see "Proposal 1—Election of Directors—Board Structure and Nominees."
As permitted by our Corporate Governance Guidelines, the Board adopted a Lead Independent Director Charter in February 2018 to provide for an independent nonexecutive director to act as Lead Independent Director. Characteristics for the Nominating and Corporate Governance Committee to consider in making a nomination for Lead Independent Director include: (i) sound judgment and confidence to stand up for proper course of action in difficult times, (ii) understanding of the 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. If the Lead Independent Director is not present at an executive session
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 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 a 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 sixfive of our current directors, Messrs. Berchtold, Bakhshandehpour, Lindstrom, Witte, Heeschen and Ms. Lowe, constituting a majority and Ms. Watt (our former Director who left our Board in May 2018), satisfy the listing standards for independence of the New York Stock Exchange (the "
Board Meetings
Our Board held six meetings during 2018,2019, 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 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. Neff and Ms. Watt,Witte, attended our 20182019 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.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 - Chair
* Lead Independent Director
Pursuant to the terms of the Investor Rights Agreement, as amended (described in more detail under the third paragraph under "Election of Directors—Board Structure and Nominees"), so long as IHP beneficially owns shares representing 4% or more of the total voting power, IHP has the right to designate a member to our Board and the Board is required to nominate such individual designated by IHP. Our Nominating Committee reviews the characteristics and qualifications of each Board member required by the Company’s charters and Corporate Governance Guidelines, including the Board member designated by an 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
Consideration of Stockholder-Recommended Director Nominees
Our Nominating Committee will consider director nominee recommendations submitted by our stockholders. Stockholders who wish to recommend a director nominee 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 Messrs. Lindstrom (Chair) and Bakhshandehpour and Ms. Lowe. Our Board has determined that all of the members of our Compensation Committee are "independent" within the meaning of our director independence standards and the NYSE director independence standards (including those applicable to Compensation Committee members). Our Compensation Committee (or a subcommittee thereof) consists of at least two directors that qualify as "non-employee directors" for the purposes of Rule 16b-3 under the Exchange Act and satisfies the requirements of an "outside director" for purposes of section 162(m) of the Internal Revenue Code. The Board has determined that Messrs. Lindstrom (Chair) and Bakhshandehpour and Ms. Lowe each qualify as "non-employee directors" and "outside directors." Our Compensation Committee met five times in 2018.2019. 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. 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 20182019 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. The Compensation Committee also performs an annual performance evaluation of all officers as such term is defined in Rule 16a-1 and leads a management evaluation discussion with the full non-employee board in executive session on an annual basis.
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") to assist it in evaluating executive compensation matters. DuringCommittee 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 officers and directors. SBCG also reviewed and commented on the Company’sFor further information on our executive officers’ compensation, please see "Executive Compensation."
Related Party Review Committee
In March 2019 the Board formed a special committeethe Related Party Review Committee to analyze, evaluate and negotiate, as applicable, related party transactions with entities affiliated with IHP and Douglas Neff (the "
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 serve as members of our Board or our Compensation Committee. None of the members of our Compensation Committee is, or has ever been, an officer or employee of our company.
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. In particular,For example, each 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, Managementmanagement 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 regulatorycompliance risks that might expose the Company to liability or loss. In some instances the Board delegates responsibility for the execution of
The Audit Committee is responsible for overseeing the integrity of the Company’s financial statements, the Company's accounting and financial 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 Board formed the Related Party Review Committee to review transactions related to IHP.
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 Code of Business Conduct and Ethics that applies to all of our employees, executive officers and directors. Our Code of Business Conduct and Ethics can be found in the "Investors" section on our website at
https://www.NWHM.com. In addition, our Code of Business Conduct and Ethics is available in print to any stockholder who requests a copy. Please direct all requests to The New Home Company Inc., Attention: Secretary, 85 Enterprise, Suite 450, Aliso Viejo, California 92656. We intend to disclose future amendments to substantive provisions of our Code of Business Conduct and Ethics, or waivers of such provisions, applicable to our directors and executive officers, at the same location on our website identified above.Employees and Development
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.employees utilizing a third party survey and analytics provider. Our most recent survey, from December 2018,2019, had approximately 94%99% participation and reflected that approximately 90%91% of our employees are positively engaged.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 New Home,the Company, a willingness to recommend New Home, intent to stay with 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 Company engages in a variety of learning and development opportunities with its employees. Examples of such opportunities include operations symposiums,construction best practices training, education for managers on delivering performance feedback, and leadership offsite meetings for senior leaders of the Company.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 the 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 25, 2019,April 13, 2020, based on 20,049,11318,727,165 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. H. Lawrence Webb, Wayne Stelmar, Joseph Davis, Thomas Redwitz and IHP (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) | 1,006,858 | 5.0% |
| John M. Stephens | 59,341 | * |
Thomas Redwitz(3)(4) | 663,981 | 3.3% |
| Non-Employee Directors and Nominees | ||
| Sam Bakhshandehpour | 28,583 | * |
| Michael Berchtold | 51,283 | * |
