STOCK INCENTIVE PLAN SAMPLE 2010 LONG TERM INCENTIVE PROGRAM AWARD AGREEMENT
2008
HOVNANIAN ENTERPRISES, INC.
STOCK
INCENTIVE PLAN
SAMPLE
2010 LONG TERM INCENTIVE PROGRAM AWARD AGREEMENT
Participant: _______________
Date
of
Grant: _______________
Target
LTIP Award
(total): $______________
Cash
Percentage of
Award: ______% Target
Cash Amount: $______________
Stock
Percentage of
Award: ______% Target
Number of Class B Shares:_________
1. Grant of LTIP
Award. For valuable consideration, receipt of which is hereby
acknowledged, Hovnanian Enterprises, Inc., a Delaware Corporation (the
"Company"), hereby grants the Long Term Incentive Program award opportunity (the
“Award”) listed above to the Participant, on the terms and conditions
hereinafter set forth. This grant is made pursuant to the terms and
conditions of the 2008 Company Stock Incentive Plan (the "Plan") and the 2010
Long Term Incentive Program adopted thereunder (the “LTIP”), which Plan and
LTIP, as amended from time to time, are incorporated herein by reference and
made a part of this Agreement. The Award represents an unfunded,
unsecured right of the Participant to receive cash and/or Class B Shares
(“Shares”) on the date(s) specified under the LTIP, subject to the performance
and time vesting conditions set forth thereunder. Capitalized terms
not otherwise defined herein shall have the same meanings as in the Plan or the
LTIP, as applicable. A copy of the LTIP is attached hereto as Exhibit
A.
2. Amount of Award; Vesting and
Timing of Payments. The target amount of the Award listed
above represents the amount of cash and Shares that the Participant will be
eligible to receive if the performance levels achieved during the Performance
Period correspond to a payout level of 100% of target under the terms of the
LTIP, assuming the time vesting requirements set forth under the LTIP are also
met. The actual amount of cash and/or Shares payable in respect of
the Award may be more or less than the targeted amounts, and the amounts (if
any) that become payable under the Award will be paid to the Participant at such
times and subject to such performance and time vesting conditions as set forth
under the LTIP.
3. Adjustments Upon Certain
Events. Subject to the terms of the Plan and the LTIP, in the
event of any change in the outstanding Shares by reason of any Share dividend or
split, reorganization, recapitalization, merger, consolidation, amalgamation,
spin-off or combination transaction or exchange of Shares or other similar
events (collectively, an "Adjustment Event"), the Committee shall, in its sole
discretion, make an appropriate and equitable adjustment in the number of Shares
subject to this Agreement to reflect such Adjustment Event. Any such
adjustment made by the Committee shall be final and binding upon the
Participant, the Company and all other interested persons.
4. No Right to Continued
Employment. Neither the Plan, the LTIP nor this Agreement
shall be construed as giving the Participant the right to be retained in the
employ of, or in any consulting relationship to, the Company or any
Affiliate. Further, the Company or an Affiliate may at any time
dismiss the Participant, free from any liability or any claim under the Plan,
the LTIP or this Agreement, except as otherwise expressly provided
herein.
5. No Acquired
Rights. In participating in the Plan and the LTIP, the
Participant acknowledges and accepts that the Board and the Committee have the
power to amend or terminate the Plan and the LTIP, to the extent permitted
thereunder, at any time and that the opportunity given to the Participant to
participate in the Plan and the LTIP is entirely at the discretion of the
Committee and does not obligate the Company or any of its Affiliates to offer
such participation in the future (whether on the same or different
terms). The Participant further acknowledges and accepts that such
Participant's participation in the Plan and the LTIP is not to be considered
part of any normal or expected compensation and that the termination of the
Participant's employment under any circumstances whatsoever will give the
Participant no claim or right of action against the Company or its Affiliates in
respect of any loss of rights under this Agreement, the Plan or the LTIP that
may arise as a result of such termination of employment.
6. No Rights of a
Shareholder. The Participant shall have no voting, dividend or
other rights or privileges as a shareholder of the Company until the Shares in
question have been issued or transferred to the Participant.
7. Legend on
Certificates. Any Shares issued or transferred to the
Participant pursuant to this Agreement shall be subject to such stop transfer
orders and other restrictions as the Committee may deem advisable under the Plan
or the rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which such Shares are listed, and any
applicable Federal or state laws or relevant securities laws of the jurisdiction
of the domicile of the Participant, and the Committee may cause a legend or
legends to be put on any certificates representing such Shares to make
appropriate reference to such restrictions.
8. Transferability. This
Award may not be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by the Participant otherwise than by will or by the
laws of descent and distribution, and any purported assignment, alienation,
pledge, attachment, sale, transfer or encumbrance not permitted by this Section
8 shall be void and unenforceable against the Company or any
Affiliate.
