EMPLOYMENT AGREEMENT
(Geaton X. XxXxxxxxx, Xx.)
EMPLOYMENT AGREEMENT (the "Agreement") dated January 23, 2001 by
and between X. Xxxxxxxxx Enterprises, Inc. (the "Company") and Geaton X.
XxXxxxxxx, Xx. (the "Executive").
WHEREAS, Executive entered into that certain Employment Agreement
with WHI (as hereinafter defined) dated July 1, 2000 (the "WHI Employment
Agreement"). As an inducement to the Executive to enter into this Agreement,
the Executive has agreed to the cancellation of the WHI Employment Agreement
in consideration for a payment of a signing bonus to the Executive in an
amount equal to the Executive's base salary and the total annual bonus in
respect of WHI's fiscal year ended July 31, 2000 (which includes the current
amount paid and the amount deferred) earned by the Executive for WHI's fiscal
year ended July 31, 2000;
WHEREAS, the Company desires to employ Executive and to enter
into an agreement embodying the terms of such employment; and
WHEREAS, Executive desires to accept such employment and enter
into such an agreement.
NOW, THEREFOR, in consideration of the promises and mutual
covenants herein and for other good and valuable consideration, the parties
agree as follows:
1. Term of Employment. Subject to the provisions of Section 7 of
this Agreement and the consummation of the transactions contemplated in the
Agreement and Plan of Merger among Hovnanian Enterprises, Inc. ("Hovnanian"),
WHI Holding Co., Inc. and Washington Homes, Inc. ("WHI") dated as of August
27, 2000 (such agreement, the "Merger Agreement" and the date of such
consummation, the "Effective Time"), Executive shall be employed by the
Company for a period commencing on the Effective Time and ending on October
31, 2003 (the "Employment Term") on the terms and subject to the conditions
set forth in this Agreement.
2. Position.
a. During the Employment Term, Executive shall serve as the
Company's Chief Operating Officer and President of Homebuilding Operations.
In such position, Executive shall have direct responsibility for the
oversight of the President of the Southeast Region of the Company and of the
combined assets of the former WHI, which has been merged with and into the
Company, and the assets of the Southeast Region of Hovnanian (of which the
Company is a wholly- owned subsidiary), as well as such other duties and
authority as shall be determined from time to time by the Board of Directors
(the "Board") and the Chief Executive Officer of Hovnanian. The Executive
will also serve as a member of the Board of Directors of Hovnanian and a
member of the Strategic Planning Committee of Hovnanian and will be
responsible for the development and recommendation to the Chief Executive
Officer and Board of Directors of Hovnanian of ideas and strategies for
improvement of homebuilding operations and profitability. Furthermore, the
Executive will be responsible, along with other executives of Hovnanian and
the Company, for implementation of decisions affecting homebuilding
operations and the profitability of Hovnanian and its subsidiaries.
Executive shall operate principally out of Landover, Maryland and such other
locations in the Washington, D.C. area as may be requested from time to time.
Executive agrees to travel to such other places as may be required from time
to time to perform Executive's duties under this Agreement.
b. During the Employment Term, Executive will devote
Executive's full business time and best efforts to the performance of
Executive's duties hereunder and will not engage in any other business,
profession or occupation for compensation or otherwise which would conflict
or interfere with the rendition of such services either directly or
indirectly, without the prior written consent of the Board; provided that
nothing herein shall preclude Executive, from accepting appointment to or
continue to serve on any board of directors or trustees of any business
corporation or any charitable organization; provided in each case, and in the
aggregate, that such activities do not conflict or interfere with the
performance of Executive's duties hereunder or conflict with Section 8.
c. In addition to the foregoing, during the Employment
Term, so long as Executive continues to hold at least 500,000 shares of
common stock of Hovnanian (the "Shares"), Executive shall also serve as a
member of the board of directors of Hovnanian (the "Hovnanian Board"). Upon
termination of Executive's employment pursuant to this Agreement for any
reason other than for Cause, death or Disability (as hereinafter defined),
Executive shall continue to serve as a member of the Hovnanian Board for a
period of two years following the date of termination, so long as he
continues to hold at least 500,000 Shares; provided, however, that in the
event that Executive breaches the covenant not to compete set forth in
Section 8(a) of this Agreement, Executive shall immediately cease to be a
member of the Hovnanian Board.