| Paul C. Heeschen | 45,783 | * |
| Gregory P. Lindstrom | 31,283 | * |
| Cathey Lowe | 27,283 | * |
Douglas C. Neff(5) | 2,442,901 | 12.2% |
Wayne Stelmar(4)(6) | 979,243 | 4.8% |
| William A. Witte | 76,283 | * |
All current executive officers and directors (including nominees) as a group (12 persons)(7) | 4,766,389 | 23.2% |
| More than 5% Stockholders | ||
IHP Capital Partners VI, LLC(5) | 2,431,848 | 12.1% |
Second Curve Capital(8) | 1,975,809 | 9.9% |
UBS Group AG(9) | 1,969,378 | 9.8% |
FIL Limited(10) | 1,920,303 | 9.6% |
TCN/TNHC LP(11) | 1,512,498 | 7.5% |
FMR LLC(12) | 1,199,182 | 6.0% |
Joseph D. Davis(4)(13) | 732,385 | 3.6% |
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 "Redwitz Trust"), 38,841 shares of Common Stock held directly by Mr. Redwitz, and 181,818 stock options Mr. Redwitz has the right to exercise. 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 Common Stock beneficially owned by Thomas Redwitz. Upon the March 1, 2019 retirement and resignation of employment by Mr. Redwitz, he is no longer an executive officer of the Company. |
(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 1,462,938 shares of our common stock. 1,462,938 shares of Common Stock are held by MidOcean Tactical Credit Fund II, LP. MidOcean Tactical Credit Fund II GP, LP is the general partner of MidOcean Tactical Credit Fund II, LP. Ultramar Credit Holdings, Ltd. is the general partner of MidOcean Tactical Credit Fund II GP, LP. The Management Company provides investment advisory services to MidOcean Tactical Credit Fund II, LP. Mr. Virtue and Mr. Shenfeld indirectly control shares of the Company held by the MidOcean Entities. Accordingly, the Management Company, Mr. Virtue and Mr. Shenfeld may be deemed to have beneficial ownership of the shares of Common Stock held by the MidOcean Entities. Each of the Management Company, Mr. Virtue and Mr. Shenfeld disclaims beneficial ownership of the shares of Common Stock owned of record by any other person or entity except to the extent of their pecuniary interest therein. The address of each of the 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, 2020, each of Second Curve Capital, LLC and Thomas K. Brown have shared voting and dispositive power over |
| (11) | Based solely on a Schedule 13G filed with the SEC on February |
| Building One, 6300 Bee Cave Road, Austin, TX 78746. | |
Based solely on a Schedule 13G/A filed with the SEC on February |
| 399 Park Avenue, New York, NY 10022. | |
(13) | Consists of 515,441 shares of the Common Stock held as of the date hereof by J. and T. Davis Family Trust (of which Joseph D. Davis is a trustee) |
Summary Compensation Table
The following table shows, for the fiscal years ended December 31, 20182019 and 2017,2018, information regarding the compensation awarded to, earned by or paid to our named executive officers ("NEOs"), which for 20182019 consisted of:
| Name and Principal Position | Year | Salary | Bonus(1) | Stock Awards(2) | Option Awards | Non-equity Incentive Plan Compensation(3) | All Other Compensation(4) | Total |
| H. Lawrence Webb Chairman and Chief Executive Officer | 2018 | $692,308 | -- | $909,989 | -- | -- | $10,490 | $1,612,787 |
| 2017 | $650,000 | -- | $812,994 | -- | $1,196,000 | $10,377 | $2,669,371 | |
| Thomas Redwitz Chief Investment Officer | 2018 | $550,000 | -- | $439,986 | -- | -- | -- | $989,986 |
| 2017 | $526,923 | -- | $499,992 | -- | $506,000 | -- | $1,532,915 | |
| John M. Stephens Chief Financial Officer | 2018 | $500,000 | $175,000 | $399,982 | -- | -- | $20,945 | $1,095,927 |
| 2017 | $488,462 | -- | $431,995 | -- | $460,000 | $19,203 | $1,399,660 | |
• | 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 |
(3) | With respect to 2019, amounts reflect the grant date fair value of the restricted stock units, or RSUs, and |
(4) |
Amounts shown in this column represent other compensation in the form of (A) 401(k) match |
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 enteredthe 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 Joe 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 performance-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 compensation 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 Company 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 the 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 deleveraging. Accordingly, in early 2019, the Compensation Committee sought to reduce executive compensation spend and take into amendedaccount the importance of other goals of the Company, including deleveraging and restatedincreasing cash flow, as well as the lower levels of projected profitability due to the drop in demand for higher end housing in California, and accordingly implemented various changes to the executive compensation structure in early 2019, including:
| • | 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 responsibilities in his new role. The Committee made these decisions to ensure the long-term retention and continued leadership by Messrs. WebbMiller and Redwitz, pursuant to whichStephens particularly following the annual base salariesCEO Transition.
2019 Compensation Decisions by Compensation Element
Base Salary
The Compensation Committee reviews executive compensation and formally approves the compensation program for Messrs. Webb and Redwitz were established at $500,000 and $450,000, respectively. Mr. Stephens became our Chief Financial Officer on June 26, 2015. We entered into an employment agreement with Mr. Stephens pursuant to which his annualthe year typically during its February meeting. Typically, base salary was establishedincreases, if any, are determined at $450,000.this meeting. The terms of the employment agreements entered into by Messrs. Webb, Redwitz and Stephens are described in more detail below under "Employment Agreements."
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 Company as well as his additional leadership required to aid in the transition of Mr. Miller to a public company CEO role. As a result of the CEO Transition, the Committee approved $50,000 increases to each of the salaries for Messrs. RedwitzMiller and Stephens from $450,000 to $550,000 and from $450,000 to $500,000, respectively. On February 12, 2018, Mr. Webb's salary was increased from $650,000 to $700,000. The base salaries for Messrs. Redwitz and Stephens remained unchanged for 2018. In each of the foregoing cases, the Compensation Committee made the determinations to increase the executives' salaries following consultation with SBCG, its independent compensation consultant. Stephens.
SBCG provided our Compensation Committee and Board with compensation information for public homebuilders andadvice, including compensation data related to executives at public homebuilders, which the Compensation Committee considered in making its salary determinations. Further,
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 Compensation Committee considered the increased efforts required of Mr. Redwitz in transitioning the chief operating officer responsibilities to Leonard Miller, who was hired as our Chief Operating Officer in March 2017, in addition to the responsibilities associated with the Chief Investment Officer role when it made its determination to increase Mr. Redwitz's salary to $550,000.
