EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth the cash compensation paid during the fiscal
years ended February 29, 2000, February 28, 1999 and February 28, 1998 to each
of the five most highly compensated executive officers of the Company in all
capacities in which they served, and such other individuals as are required to
be disclosed.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
------------
NUMBER OF
ANNUAL COMPENSATION SECURITIES
FISCAL -------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(c)
--------------------------- ------ -------- -------- ------------ ---------------
Hadi Makarechian................. 2000 $301,875 $598,000(a) -- $ 160
Chairman and Chief 1999 284,896 312,560(b) -- 180
Executive Officer 1998 270,625 -- -- 204
Stephen P. Couig................. 2000 212,500 105,000 24,000 910
Senior Vice President, 1999 175,000 67,500 15,000 180
Residential Division 1998 155,208 42,500 -- 204
Steven O. Spelman, Jr............ 2000 178,750 115,000 24,000 1,931
Senior Vice President, 1999 157,500 57,500 15,000 180
Chief Financial Officer 1998 46,875(d) 1,250(d) -- 68(d)
and Corporate Secretary
Paul P. Makarechian.............. 2000 143,333 105,000 24,000 1,077
Senior Vice President 1999 75,000 57,500 15,000 180
1998 39,551 17,500 -- 204
William A. Funk(e)............... 2000 200,000 20,000 8,000 1,327
Senior Vice President 1999 -- -- -- --
1998 -- -- -- --
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(a) Bonus was earned in FY 2000 but was paid in FY 2001.
(b) Bonus was earned in FY 1999 but was paid in FY 2000.
(c) Represents premiums paid by the Company for term life insurance for the
benefit of the insured and employer matching contributions to the Company's
401(k) Plan which began in October, 1999.
(d) Represents amounts paid for the period November 1997 through February 1998.
(e) Mr. Funk began employment with the Company on March 1, 1999.
STOCK OPTIONS
Effective February 28, 1995, the Company, as approved by the stockholders
of the Company in July 1995, adopted the 1995 Stock Incentive Plan (the "1995
Plan"). The 1995 Plan permits a committee designated by the Board of the Company
to make awards to key employees and directors of the Company and its
subsidiaries. Subject to various restrictions, awards could be in the form of
stock options, restricted or unrestricted stock, stock appreciation rights or a
combination of the above. The maximum number of shares or share equivalents that
may be awarded under the 1995 Plan is 1,500,000. In February 1999, the Board of
Directors approved a grant of 256,000 stock options under the Plan. The grants
were effective on February 8, 1999. The stock underlying all of the option
grants is the Company's Non-Voting Common Stock, par value $.10 per share. As of
June 9, 2000, there is no Non-Voting Common Stock outstanding. Since there is no
market for the Non-Voting Common Stock, the value of such Non-Voting Common
Stock for purposes of calculating the value of the options (solely for purposes
of this Proxy Statement) is assumed to be the market price of the Company's
publicly traded voting common stock.
4
OPTIONS GRANTS IN LAST FISCAL YEAR
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS(1) VALUE AT ASSUMED
--------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES BASE PRICE EXPIRATION --------------------
NAME (#) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- --------------- -------------- ----------- ---------- ------- -------
Hadi Makarechian........... (2) -- -- -- -- --
Stephen P. Couig........... 24,000 9.6 1.875 9/30/09 28,300 71,718
Steven O. Spelman, Jr...... 24,000 9.6 1.875 9/30/09 28,300 71,718
Paul P. Makarechian........ 24,000 9.6 1.875 9/30/09 28,300 71,718
William A. Funk............ 8,000 3.2 1.875 9/30/09 9,433 23,906
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(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 33 1/3% per year over the first three years and to lapse after ten
years unless sooner exercised or forfeited. All stock options will vest
immediately in the event of either (i) a merger in which the Company does
not survive or (ii) a sale of all or substantially all of the Company's
assets. All stock options were granted at the closing market price of the
Company's voting shares on the date of grant.
(2) Under the existing 1995 Stock Incentive Plan, Hadi Makarechian is not
eligible to receive stock options.
(3) The dollar amounts under these columns are the result of calculations at the
5% and 10% rates set by the SEC, and therefore are not intended to forecast
possible future appreciation of the Company's stock price. In all cases the
appreciation is calculated from the award date to the end of the option
term.