3. Base Salary. During the Employment Term, the Company shall
pay Executive a base salary at the annual rate of $500,000, payable in
regular installments in accordance with the Company's usual payment
practices. Executive's base salary shall be adjusted annually, at the same
time as other executives of the Company's base salary is adjusted, by a
percentage equal to the percentage increase, if any, in the Consumer Price
Index for all Urban Consumers (the "CPI") for the Washington, D.C.
Metropolitan Area (or any successor CPI), published by the Bureau of Labor
Statistics of the United States for the year that immediately precedes the
calendar year in which the applicable anniversary occurs. The amount of
Executive's base salary, as adjusted from time to time hereunder, shall be
referred to herein as Executive's "Base Salary".
4. Annual Bonus; Stock Options.
a. Annual Bonus. With respect to each full fiscal year
during the Employment Term, Executive shall be eligible to earn an annual
bonus award (an "Annual Bonus") in accordance with the terms and conditions
of the X. Xxxxxxxxx Annual Incentive Plan for Executive (attached hereto as
Exhibit A), subject to the terms and conditions of Section 5 and Exhibit C
attached hereto.
b. Stock Options. The Executive shall be entitled to
options to acquire shares of the Class A common stock, par value $0.01 per
share, of Hovnanian in accordance with the terms and conditions set forth in
Exhibit B attached hereto. In addition to the foregoing, and notwithstanding
that the WHI Employment Agreement shall, as of the Effective Time, be of no
further force and effect, the Company acknowledges that Hovnanian has assumed
and shall continue to honor Executive's rights set forth in the grant to the
Executive of a Nonstatutory Stock Option for the shares of common stock,
$0.01 par value per share, of WHI) and the provisions set forth in Section
2(b) of such WHI Employment Agreement. Executive hereby agrees that any
additional option grants shall be made pursuant to the Option Plan and shall
include a vesting schedule consistent with such option grants made pursuant
to the Option Plan. Executive further hereby acknowledges that the current
option-vesting schedule under the Option Plan provides that options vest 25%
annually commencing on the third anniversary of the date of grant and on each
anniversary thereafter.
5. Employee Benefits. During the Employment Term, Executive
shall be entitled to participate in the Company's employee benefit plans
(other than bonus, incentive or severance plans), including group medical,
dental, disability and life insurance plans, retirement plans, and
supplemental and excess retirement plans, as in effect from time to time
(collectively "Employee Benefits"), on the same basis as those benefits are
generally made available to other senior executives of the Company, except
the Company shall specifically provide Executive with the benefits set forth
in Exhibit C hereof; provided, that Executive shall be entitled to four (4)
weeks paid vacation per year. For purposes of determining eligibility to
participate and vesting only, where length of service is relevant under any
Employee Benefit plan, Executive shall receive service credit for Executive's
service with Washington Homes, Inc. to the same extent such service credit
was granted under Washington Homes, Inc. employee benefits plans. The
Company hereby acknowledges that in the case of Executive, such service
credit is equal to 27 years (as of the date hereof). In addition to the
foregoing, in the event that the Employment Term expires and Executive's
employment with the Company terminates thereafter, Executive shall be
entitled to participate in such employee benefit plans as may be offered to
other executives of the Company upon their termination of employment.
6. Business Expenses. During the Employment Term, reasonable
business expenses incurred by Executive in the performance of Executive's
duties hereunder shall be reimbursed by the Company in accordance with
Company policies, except the Company shall specifically reimburse Executive
for the expenses set forth in Exhibit C hereof pursuant to the policy in
effect at WHI prior to the Effective Time, which policy is also set forth in
Exhibit C hereof.
7. Termination. The Employment Term and Executive's employment
hereunder may be terminated by either party at any time and for any reason;
provided that Executive will be required to give the Company at least 30 days
advance written notice of any resignation of Executive's employment.
Notwithstanding any other provision of this Agreement, the provisions of this
Section 7 shall exclusively govern Executive's rights upon termination of
employment with the Company and its affiliates.
a. By the Company For Cause or By Executive Resignation
Without Good Reason.
(i) The Employment Term and Executive's employment
hereunder may be terminated by the Company for Cause (as defined below) and
shall terminate automatically upon Executive's resignation without Good
Reason (as defined in Section 7(c)); provided that Executive will be required
to give the Company at least 30 days advance written notice of a resignation
without Good Reason.