_________________
| (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 2018,2019, each of the named executive officersNEOs participated in an annual bonus compensation program under our Executive Incentive Compensation Plan.Plan (the “2019 Annual Incentive Program”). Under thethis bonus program, each named executive officerNEO was eligible to receive a cash bonus based on achievement of a pre-established pretax income goal for 2018.2019 (the “2019 Target Performance”). Target bonuses are based on a percentage of the executive’s base salary. In order2018, for our CEO, the target cash bonus was 200% of base salary and for our other executive officers was 100% of base salary ("Historical Cash Targets"). For the 2019 Annual Incentive Program, the Compensation Committee set the target bonuses at the Historical Cash Targets (i.e. $1,400,000 for Mr. Webb, $550,000 for Mr. Miller and $500,000 for Mr. Stephens) (“Target Bonus”). Then, solely for purposes of bonus payouts for 2019 performance under the 2019 Annual Incentive Program and in an effort to reduce executive compensation spend for the executives to be eligible to receive2019 fiscal year, applied a bonus50% discount factor (i.e. 50% of the Historical Cash Targets) for 2018 performance, our company had to achieve at least 75%achieving 100% of the target level of 2019 Target Performance (the “Modified Target Bonus”).
The 2019 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 executives 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 Mr. Webb’s bonus target was reduced to $550,000 (or approximately 122% of his new base salary). Mr. Stephens’ bonus target as a percentage of salary remained unchanged at 100%, but increased in amount due to his increase in salary. In each of the foregoing cases, the revised bonuses applied pro rata from the effective date of the CEO Transition through year end. In addition, consistent with the 2019 Annual Incentive Program approved in February 2019, the NEO bonuses were only to be funded at 50% for achieving the Company’s pretax income goal (i.e., the payout for meeting target performance is 50% of the bonus target). A summary of the potential bonus payouts for meeting 2019 Target Performance for each of the executive officers is summarized below:
Named Executive Officer | 2019 Modified Target Bonus ($) | 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 | $275,000 | 50% |
| Thomas Redwitz(1) | n/a | n/a |
_________________
| (1) | In February 2019, Mr. Redwitz notified the Board of his retirement and resignation as Chief Investment Officer, effective March 1, 2019. Accordingly, Mr. Redwitz was not eligible to participate in the bonus program. |
The Committee established threshold, target, and maximum goals for pretax income shown in the table below. Payouts for achievement between goals is determined by straight line interpolation, with no payout for achievement below the threshold goal. The 2018 target bonuses for the named executive officers were as follows:
| Named Executive Officer | 2018 Target Bonus ($) | 2018 Target Bonus (as % of Base Salary) |
| H. Lawrence Webb | $1,400,000 | 200% |
| Thomas Redwitz | $550,000 | 100% |
| John Stephens | $500,000 | 100% |
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 had the discretion to adjust each payout by +/- 30% of the Historical Cash Target amounts based on an assessment at the following payout schedule:
Performance | % of Target Performance Goal | Payout (% of Target) |
| Maximum | >125% | 200% |
| Target | 100% | 100% |
| Threshold | 75% | 50% |
| < Threshold | <75% | 0% |
For 2019, the Company did not achieve at least 75% of its target performancethe threshold pretax income goal and accordingly, the annual bonus compensation program yielded no bonuses to any of the named executive officers. The Compensation Committee determined that H. Lawrence Webb, the Company's Chief Executive Officer, and Thomas Redwitz, the Company's Chief Investment Officer, would receive no bonuses.NEOs. In early February 2019, in recognition of his contributions in 2018 and in acknowledgment of his continued value to the Company, the Compensation Committee approved a $175,000 discretionary bonus to John Stephens.
| Named Executive Officer | 2017 Target Bonus ($) | 2017 Target Bonus (as % of Base Salary) |
| H. Lawrence Webb | $1,300,000 | 200% |
| Thomas Redwitz | $550,000 | 100% |
| John Stephens | $500,000 | 100% |
Performance | % of Target Performance Goal | Payout (% of Target) |
| Maximum | >125% | 200% |
| Target | 100% | 100% |
| Threshold | 75% | 50% |
| < Threshold | <75% | 0% |
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 equity compensation programshort-term performance goals for its executive officers. In determiningthe 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 compensation spend and the dilutive impact to shareholders. In the interest of still providing a meaningful incentive to executives, the 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 in 2018, consideration was givenbased 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 form and amount of awards typically granted to executives at other public homebuilders.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 SBCG, provided our Compensation Committee with compensation information for public homebuilders and compensation data related to executives at public homebuilders which the Compensation Committee considered in making awards. Pursuant to such program, the Compensation Committee approved a mix of time-based RSU awards and performance-based PSU awards of 40% and 60% of the total award amount, respectively,established target long-term incentive values for each executive officer under the Company's AmendedNEO as follows: $910,000 for Mr. Webb, $400,000 for Mr. Miller, $400,000 for Mr. Stephens, and Restated 2016 Incentive Award Plan (the "
| 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 retention 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 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 comprised approximately 37% RSUs and 63% options, with options in 2019 taking the place of PSUs from the mix in 2018. The committee granted such stock options and RSUs on February 16, 201820, 2019 (two trading days following our 20172018 fiscal year-end earnings release)release in accordance with the Company's equity grant practices policy:
| Named Executive Officer | Dollar-Denominated Value of Performance Share Units | Number of Target PSUs | |
| H. Lawrence Webb | $546,000 | 46,746 | |
| Thomas Redwitz | $264,000 | 22,602 | |
| John Stephens | $240,000 | 20,547 | |
| 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), Mr. Webb, transitioned from CEO to Executive Chairman, and Mr. Miller was promoted from Chief Operating Officer to CEO. In connection with this transition, the Compensation Committee, in consultation with the Board and SBCG, determined to grant each of Messrs. Miller and Stephens 100,000 RSUs with a three-year cliff vest to promote a smooth CEO Transition and encourage continuity of leadership with Messrs. Miller and Stephens. Mr. Webb transitioned to Executive Chairman effective August 30, 2019. The Board had originally anticipated that the transition would occur earlier in the year, but due to market challenges, the Board and Mr. Webb determined it was best to postpone the transition for a few quarters. The Compensation Committee determined to grant Mr. Webb an additional 17,694 RSUs, also with a three-year cliff vest, to account for the fact that he had remained CEO longer than was anticipated in February. All such grants were made on February 16, 2018 (twoAugust 1, 2019, which, in accordance with the Company’s equity grant practices policy, was two trading days following our 2017 fiscal year-end2019 second quarter earnings release)release following committee approval.