9. Withholding. The
Participant may be required to pay to the Company or any Affiliate and the
Company or any Affiliate shall have the right and is hereby authorized to
withhold from any transfer of cash or Shares due under this Agreement, the LTIP
or under the Plan or from any compensation or other amount owing to the
Participant, applicable withholding taxes with respect to any transfer under
this Agreement, the LTIP or under the Plan and to take such action as may be
necessary in the opinion of the Company to satisfy all obligations for the
payment of such taxes. Notwithstanding the foregoing, if the
Participant's employment with the Company terminates prior to the payment or
transfer of all of the cash and/or Shares under this Agreement, the payment of
any applicable withholding taxes with respect to any further payments of cash or
transfer of Shares under this Award shall be made solely through withholding of
cash or Shares otherwise payable under this Agreement in amounts equal to the
statutory minimum withholding liability.
10. Non-Solicitation
Covenants.
(a) The
Participant acknowledges and agrees that, during the Participant's employment
with the Company and its Affiliates and upon the Participant's termination of
Employment with the Company and its Affiliates for any reason, for a period
commencing on the termination of such Employment and ending on the second
anniversary of such termination, the Participant shall not, whether on
Participant'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
any employee of the Company or its Affiliates with whom the Participant had any
contact during the last two years of the Participant's employment, or who worked
in the same business segment or division as the Participant during that period
to terminate employment with the Company or its Affiliates;
(ii) solicit
the employment or services of, or hire, any such employee whose employment with
the Company or its Affiliates terminated coincident with, or within twelve (12)
months prior to or after the termination of Participant's employment with the
Company and its Affiliates;
(iii) directly
or indirectly, solicit to cease to work with the Company or its Affiliates any
consultant then under contract with the Company or its Affiliates.
(b) It
is expressly understood and agreed that although the Participant and the Company
consider the restrictions contained in this Section 10 to be reasonable, if a
final judicial determination is made by a court of competent jurisdiction that
the time or any other restriction contained in this Agreement is an
unenforceable restriction against the Participant, 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.
11. Specific
Performance. The Participant acknowledges and agrees that the
Company's remedies at law for a breach or threatened breach of any of the
provisions of Section 10 would be inadequate and the Company would suffer
irreparable damages as a result of such breach or threatened
breach. In recognition of this fact, the Participant 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.
12. Choice of
Law. THE INTERPRETATION, PERFORMANCE AND
ENFORCEMENT OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
13. Award Subject to Plan and
LTIP. By entering into this Agreement, the Participant agrees
and acknowledges that the Participant has received and read a copy of the Plan
and the LTIP. The Award is subject to the Plan and the
LTIP. In the event of a conflict between any term or provision
contained herein and a term or provision of the Plan or LTIP, the applicable
terms and provisions of the Plan and LTIP will govern and prevail.
14. Signature in
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.
15. 409A. Notwithstanding
any other provisions of this Agreement, the Plan or the LTIP, this Award shall
not be deferred, accelerated, extended, paid out or modified in a manner that
would result in the imposition of an additional tax under Section 409A of the
Code upon the Participant. In the event it is reasonably determined
by the Committee that, as a result of Section 409A of the Code, the transfer of
Shares under this Agreement may not be made at the time contemplated hereunder
without causing the Participant to be subject to taxation under Section 409A of
the Code (including due to the Participant’s status as a “specified employee”
within the meaning of Section 409A of the Code), the Company will make such
payment on the first day that would not result in the Participant incurring any
tax liability under Section 409A of the Code.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement.
HOVNANIAN
ENTERPRISES, INC.
By:
________________________________
PARTICIPANT
By:
________________________________
Exhibit
A
2010
Long Term Incentive Program
1. Purpose
The
purpose of the 2010 Long Term Incentive Program (“LTIP”) is to aid the Company
in retaining key employees and to motivate them to exert their best efforts on
behalf of the Company. The LTIP has been adopted pursuant to the
terms of the Amended and Restated 2008 Hovnanian Enterprises, Inc. Stock
Incentive Plan (the “2008 Plan”) and is intended to incentivize achievement of
certain Pre-tax Profit goals and certain improvements in the Company’s capital
structure through reductions in Homebuilding Debt. Capitalized terms
used herein without definition have the meanings assigned to such terms under
the 2008 Plan.
2. Participants
The
Compensation Committee will designate the Participants who will be granted
incentive awards under the LTIP, with the first such awards to be granted on or
about June 11, 2010 (the “Initial Grant Date”). Additional Associates
may be eligible to participate at the discretion of the Compensation
Committee. The awards for Participants who are selected by the
Compensation Committee to participate after the Initial Grant Date will be
determined based on actual performance for the full Performance Period (as
defined below) and will be prorated based on the number of full months of
eligible service completed during the thirty-six (36) month Performance Period,
subject to the vesting requirements outlined below in section 6.
3. Performance
Period
The LTIP
“Performance Period” will commence on November 1, 2010 and end on October 31,
2013.