(ii) For purposes of this Agreement, "Cause" shall mean
(A) dishonesty in the performance of Executive's duties hereunder, (B) an act
or acts on Executive's part constituting (x) a felony under the laws of the
United States or any state thereof or (y) a misdemeanor involving moral
turpitude, (C) Executive's willful malfeasance or willful misconduct, whether
by action or failure to act, (including, without limitation, Executive's
continued absenteeism or failure to carry out a direct, legal order given to
Executive by his supervisor) in connection with Executive's duties hereunder
for a period of 20 days following written notice by the Company to Executive
of the details of such malfeasance or misconduct or (D) Executive's breach of
the provisions of Sections 8 or 9 of this Agreement.
(iii) If Executive's employment is terminated by the
Company for Cause, or if Executive resigns without Good Reason after giving
the Company 30 days advance written notice of such resignation, Executive
shall be entitled to receive:
(A) the Base Salary through the date of termination;
(B) any Annual Bonus which may be earned but not yet paid
as of the date of termination for any previously completed fiscal
year;
(C) reimbursement for any unreimbursed business expenses
properly incurred by Executive in accordance with Company policy
prior to the date of Executive's termination; and
(D) such Employee Benefits, if any, as to which Executive
may be entitled under the employee benefit plans of the Company
(the amounts described in clauses (A) through (D) hereof being
referred to as the "Accrued Rights").
Following such termination of Executive's employment by the
Company for Cause or resignation by Executive without Good Reason, except as
set forth in this Section 7(a)(iii), Executive shall have no further rights
to any compensation or any other benefits under this Agreement.
b. Disability or Death.
(i) The Employment Term and Executive's employment
hereunder shall terminate upon Executive's death and may be terminated by the
Company if Executive becomes physically or mentally incapacitated and is
therefore unable for a period of six (6) consecutive months or for an
aggregate of nine (9) months in any twenty-four (24) consecutive month period
to perform Executive's duties (such incapacity is hereunder referred to as
"Disability"). Any question as to the existence of the Disability of
Executive as to which Executive and the Company cannot agree shall be
determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company cannot
agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such
determination in writing. The determination of Disability made in writing to
the Company and Executive shall be final and conclusive for all purposes of
the Agreement.
(ii) Upon termination of Executive's employment hereunder
for either Disability or death, Executive or Executive's estate (as the case
may be) shall be entitled to receive:
(A) the Accrued Rights; and
(B) a pro rata portion of any Annual Bonus that Executive
would have been entitled to receive pursuant to Section 4 hereof
in such year based upon the percentage of the fiscal year that
shall have elapsed through the date of Executive's termination of
employment, payable when such Annual Bonus would have otherwise
been payable had Executive's employment not terminated,
Following Executive's termination of employment due to death or
Disability, except as set forth in this Section 7(b)(ii), Executive shall
have no further rights to any compensation or any other benefits under this
Agreement.
c. By the Company Without Cause or Resignation by Executive
for Good Reason.
(i) The Employment Term and Executive's employment
hereunder may be terminated by the Company without Cause or by Executive's
resignation for Good Reason.
(ii) For purposes of this Agreement, "Good Reason" shall
mean (A) the failure of the Company to pay or cause to be paid Executive's
Base Salary or Annual Bonus, when due hereunder or (B) any substantial and
sustained diminution in Executive's authority or responsibilities from those
described in Section 2 hereof; provided that either of the events described
in clauses (A) and (B) of this Section 7(c)(ii) shall constitute Good Reason
only if the Company fails to cure such event within 30 days after receipt
from Executive of written notice of the event which constitutes Good Reason;
provided, further, that "Good Reason" shall cease to exist for an event on
the 30th day following the later of its occurrence or Executive's knowledge
thereof, unless Executive has given the Company written notice thereof prior
to such date.
(iii) If Executive's employment is terminated by the
Company without Cause (other than by reason of death or Disability) or if
Executive resigns for Good Reason, Executive shall be entitled to receive:
(A) the Accrued Rights; and
(B) a pro rata portion of any Annual Bonus that Executive
would have been entitled to receive pursuant to Section 4 hereof
in such year based upon the percentage of the fiscal year that
shall have elapsed through the date of Executive's termination of
employment, payable when such Annual Bonus would have otherwise
been payable had Executive's employment not terminated; and
(C) an amount equal to two times the sum of (i) the Base
Salary, plus (ii) the average of the last two fiscal years'
Annual Bonus earned by Executive, payable within thirty (30) days
following the date of termination.