The total number and grant date values of shares underlying each stock option and RSU granted to the NEOs for the full year 2019 is set forth in accordance with the Company's equity grant practices policy discussedtable 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. |
| Named Executive Officer | Dollar-Denominated Value of Restricted Stock Units | Number of Restricted Stock Units | |
| H. Lawrence Webb | $364,000 | 31,164 | |
| Thomas Redwitz | $176,000 | 15,068 | |
| John Stephens | $160,000 | 13,698 | |
Equity Compensation
Starting in February 2017, our named executed officers have been granted RSUs under the 2016 Plan. At its February 2019 meeting, the Compensation Committee approved a form of RSU Agreement (the "2019 RSU Agreement") and a form of stock option agreement ("2019 Stock Option Agreement") pursuant to which it made its equity grants fromto executive officers under the 2016 PlanPlan. See "--Executive Compensation Arrangements Upon Certain Departures" on page 24 for a detailed discussion of accelerated vesting upon certain departures from service with us. In addition, starting in 2018, the Company's RSU grant agreements provide that dividend equivalent payments are only be made if the underlying RSUs vest.
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 our named executive officers with a grant datethese PSUs was based percentage attainment of February 24, 2017specified threshold, target, and maximum performance objectives as describedset forth in the table below which 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 Compensation Committee granted the RSU awards using the following dollar-denominated values of the award divided by the closing price per share of the Company’s common stock onbelow:
| % of Target | % of Shares Earned |
| 120% | 150% |
| 100% | 100% |
| 80% | 50% |
| <80% | 0% |
In February 24, 2017 (two trading days following our 2016 fiscal year-end earnings release) as set forth below. In determining the RSU awards granted in 2017, consideration was given to the form and amount of awards typically granted to executives at other public homebuilders. SBCG provided our Compensation Committee and Board with compensation information for public homebuilders and compensation data related to executives at public homebuilders which2020, the Compensation Committee, considered in making awards. The Compensation Committee grantedconsultation with management and the RSU awards usingBoard, determined that the following dollar-denominated valuesperformance 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 award divided byCompany 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 closing price per shareearlier of (i) the Company’s common stock on February 24, 2017 (two trading days following our 2016 fiscal year-end earnings release):
| Named Executive Officer | Dollar-Denominated Value of Restricted Stock Units | Number of Restricted Stock Units | |
| H. Lawrence Webb | $813,000 | 75,839 | |
| Thomas Redwitz | $500,000 | 46,641 | |
| John Stephens | $432,000 | 40,298 | |
Also effective March 1, 2019, Mr. Redwitz and 96% of base salarythe Company entered into a consulting agreement pursuant to which Mr. Redwitz serves as a consultant to the Company for the other executive officers. The grants for 2017 were basedan initial one-year term commencing on the salary in effect forEffective 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 executive officer on February 24, 2017. In 2017, the Compensation Committee determined to increaseoutstanding vested Company stock option held by Mr. Redwitz's RSU grant from a value of $432,000 to $500,000 in recognitionRedwitz as of the additional efforts that would be requiredEffective Date (each, a "Pre-Consulting Stock Option") will remain outstanding and exercisable in
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 early 2017 asno event beyond the Company's Chief Operating Officer.
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 generally occur on pre-established dates, with employee annual grants generally occurring on the date that is two full trading days after the public release of fiscal year-end earnings, or (if during a time not around our fiscal year-end earnings)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 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.unit; however in 2019 and 2020, the Compensation Committee fixed the number of shares to be granted to executives on the grant date in an effort to control the dilutive effect on stockholders.