FISCAL YEAR END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR END(#)(1) AT FISCAL YEAR END($)(3)
SHARES ACQUIRED --------------------------- ---------------------------
NAME ON EXERCISE(#) VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------------- -------------- ----------- ------------- ----------- -------------
Hadi Makarechian........... -- -- (2) -- -- --
Stephen P. Couig........... -- -- 5,000 34,000 625 25,250
Steven O. Spelman, Jr...... -- -- 5,000 34,000 625 25,250
Paul P. Makarechian........ -- -- 5,000 34,000 625 25,250
William A. Funk............ -- -- -- 8,000 -- 8,000
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(1) The nonqualified stock options granted by the Board are scheduled to vest at
a rate of 33 1/3% per year over the first three years and to lapse after ten
years unless sooner exercised or forfeited. All stock options will vest
immediately in the event of either (i) a merger in which the Company does
not survive or (ii) a sale of all or substantially all of the Company's
assets. All stock options were granted at the closing market price of the
Company's voting shares on the date of grant.
(2) Under the existing 1995 Stock Incentive Plan, Hadi Makarechian is not
eligible to receive stock options.
(3) Calculated per share by subtracting the exercise price from the market price
of the Company's voting shares on February 29, 2000.
EMPLOYMENT AGREEMENTS AND OTHER ARRANGEMENTS
None of the executive officers is currently working under an employment
contract.
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COMPENSATION COMMITTEE DETERMINATION ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Company's Board of
Directors establishes the Company's general compensation policies, compensation
plans, and specific compensation levels for the Company's Chief Executive
Officer and any other executive officer which may in the future be specifically
designated by the Board of Directors. The Compensation Committee also reviews
the design, administration and effectiveness of compensation programs for other
key executives. The general policy and philosophy of the Compensation Committee
is to provide total compensation opportunities that are competitive with the
opportunities offered to executives in similar positions at competing companies
and that compensation with a strong link to the financial performance of the
Company enables the Company to attract and retain the key personnel necessary to
fuel continued growth and profitability.
The Committee has examined the compensation of the executives of
comparatively placed homebuilders to determine whether or not the compensation
of the Company's Chief Executive Officer is within the range of his peers. In
undertaking such examination, the Committee has sought publicly available
information regarding homebuilders which are at a similar stage in their growth
and development to that of the Company and therefore compete for the same
executive personnel.
Performance Based Compensation
The Committee has reviewed the Company's performance in Fiscal 2000 under
the direction of the Chief Executive Officer both in homebuilding and commercial
and real estate development activities. Based upon the Committee's review of the
compensation of chief executives of similarly placed homebuilders, and
particularly in light of (i) the Company's non-homebuilding activities, (ii) the
Company's increased performance, (iii) the fact that the Company's Chief
Executive Officer has assumed some of the responsibility of the Company's former
Chief Operating Officer, and (iv) the fact that the Company's Chief Executive
Officer, unlike the chief executive officers of the majority of the peer group,
receives no material non-cash compensation, it was the Committee's judgment that
the existing bonus compensation structure would not be sufficient to provide
total compensation commensurate with the Company's Chief Executive Officer's
responsibilities. In light of contractual restrictions on increasing the basis
of the Chief Executive Officer's performance based compensation required by the
Company's investor, Farallon Capital Management, LLC ("Farallon"), at the time
of the Fiscal 1998 equity and restructuring transaction, however, it was
determined to retain his performance based compensation of four percent (4%) of
the pre-tax income of the Company for fiscal year 2000.
Section 162(m) of the Internal Revenue Code of 1986 limits deductions for
certain executive compensation in excess of $1 million. The Code permits
deduction of compensation in excess of $1 million only if it is performance
based, the criteria for award are specified in detail, and stockholder approval
is obtained prior to payment. The policy of the Company is to maintain the tax
deductibility of all compensation paid to its executives. The annual cash bonus
has been structured to meet the requirements for deductibility. While the
Compensation Committee does not anticipate any payments exceeding $1 million
under the compensation structure it has approved, any such payments will be
contingent upon shareholder approval.
Base Salary
The annualized base salary of the Chief Executive Officer was $301,875 for
Fiscal Year 2000. For the reasons stated above with respect to Performance Based
Compensation, it was the Committee's judgment that the base salary of the Chief
Executive Officer should be substantially increased. Unless and until the
existing contractual restrictions on the base compensation payable to the Chief
Executive Officer required by Farallon are modified or eliminated, however, the
Committee has determined to recommend an increase of $15,094 to $316,969 for
Fiscal Year 2001, the maximum increase permitted under such contractual
restrictions.
/s/ KARLHEINZ M. KAISER /s/ ALLAN L. ACREE
-------------------------------------------- --------------------------------------------
Karlheinz M. Kaiser Allan L. Acree
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Dated: February 29, 2000
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