Following Executive's termination of employment by the Company
without Cause (other than by reason of Executive's death or Disability) or by
Executive's resignation for Good Reason, except as set forth in this Section
7(c)(iii), Executive shall have no further rights to any compensation or any
other benefits under this Agreement.
d. Continued Employment Beyond the Expiration of the
Employment Term. Unless the parties otherwise agree in writing, continuation
of Executive's employment with the Company beyond the expiration of the
Employment Term shall be deemed an employment at-will and shall not be deemed
to extend any of the provisions of this Agreement and Executive's employment
may thereafter be terminated at will by either Executive or the Company;
provided that the provisions of Sections 7(c)(iii), 8, 9 and 10 of this
Agreement shall survive any termination of this Agreement or Executive's
termination of employment hereunder.
e. Notice of Termination. Any purported termination of
employment by the Company or by Executive (other than due to Executive's
death) shall be communicated by written Notice of Termination to the other
party hereto in accordance with Section 11(g) hereof. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision in this Agreement relied upon and shall
set forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of employment under the provision so indicated.
f. Resignation. Upon termination of Executive's employment
for any reason, Executive agrees to resign, as of the date of such
termination and to the extent applicable, from the Company as an officer of
the Company and any of the Company's affiliates.
8. Non-Competition.
a. Executive acknowledges and recognizes the highly
competitive nature of the businesses of the Company and its affiliates and
accordingly agrees as follows:
(1) During the Employment Term and, for a period of (x) six
months following the date the Company terminates Executive's employment
for Cause or (y) one year following the date Executive ceases to be
employed by the Company for any other reason (other than as a result of
the natural expiration of the Employment Term), Executive will not,
whether on Executive's own behalf or on behalf of or in conjunction
with any person, company, business entity or other organization
whatsoever, directly or indirectly:
(i) engage in any business that competes with the
business of the Company or its affiliates (including,
without limitation, businesses which the Company or
its affiliates have specific plans to conduct in the
future and as to which Executive is aware of such
planning) (a "Competitive Business");
(ii) enter the employ of, or render any services to, any
person or entity (or any division of any person or
entity) who or which engages in a Competitive
Business including, without limitation, any person or
entity who or which derives more than 5% of its
annual revenues from any Competitive Business (or
which is part of a controlled group of corporations
which derives more than 5% of its annual revenues
from any Competitive Business);
(iii) acquire a financial interest in, or otherwise become
actively involved with, any Competitive Business,
directly or indirectly, as an individual, partner,
shareholder, officer, director, principal, agent,
trustee or consultant; or
(iv) interfere with, or attempt to interfere with,
business relationships (whether formed before, on or
after the date of this Agreement) between the Company
or any of its affiliates and customers, clients,
suppliers, partners, members or investors of the
Company or its affiliates.
(2) Notwithstanding anything to the contrary in this Agreement,
Executive may, directly or indirectly own, solely as an investment,
securities of any person engaged in the business of the Company or its
affiliates which are publicly traded on a national or regional stock
exchange or on the over-the-counter market if Executive (i) is not a
controlling person of, or a member of a group which controls, such
person and (ii) does not, directly or indirectly, own 5% or more of any
class of securities of such person.
(3) During the Employment Term and, for a period of eighteen
months following the date Executive ceases to be employed by the
Company (the "Restricted Period"), Executive will not, whether on
Executive's own behalf or on behalf of or in conjunction with any
person, company, business entity or other organization whatsoever,
directly or indirectly:
(i) solicit or encourage any employee of the Company or
its affiliates to leave the employment of the Company
or its affiliates;
(ii) solicit the employment or services of any employee
who left the employment of the Company or its
affiliates coincident with, or within three months
prior to or after the termination of, Executive's
employment with the Company;
(iii) hire any such employee (other than any employee who
is related to Executive by blood or by marriage) who
was employed by the Company or its affiliates as of
the date of Executive's termination of employment
with the Company or who left the employment of the
Company or its affiliates coincident with, or within
one year prior to or after, the termination of
Executive's employment with the Company; or
(iv) Compete for any real property that the Company had
investigated, conducted due diligence on, conducted
research into, performed a feasibility analysis on,
entered into an option to purchase, entertained
entering into a letter of intent or an option to
purchase, or otherwise expressed an interest in
purchasing at any time within one year prior to the
termination of Executive's employment with the
Company.