Clawback Policy
The Company maintains a clawback policy which requires certain cash and equity incentive compensation to be repaid to the 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,Employment Agreements
The Company has entered into employment agreements with each of Messrs. Webb, Miller, and Stephens. The employment agreement for Mr. Redwitz was terminated in connection with his separation as discussed above. Each of the completion of our initial public offering, we entered intoother NEO’s employment agreements was amended and restated employment agreements with Messrs. Webb and Redwitz. Effective March 13, 2017,as of August 30, 2019 in connection with the resignation of Wayne Stelmar, Mr. Redwitz’s employment agreement was amended to appoint him as Chief Investment Officer. We entered into an employment agreementCEO Transition (the “Amended Employment Agreements”). In connection with Mr. Stephens on June 26, 2015Webb’s transition to Executive Chairman of the Company, Mr. Webb’s Amended Employment Agreement provides for an annual base salary of $450,000 per year, decreased from $700,000. Additionally, in connection with Mr. Miller’s promotion to Chief Executive Officer of the commencementCompany, Mr. Miller’s Amended Employment Agreement provides for an annual base salary of his employment.$600,000, increased from $550,000. Finally, in connection with Mr. Stephens’ promotion to Executive Vice President, Mr. Stephens’ Amended Employment Agreement provides for a base salary of $550,000 per year, increased from $500,000. The employment agreements withterm of the Amended Employment Agreement for Mr. Webb will continue until August 30, 2020 and the terms of the Amended Employment Agreements for Messrs. Webb, Redwitz,Miller and Stephens will continue until August 30, 2022, in each have an initialcase, unless earlier terminated. The Amended Employment Agreements are subject to automatic one-year renewal terms unless either the Company or the executive gives written notice of termination, in the case of Messrs. Miller and Stephens, at least 180 days prior to the end of the applicable term, expiring onor in the thirdcase of Mr. Webb, at least 90 days prior to the end of the applicable term. Further, the Amended Employment Agreements provide that if a change in control of the Company occurs, the term will automatically be extended to, in the case of Messrs. Miller and Stephens, the second anniversary of the effective datechange in control, or in the case of Mr. Webb, the anniversary of the employment agreement. Each employment agreement provideschange in control. See "--Executive Compensation Arrangements Upon Certain Departures" on page 24 for automatic one-year extensions after the expirationa detailed discussion of the initial term, unless either party provides the otheraccelerated vesting upon certain departures from service with at least 180 days’ prior written notice of non-renewal.
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 20182019 fiscal year, certain members of management, including named executive officers,NEOs, are eligible for up to $1,200 in reimbursements annually for mobile phone usage and a car allowance of up to $7,200 annually. Named executive officersNEOs 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 and our executive officer, Leonard Miller,NEOs, we pay the following amounts upon qualifying departures from service with us. We may terminate the employment of such individuals at any time with or without cause, and the executive may terminate his employment with or without good reason. As described above under "Redwitz Separation and Consulting Agreements," in connection with his resignation, Mr. Redwitz's employment agreement was terminated effective March 1, 2019.
Termination for cause or resignation without good reason
.If we terminate an executive's employment for cause, or if the executive officer resigns without good reason, the 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").Termination without cause or resignation for good reason or due to disability or death; Termination in the event of a Change in Control
Employment Agreements
Equity Award Agreements
. Our forms of RSU, stock option and PSU agreements provide for accelerated vesting in the event of certain executive departures.All RSUs granted to executives that are currently outstanding have been granted RSUs under both the 2014 Plan and the 2016 Plan. The award agreements for RSU grants made to executive officers differs from the terms of awards under the 2014 Plan in that the agreements under the 2016 Plan allowdo not provide for (i) pro-rated vesting upon the executive's retirement or (ii) full“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 "
Under our form of stock option agreement,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 termination 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 terminated due to his "retirement", then the option 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 performance period, then, unless otherwise agreed, the executive will vest in the target number of PSUs associated with the applicable performance goal (“Target PSUs (as defined above under "2018 Equity Compensation—Performance Share Unit Grants"”), pro-rated based on the amount of time the executive was employed over the performance period. If any such termination occurs following the performance period but prior to full vesting, the executive will vest in a pro-rated number of PSUs that remain outstanding and unvested as of the termination date. If the executive’s employment is terminated due to his "retirement" during the performance period, then the PSUs will remain outstanding and eligible to vest based on the achievement of performance goals, and will be pro-rated based on the amount of time the executive was employed over the performance period. If a change in control occurs following the executive’s retirement, then the pro-ration will be applied to the Target PSUs. If the executive’s employment is terminated due to his "retirement" after the performance period, the executive will vest in a pro-rated number of PSUs that remain unvested as of his retirement. If the Company undergoes a change in control during the performance period and the award is not assumed, then the executive will vest in the Target PSUs. In the event the award is assumed in connection with a
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. These guidelines were modified on August 30, 2019 in connection with the CEO Transition. Under these guidelines, as amended, each executive officer must hold 100% of all "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 times base salary, in the case of the Executive Chairman, three times base salary, in the case of the Chief Executive Officer, and two times the base salary in the case of any other executive officer (the "exec"executive ownership threshold"). The "net shares" means those shares of common stock that remain after payment, as 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. To determine the number of shares required to meet the execexecutive ownership threshold, we use (1) with respect to shares of Company common stock underlying equity awards granted to the executive by the Company, the per share price that was used to value such equity awards when granted or the current market price per share, whichever is greater and (2) with respect to shares of company Common Stock otherwise acquired, the Company common stock is valued at the greater of the executive’s cost basis and the current market price per share. Each executive is expected to attain the ownership threshold within five years of becoming subject to the guidelines; provided that in the event of an increase in base salary that has the effect of increasing the execexecutive ownership threshold, the executive shall then be required to hold 100% of such executive’s net shares until such time that such increased execexecutive ownership threshold is met and shall not be deemed to be "out of compliance" with this policy unless he or she sells shares prior to reaching such increased execexecutive ownership threshold. Mr. Webb and Mr. Redwitz, each founders of the Company, already ownowns shares in excess of his executive ownership threshold. Each of Messrs. Miller and Stephens have not yet been subject to the stock ownership guidelines for five years and each of their respective exec ownership thresholds.
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 provide consulting services toeach of Messrs. Miller and Stephens in conjunction with the CEO transition and the Company continued to operate in the areas of land and architectural planning and design. On January 23, 2019, our current executive officer, Leonard Miller, was appointed as our President in additiona challenging environment, no increases to his existing role as Chief Operating Officer. We anticipate that Mr. Miller will qualify as a "named executive officer"base salaries were approved for the 2019 fiscal year and have included information in this Proxy Statement regarding his compensation in 2019 for informational purposes only. Mr. Miller's compensation is reviewed and approved by our Compensation Committee with input from SBCG. Following2020 year.
2020 Cash Incentive Program. In consultation with SBCG, as to the salaries typically set for executives at other public homebuilders, as well as a review of compensation information for public homebuilders and compensation data related to executives at public homebuilders, the Compensation Committee approved an increase indetermined to restructure its annual cash incentive program for the annual base salary for Mr. Miller from $500,000 to $550,000, effective upon2020 fiscal year. In 2019, the first pay period following February 11, 2019, due to his promotion and assumption of all day-to-day aspects ofCompany did not achieve the Company's operations.
Named Executive Officer | 2020 Target Bonus ($) | 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% or up to 65% of such Historical Cash Targets.
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 | ||
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, 2018:
| Option Awards | Stock Awards | ||||||||
| Name | Number of Securities Underlying Unexercised Options Exercisable(1) | Option Exercise Price | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (the 2014 Plan(2) | Number of Shares or Units of Stock That Have Not Vested (the 2016 Plan) | Market Value of Shares or Units of Stock That Have Not Vested(7) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested(6) | Equity Incentive Plan Awards: Market Value of Unearned Shares, Units or Other Rights That Have Not Vested(7) | |
| H. Lawrence Webb | 227,273 | $11.00 | 01/30/2024 | 20,729 | 81,723(3) | $535,824 | 23,374 | $122,246 | |
| Thomas Redwitz | 181,818 | $11.00 | 01/30/2024 | 14,328 | 46,162(4) | $316,363 | 11,302 | $59,109 | |
| John Stephens | - | - | - | 14,328 | 40,563(5) | $287,080 | 10,274 | $53,733 | |
Option Awards | Stock Awards | |||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Number of Securities Underlying Unexercised Options (#) Unexercisable(2) | Option Exercise Price ($) | 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) | Each option was granted on February 20, 2019 from the 2016 Plan and vests and becomes exercisable in equal installments on the first, second and third anniversaries of the grant date, subject to the executive's continued service through the applicable vest date. |
(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 vest in three equal installments on each of the first three anniversaries of the grant date (with the exception of 17,694 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. |
| (4) | Remaining unvested shares |
(5) | Remaining unvested shares |
| 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, 2018,2019, 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 | 1,416,119 | $11.00 | 1,517,515 | ||
| Plans not approved by stockholders | - | - | - | ||
| Total | 1,416,119 | $11.00 | 1,517,515 | ||
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 the 2016 Plan and the 2014 Plan. |
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 | |
• | 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 | |
• | 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 | |
| • | 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.
PROPOSAL 3ADVISORY 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 effective foras of April 30, 2019, at which time our Board approved increases to the Committee Chair and Committee member retainers from our 2018 fiscal year.director compensation program. Under this program, the non-employee directors were 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"). Each 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, 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, which, as of the current date, is $135,000 (the "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 ("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; provided that in the event of an increase in
Non-Employee Director Compensation Table
The table below summarizes the compensation received by our non-employee directors for the year ended December 31, 2018.2019. 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 |
| $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. | ||||||||||||||||
| 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 | $79,542 | $59,999 | - | $139,541 | |||||||||||||
| David Berman | $29,000 | - | - | $29,000 | |||||||||||||
| Paul C. Heeschen | $59,750 | $59,999 | - | $119,749 | |||||||||||||
| Gregory P. Lindstrom | $66,000 | $59,999 | - | $125,999 | |||||||||||||
| Cathey Lowe | $71,000 | $59,999 | - | $130,999 | |||||||||||||
| Douglas C. Neff | $60,000 | $59,999 | - | $119,999 | |||||||||||||
| Wayne Stelmar | $60,000 | $59,999 | $94,563 | $214,562 | |||||||||||||
| Nadine Watt | $29,000 | - | - | $29,000 | |||||||||||||
| William A. Witte | $56,750 | $59,999 | - | $116,749 | |||||||||||||
| (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 5,982 RSUs on May 22, 2018 under the Plan and each subject to vesting in full on the earlier of the 2019 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 15, 2019. The grant date fair market value of each RSU granted on May 22, 2018 was $10.03. | ||||||||||||||||
| (2) | The following table sets forth the outstanding equity awards held by each of our non-employee directors as of December 31, 2018. | ||||||||||||||||
| Director | RSUs Outstanding at December 31, 2018 | ||||||||||||||||
| Sam Bakhshandehpour | 5,982 | ||||||||||||||||
| Michael Berchtold | 5,982 | ||||||||||||||||
David Berman(4) | - | ||||||||||||||||
| Paul C. Heeschen | 5,982 | ||||||||||||||||
| Gregory P. Lindstrom | 5,982 | ||||||||||||||||
| Cathey Lowe | 5,982 | ||||||||||||||||
| Douglas C. Neff | 5,982 | ||||||||||||||||
| Wayne Stelmar | 20,310 | ||||||||||||||||
Nadine Watt(4) | - | ||||||||||||||||
| William A. Witte | 5,982 | ||||||||||||||||
| (3) | Includes $89,357 in consulting fees earned by Mr. Stelmar as a consultant for the Company and other income of $5,206 which includes health benefits reimbursement payable pursuant to his consulting agreement with the Company. | ||||||||||||||||
| (4) | The terms of Nadine Watt and David Berman expired on May 22, 2018, as they were not renominated for reelection at our 2018 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 "
FOR" THE RATIFICATION OFAssuming 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, 20182019 and 20172018 as follows:
| Type of Fees | 2018 | 2017 | |||||
| Audit Fees | $ | 714,963 | $ | 869,613 | |||
| Audit-Related Fees | 222,000 | 286,200 | |||||
| Tax Fees | 154,194 | 137,712 | |||||
| All Other Fees | - | - | |||||
| Total | $ | 1,091,157 | $ | 1,293,525 | |||
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 public securities offerings, registration statements and responding to comment letters from the SEC.