(4) During the Restricted Period, Executive will not, directly
or indirectly, solicit or encourage to cease to work with the Company
or its affiliates any consultant then under contract with the Company
or its affiliates.
(5) Notwithstanding anything to the contrary contained in this
Agreement, the provisions of sub clause (1) of this Section 8(a) shall
be restricted to those states within the southeast region of the United
States in which the Company operates and all other areas in which the
Executive has performed significant services for the Company.
b. It is expressly understood and agreed that although
Executive and the Company consider the restrictions contained in this Section
8 to be reasonable, if a final judicial determination is made by a court of
competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against
Executive, the provisions of this Agreement shall not be rendered void but
shall be deemed amended to apply as to such maximum time and territory and to
such maximum extent as such court may judicially determine or indicate to be
enforceable. Alternatively, if any court of competent jurisdiction finds
that any restriction contained in this Agreement is unenforceable, and such
restriction cannot be amended so as to make it enforceable, such finding
shall not affect the enforceability of any of the other restrictions
contained herein.
9. Confidentiality. Executive will not at any time (whether
during or after Executive's employment with the Company) disclose or use for
Executive's own benefit or purposes or the benefit or purposes of any other
person, firm, partnership, joint venture, association, corporation or other
business organization, entity or enterprise other than the Company and any of
its subsidiaries or affiliates, any trade secrets, information, data, or
other confidential information relating to customers, development programs,
costs, marketing, trading, investment, sales activities, promotion, credit
and financial data, manufacturing processes, financing methods, plans, or the
business and affairs of the Company generally, or of any subsidiary or
affiliate of the Company; provided that the foregoing shall not apply to
information which is not unique to the Company or which is generally known to
the industry or the public other than as a result of Executive's breach of
this covenant. Except as required by law, Executive will not disclose to
anyone, other than his immediate family and legal or financial advisors, the
existence or contents of this Agreement. Executive agrees that upon
termination of Executive's employment with the Company for any reason, he
will return to the Company immediately all memoranda, books, papers, plans,
information, letters and other data, and all copies thereof or therefrom, in
any way relating to the business of the Company and its affiliates, except
that he may retain personal notes, notebooks and diaries that do not contain
confidential information of the type described in the preceding sentence.
Executive further agrees that he will not retain or use for Executive's
account at any time any trade names, trademark or other proprietary business
designation used or owned in connection with the business of the Company or
its affiliates.
10. Specific Performance. Executive acknowledges and agrees
that the Company's remedies at law for a breach or threatened breach of any
of the provisions of Section 8 or Section 9 would be inadequate and, in
recognition of this fact, Executive agrees that, in the event of such a
breach or threatened breach, in addition to any remedies at law, the Company,
without posting any bond, shall be entitled to cease making any payments or
providing any benefit otherwise required by this Agreement and obtain
equitable relief in the form of specific performance, temporary restraining
order, temporary or permanent injunction or any other equitable remedy which
may then be available.
11. Miscellaneous.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without
regard to conflicts of laws principles thereof.
b. Entire Agreement/Amendments. This Agreement contains
the entire understanding of the parties with respect to the employment of
Executive by the Company. There are no restrictions, agreements, promises,
warranties, covenants or undertakings between the parties with respect to the
subject matter herein other than those expressly set forth herein. This
Agreement may not be altered, modified, or amended except by written
instrument signed by the parties hereto.
c. No Waiver. The failure of a party to insist upon strict
adherence to any term of this Agreement on any occasion shall not be
considered a waiver of such party's rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Agreement.
d. Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not be affected thereby.
e. Assignment. This Agreement shall not be assignable by
Executive. This Agreement may be assigned by the Company to a person or
entity, which is an affiliate or a successor in interest to substantially all
of the business operations of the Company. Upon such assignment, the rights
and obligations of the Company hereunder shall become the rights and
obligations of such affiliate or successor person or entity.
f. Successors; Binding Agreement. This Agreement shall
inure to the benefit of and be binding upon personal or legal
representatives, executors, administrators, successors, heirs, distributes,
devises and legatees.
g. Notice. For the purpose of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered by hand or
overnight courier or three days after it has been mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addresses set forth below Agreement, or to such other address as
either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only
upon receipt.
If to the Company:
X. Xxxxxxxxx Enterprises, Inc.
00 Xxxxxxx 00
X.X. Xxx 000
Xxx Xxxx, Xxx Xxxxxx 00000
Attention: Xxx X. Xxxxxxxxx, President
With a copy to:
Xxxxx X. Xxxxxxxx,
Senior Vice President and General Counsel
If to Executive:
Geaton X. XxXxxxxxx, Xx.