The audit fees for 2019 and 2018 included $0 and 2017 included $79,963, and $298,613, respectively, for fees related to comfort letters, registration statements and other agreed upon procedures which includes $246,073 in 2017 for the audit fees related to audit services provided in connection with the Company's issuance and registration of $325 million of its Senior Notes. The decrease in audit fees from 2018 to 2017 is primarily the result of audit services provided in connection with the Company's issuance and registration of $325 million in Senior Notes in 2017.
Audit-Related Fees
These are fees for and related to the audit of six and nine of our unconsolidated joint ventures for 2018each 2019 and 2017, respectively,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" items. These fees also include 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. For 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 $35,532 related to our unconsolidated joint ventures. For 2017, $95,268 of the fees related to the Company’s consolidated return and filings for wholly owned subsidiaries and $42,444 related to our unconsolidated joint ventures.
All Other Fees
There were no fees for other permissible work performed by Ernst & YoungEY that did not meet the above category descriptions.
Pre-Approval Policies and Procedures
Under its charter, our Audit Committee, or the Chair 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 2019 and 2018.
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 2017.
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.
Following is the report of the Audit Committee with respect to The New Home Company’s audited consolidated balance sheets as of December 31, 20182019 and 2017,2018, and the related consolidated statements of operations, equity and cash flows for each of the three years in the period ended December 31, 20182019 and the notes thereto. The material in this report is not "soliciting material," is not deemed "filed" with the SEC, and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Responsibilities and Activities.
The Audit Committee operates under a written charter adopted by the board of directors and currently has three members. Each member of the Audit Committee is "independent," as required by the applicable listing standards of NYSE and the rules of the SEC. Our 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 Company has responsibility for preparing the Company’s financial statements, including the Company’s internal control over financial reporting. Ernst & Young LLP, actingwho acted as independent registered public accountants, isaccountant for the Company for the fiscal years 2018 and 2019, was responsible for performing an audit of the Company’s annual consolidated financial statements in accordance with 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 engages in an annual evaluation of Ernst & Young LLP’s qualifications, assessing the firm’s quality of service, the qualifications of the lead audit partner and other key audit team members, the appropriateness of the firm’s fees relative to both efficiency and audit quality, the firm’s sufficiency of resources, the quality of the communication and interaction with the firm, and the firm’s independence, objectivity and professional skepticism. The Audit Committee also considers the relative benefits, challenges, overall advisability and potential impact of selecting a different independent registered public accounting firm. As a result of this evaluation, the Audit Committee approved the appointment of Ernst & Young LLP as the Company’s independent registered public accounting firm for 2019.
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 matters required to be discussed by applicable standards of the 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 the Board that our audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended December 31,AUDIT 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 "
Policy"). The purpose of the Policy is to ensure that all transactions between related persons and us, including our subsidiaries, are properly identified, reported, reviewed and approved, and disclosed in accordance with applicable law. All related person transactions entered into or proposed to be entered into must be disclosed to and approved by the Audit Committee. In March 2019, the Board formed a Related Party Review Committee that has the power to substitute in for the Audit Committee for approval of related person transactions with IHP and/orThe 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 executive officer" and such compensation has been approved by the Compensation Committee, or recommended by the Compensation Committee to the Board for 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. Exception (b) however, does not apply if the executive officer is also an immediate family member of an executive officer or director of the Company.
Under the Policy, a related person means (a) an executive officer or director of the Company, or a nominee for election as a director; (b) any person who is known to be the beneficial owner of more than 5% of our common stock, (c) any immediate family member of any of the foregoing persons, or (d) any entity in which the foregoing persons is employed as an executive officer or is a general partner, managing member or principal in a position of having control of significant influence or in which any of the foregoing 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 person 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 "Board"Proposal 1—Election of Directors—Board Structure and Nominees."
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, 2019 and 2018, we earned $1.9 million and $3.4 million, respectively, in management fees, of which, $0 and $0.2 million of which was included in "due from affiliates" in our consolidated balance sheets.
As of December 31, 2019 and 2018, the Company had investments in certain unconsolidated joint ventures totaling $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 ("
Tricon"). Mr. Berman ceased to be a director in May 2018. Based on that certain Schedule 13G/A filed by Tricon on February 14, 2020, Tricon owns approximatelyDuring 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, 2018,2019, the company has taken down approximately one-halfall of thesethe 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, nonrefundable deposit remains outstandingrespectively, related to be applied to the purchase price of the remaining phases.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, 2018,2019, the Company has not taken down any92% of thesethe optioned lots and has madepaid $0.2 million in master marketing fees. At December 31, 2019 and 2018, a nonrefundable deposit of $0 and $1.4 million, nonrefundable deposit as consideration for the option that will be appliedrespectively, related to the purchase price of the land across the phases.
Douglas C. Neff, one of our non-employee directors, is President of IHP Capital Partners, the general partner of the manager of IHP. IHP owns approximately 12.1%13.0% of our common stock. An affiliate of IHP has a 63%
(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. At execution, the total purchase price, including the cost for the finished lot development and the option, was expected to be approximately $56.3 million, dependent on the timing of takedowns, as well as our obligation to pay certain fees and costs during the option maintenance period. During 2019, an unrelated third party entered into agreements to purchase from the IHP affiliate some of the lots under the Company's option. The Company has in turn entered into an arrangement pursuant to which it shall purchase such lots on a rolling take down basis from such unrelated third party. The unrelated third party purchased 67% of the lots originally under contract with the IHP affiliate. Following this purchase of the lots by the unrelated third party in 2019, the Company has no remaining lots to purchase from the IHP affiliate. As of December 31, 2019, the Company has paid (A) $0.2 million for fees and costs, (B) $3.0 million in option payments, and (C) $18.0 million for the purchase of lots directly from the IHP affiliate.