0000 Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
h. Executive Representation. Executive hereby represents
to the Company that the execution and delivery of this Agreement by Executive
and the Company and the performance by Executive of Executive's duties
hereunder shall not constitute a breach of, or otherwise contravene, the
terms of any employment agreement or other agreement or policy to which
Executive is a party or otherwise bound.
i. Prior Agreements This Agreement supercedes all prior
agreements and understandings (including verbal agreements) between Executive
and the Company and/or its affiliates regarding the terms and conditions of
Executive's employment with the Company and/or its affiliates (collectively,
the "Prior Agreements").
j. Cooperation. Executive shall provide his reasonable
cooperation in connection with any action or proceeding (or any appeal from
any action or proceeding), which relates to events occurring during
Executive's employment hereunder. This provision shall survive any
termination of this Agreement.
k. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such federal, state and local taxes as
may be required to be withheld pursuant to any applicable law or regulation.
l. Counterparts. This Agreement may be signed in
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were upon the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
X. XXXXXXXXX ENTERPRISES, INC. GEATON X. XXXXXXXXX, XX.
/s/ J. Xxxxx Xxxxxx /s/Geaton X. XxXxxxxxx, Xx.
By: J. Xxxxx Xxxxxx
Title: Executive Vice President
EXHIBIT A
X. Xxxxxxxxx Annual Incentive Plan
For
Geaton X. XxXxxxxxx, Xx.
Executive's Annual Bonus for the fiscal years ended October 31, 2001,
October 31, 2002 and October 31, 2003 will be based upon the highest amount
derived by using the computational methodology described in paragraph (1) or
(2), plus (3) below.
(1) An increasing dollar amount based on the Return on Inventory ("ROI")
calculated based solely on WHI Holding Co. and its subsidiaries' operations
for the fiscal years ended October 31, 2001 and October 31, 2002, and based
on the consolidated ROI of WHI Holding Co. and its subsidiaries and
Hovnanian's Southeast Region operations for the fiscal year ended October 31,
2003. The Annual Bonus amount will be interpolated between the ROI
percentages set forth below:
ROI 10% 15% 20%
Bonus $500,000 $1,000,000 $1,500,000
or
(2) An increasing dollar amount based on the Return on Equity ("XXX") of
Hovnanian. The Annual Bonus amount will be interpolated between XXX
percentages set forth below:
XXX 10% 15% 20%
Bonus $300,000 $750,000 $1,250,000
and
(3) An Annual Bonus equal to 3% of the profits before taxes from the
Hovnanian Southeast Region for Hovnanian's fiscal years ended October 31,
2001 and October 31, 2002.
With respect to any Annual Bonus payable in accordance with
paragraph (1), (2) or (3) above, as the case may be, 70% of the amount of
such Annual Bonus will be paid in cash and 30% will be paid in the Class A
common stock, $0.01 par value per share, of Hovnanian (the "Common Stock.").
The Common Stock component of the Annual Bonus will be subject to an increase
of 20% in excess of the correlative cash component of the Annual Bonus and,
taking into account the fact that the Executive, for vesting purposes, will
receive credit for his 20 plus prior years of service with WHI and its
predecessor Company, will be fully vested at the time that the Common Stock
component of the Annual Bonus is awarded and computed.
By way of example, if 30% of the Executive's Annual Bonus is
equal to $300,000, the Executive will receive a number of shares of Common
Stock of Hovnanian equal to $360,000 ($300,000 x 1.2) computed based upon the
closing price of the Common Stock on the national securities exchange on
which the Common Stock is then traded on the last day of the bonus period,
which will be October 31 of any given year. Because the Executive will be
fully vested with respect to the Common Stock component of his Annual Bonus,
all of the Common Stock to which he is entitled (subject to a cash payment
for any fractional share) will be delivered to him on the date that the cash
component of the Annual Bonus is paid.
The calculation of the Annual Bonus will not include any adjustments
(including, without limitation, adjustment of inventory, goodwill, and net
investment) related to the utilization by WHI, the Company (as successor to
WHI) or Hovnanian, as the case may be, to reflect the use of the purchase
method of accounting for the WHI/Hovnanian merger under generally accepted
accounting principles. Accounting principles will be applied on a consistent
basis and will not be changed with the intention of adversely affecting the
bonus calculation.
ATTACHMENT 1 TO EXHIBIT A
Definitions Pertaining to Annual Incentive Plan
of X. Xxxxxxxxx Enterprises, Inc. for
Geaton X. XxXxxxxxx, Xx.
XXX of Hovnanian:
Consolidated Net Income on Hovnanian's 10K divided by the
quarterly average of the Hovnanian's equity as reported on its
most recent 10Q or 10K, divided by five.
ROI of WHI (or the Company as successor to WHI):
Pre-tax profits of WHI generated from all operations divided by
quarterly average inventory (as defined below) of WHI. Pre-tax
profits are after a 12% interest charge on Hovnanian net
investment (as defined below) in WHI. In calculating pre-tax
profits, the following expenses will be excluded:
Executive's compensation benefits, etc. and the costs associated
with being a public entity. These costs have been estimated to
be at $3,500,000.
That portion of WHI's divisional administrative overhead (not
WHI's regional overheads formerly known as WHI's corporate office
expenses) which is allocated (for purposes of calculating ROI) to
deliveries from Hovnanian communities which have been
consolidated into WHI divisions. In making this calculation,
WHI's divisional administrative overheads will be allocated pro-
rata to such WHI and Hovnanian consolidated deliveries based upon
revenues.
Any severance payments associated with integrating WHI and
Hovnanian.
Average Inventory:
The balance sheet items included in average inventory are work in
process ("WIP"), models, capitalized interest, finished lots,
land under development, goodwill net of amortization, land
deposits and joint ventures. The average is calculated by adding
the beginning of the year inventory and four quarter ends and
then dividing by five. Any Hovnanian properties under option or
owned as of the closing date will remain a Hovnanian Southeast
Region asset for the purpose of the WHI ROI calculation. As a
result, any new property options or acquisitions of property not
under option by Hovnanian prior to the Effective Time will be
considered assets of WHI after the Effective Time for the purpose
of the WHI ROI calculation.
Net Investment:
Net investment is defined as total assets minus total liabilities
excluding any intercompany receivables or payables to Hovnanian
and its affiliates.
EXHIBIT B
Option Grants to Geaton X. XxXxxxxxx, Xx.
under the X. Xxxxxxxxx Enterprises, Inc.
Stock Option Plan pursuant to the
Terms Of His Employment Agreement
Xx. XxXxxxxxx will be entitled to the following grants of options
for the Common Stock of Hovnanian Enterprises, Inc. on the terms set forth
below:
Number of
Date of Grant Shares Exercise Price Expiration Date
Vesting
--------------- ---------------- -------------- --------------- -------
1st Anniversary 50,000 Fair Market* 10 years from
**
from Date of Value on Date of Grant (See
Below)
Employment Date of Grant
Agreement
2nd Anniversary 50,000 Fair Market* 10 years from
**
from Date of Value on Date of Grant
(See Below)
Employment Date of Grant
Agreement
3rd Anniversary 50,000 Fair Market* 10 years from
**
from Date of Value on Date of Grant
(See Below)
Employment Date of Grant
Agreement
4th Anniversary 50,000 Fair Market* 10 years from
**
from Date of Value on Date of Grant
(See Below)
Employment Date of Grant
Agreement
* Fair Market Value on Date of grant shall be deemed to be the closing
price of Hovnanian's Class A Common Stock on whichever national securities
exchange is listed on the Date of Grant.
** Vesting with respect to these grants of options shall be as follows:
25% on each anniversary from the Date of Grant.
EXHIBIT C
Special Employee Benefits
Two automobiles with Jeep/BMW and all related expenses including gasoline,
insurance and repairs.
Business meals and entertainment
First class travel to industry and business related conferences periodically
with wife
First class travel over 1-1/2 hours to H/B operations
Plane charter on an as needed basis with prior approval by CEO
Sporting event tickets, within reason
Airline travel clubs and country club dues
Young Presidents Organization (YPO) Dues and conferences
Payment of $25,000 per calendar year premium for split-dollar life insurance
policy (to be deducted from the annual bonus amount payable in respect of the
fiscal year of the Company in which such required premium payment occurs);
provided, however, in the unlikely event that the amount of annual bonus
payable in respect of such fiscal year is less than the amount paid by the
Company in respect of such premium payment, Executive shall reimburse the
Company for such premium payment.