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 "and separation agreement with Thomas Redwitz. For information about these arrangements see "Executive Compensation—Redwitz Separation and Consulting AgreementAgreements".
")In connection with his retirement on February 17, 2017, the Company entered into a consulting agreement with Mr. Stelmar, a current Board member and our former Chief Investment Officer, pursuant to which Mr. Stelmar servesserved as a consultant to the Company. The Consulting Agreementcontract expired in August 2019 and was initially for a one-year term that commenced on February 17, 2017. Thenot extended. For his consulting agreement was amended on February 13, 2018 to extend the term to August 17, 2019. Under the original agreement,services, Mr. Stelmar received $16,800 per month. As amended, Mr. Stelmar receiveswas compensated $48,000 and $90,000 for the following paymentsyears ended December 31, 2019 and benefits: (i) a monthly consulting fee of $6,000; (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. Stelmar as of the Effective Date (a "Pre-Consulting Equity Award")granted in 2016 continued to vest in accordance with theits original terms, and conditions of such award existing prior to Mr. Stelmar’s retirement (basedbased on Mr. Stelmar’shis continued provision of consulting services thereafter rather than continued employment);employment, and (iii)fully vested during 2019. Mr. Stelmar also received Company-subsidized benefits coverage for Mr. Stelmarhimself and his eligible dependents ("dependents. COBRA Coverage") for the term of the Consulting Agreement or, if earlier, on the date Mr. Stelmar becomes eligible for coverage under a group health plan of a subsequent employer. The Consulting Agreement also requires the continued compliance with the restrictive covenants in Mr. Stelmar’s employment agreement. In the event that the Consulting Agreement and Mr. Stelmar’s consulting services are terminated by the Company without cause, Mr. Stelmar will receive the following, subject to his timely execution and non-revocation of a general release of claims: (i) a lump-sum payment of any remaining portion of Mr. Stelmar’s consulting fee (had he remained a consultant through the consulting period); (ii) continued COBRA Coverage that would have been payable for the remainder of the consulting period; and (iii) each Pre-Consulting Equity Award will accelerate and vest in full (to the extent then-unvested). In addition, if the Consulting Agreement and Mr. Stelmar’s consulting services are terminated by the Company at the end of the term due to the Company’s decision not to renew the agreement, then each Pre-Consulting Equity Award will accelerate and vest in full (to the extent then-unvested). In connection with his continuing board service as a non-employee board member, as of the date of his retirement, Mr. Stelmar is compensated for such board service pursuant to and in accordance with the Company’s Non-Employee Director Compensation Program described under "Compensation of Directors—Non-Employee Director Compensation Philosophy and Program."
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.Acquisition. He terminated his employment as of March 6, 2020. During the year ended December 31, 2019, the Company compensated John Neff with approximately $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 $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 ASC Topic 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 13, Stock-Based Compensation, to our consolidated audited financial statements included in our Form 10-K filed with the SEC on February 15, 2019.14, 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 Webb (formerly Joan Marcus-Colvin) is an employee of the Company as our Chief Marketing Officer, who reports to our President and Chief OperatingExecutive Officer, Leonard Miller. Ms. Webb is married to H. Lawrence Webb. During the year ended December 31, 2019, the Company compensated Ms. Webb with approximately $340,000 in cash, including base salary and bonus, $36,000 of RSUs which vest ratably over three years with vesting subject to continued service, and $40,000 in NQSOs which vest and become exercisable ratably over three years subject to Ms. Webb's continued service. During the year 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 target amount based on performance metrics measured from January 1, 2018 through December 31, 2019. The numberIt was determined as of PSUsDecember 31, 2019 that vest on the last day of the performance period is 50%, withgoals underlying the final 50% vesting on the first anniversary thereof (i.e. December 31, 2020), subject toPSU award had not been met and Ms. Webb's continued service. RSU and PSU award values are based on grant date fair value as computed in accordance with ASC Topic 718.was terminated. We provide information regarding the assumptions used to calculate the value of all equity awards in Note 13, Stock-Based Compensation, to our consolidated audited financial statements included in our Form 10-K filed with the SEC on February 15, 2019.14, 2020. In the event of a termination following a change in control of the Company, Ms. Webb is entitled to (i) severance pay in an amount equal to two times the sum of her (A) base salary and (B) the greater of the target annual cash bonus for the year in which the qualifying termination occurs and the average annual bonus paid to her during the three most recently completed years prior to her qualifying termination, and (ii) Company-subsidized benefits coverage for 12 months or until the date Ms. Webb becomes eligible for coverage under a group health plan of a subsequent employer. In addition, Ms. Webb participates in the Company’s general welfare plans, including health benefits, retirement savings opportunities and limited other employee benefits. In addition to being reviewed, ratified and approved by the Audit Committee, Joan Marcus Webb's compensation is recommended by Leonard Miller and approved by the Compensation Committee.
In June 18, 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 non-employee consultant to the Company effective June 26, 2015 ("
FMR LLC beneficially owns 6.0%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.
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, 2018 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," 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 would like additional copies of materials, may contact the Householding Department of Broadridge Financial Solutions, Inc. at 51 Mercedes Way, Edgewood, New York 11717, or at 1-800-579-1639, or at sendmaterial@proxyvote.com.Where 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" section of our website at
https://www.NWHM.com., our reports and other information filed with or furnished to the SEC and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The SEC's Internet website, www.sec.gov, also contains reports, proxy statements and other information about issuers, like us, who file electronically with the SEC.WE WILL PROVIDE, WITHOUT CHARGE, ON THE WRITTEN REQUEST OF ANY STOCKHOLDER, A COPY OF OUR 20182019 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. 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" (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, 20182019 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 5, 2019