4. Details
Each
Participant will be eligible to receive an award based on the achievement of
certain Pre-tax Profit levels in fiscal years 2011, 2012 and 2013 and
Homebuilding Debt (i.e., excluding Mortgage Debt) levels at the end of fiscal
year 2013. The award will be based on a specific target multiple of
the Participant’s base salary in effect on the date the Participant is granted
the award (the “Grant Date”) and, if Shares are elected as a form of payout, the
closing Share price on the Grant Date; provided, however, that the Share price
for new Participants will be no less than the Share price on the Initial Grant
Date.
For
purposes of the LTIP, “Pre-tax Profit” is defined as earnings (loss) before
income tax payments as reflected on our audited financial statements, excluding
the impact of any items deemed to be extraordinary items for financial reporting
purposes. “Homebuilding Debt” is defined as total (recourse) notes
payable excluding accrued interest, as reflected on our consolidated audited
balance sheet, less any debt issued after January 2010 that has an equity
component such as debt convertible into equity (not net debt).
The
following table illustrates the percent of the target award that can be achieved
at each performance level. Awards will be interpolated between
performance levels but will not be extrapolated above the maximum performance
levels listed below.
|
Homebuilding
Debt as of 10/31/2013
(in
billions)
|
|||||||
|
Greater
than $1.70
|
$1.65
|
$1.60
|
$1.55
|
$1.50
|
$1.40
or less
|
||
|
FY
2013 Pre-tax Profit
(in
millions)
|
$100
or more
|
100%
of
target award
|
125%
of
target award
|
150%
of
target award
|
175%
of
target award
|
200%
of
target award
|
250%
of
target award
|
|
$75
|
75%
of
target award
|
100%
of
target award
|
125%
of
target award
|
150%
of
target award
|
175%
of
target award
|
225%
of
target award
|
|
|
$50
|
50%
of
target award
|
75%
of
target award
|
100%
of
target award
|
125%
of
target award
|
150%
of
target award
|
200%
of
target award
|
|
|
$25
|
25%
of
target award
|
50%
of
target award
|
75%
of
target award
|
100%
of
target award
|
125%
of
target award
|
175%
of
target award
|
|
|
Less
than $0
|
0%
of
target award
|
25%
of
target award
|
50%
of
target award
|
75%
of
target award
|
100%
of
target award
|
150%
of
target award
|
|
If the
Company reaches breakeven or positive Pre-tax Profit for either of the fiscal
years ending 2011 or 2012, each Participant will be eligible for a minimum
payment equal to fifty percent (50%) of the target award provided that he or she
meets the vesting requirements outlined below in section 6. This
minimum payment is inclusive of and not incremental to any other
award
granted to the Participant under the LTIP and will not exceed fifty percent
(50%) of target award if the Company achieves breakeven or positive Pre-tax
Profit in both fiscal years 2011 and 2012.
5. Examples
|
a.
|
If
the Company reaches breakeven Pre-tax Profit in fiscal year 2011, a
Participant becomes eligible to receive a minimum payment equal to fifty
percent (50%) of the target award, subject to the vesting requirements in
section 6. If the Company’s Homebuilding Debt as of 10/31/2013
is $1.6 billion and fiscal year 2013 Pre-tax Profit is $50 million, a
Participant would achieve an award equal to one hundred percent (100%) of
the target award. Since this award is larger than the minimum
payment for which the Participant was eligible, the total award due,
subject to the vesting requirements in section 6, would be one hundred
percent (100%) of the target award.
|
|
b.
|
If
the Company does not reach breakeven or positive Pre-tax Profit in fiscal
years 2011 or 2012, a Participant is not eligible for a minimum payment
and the award level will be determined based on Homebuilding Debt as of
10/31/2013 and fiscal year 2013 Pre-tax Profit. If Homebuilding
Debt as of 10/31/2013 is $1.57 billion and fiscal year 2013 Pre-tax Profit
is $95.0 million, the Participant would achieve an award equal to one
hundred and sixty percent (160%) of the target award (calculated by linear
interpolation from the performance goals listed on the chart), subject to
the vesting requirements in section
6.
|
|
c.
|
If
the Company reaches breakeven Pre-tax Profit in fiscal year 2011, a
Participant becomes eligible to receive a minimum payment equal to fifty
percent (50%) of the target award, subject to the vesting requirements in
section 6. If the Company’s Homebuilding Debt as of 10/31/2013
is $1.65 billion and fiscal year 2013 Pre-tax Profit is less than $0, a
Participant would achieve an award equal to twenty-five percent (25%) of
the target award. However, since the minimum award of fifty
percent (50%) of the target award is greater than the fiscal year 2013
calculation, the total award due, subject to the vesting requirements,
would be fifty percent (50%) of the target
award.
|
6. Payout
Method and Conditions For Earning Award
Shortly
prior to the Grant Date for an award, each Participant scheduled to receive an
award will be asked to make an irrevocable election to receive the award in one
of the following payout methods: (i) one hundred percent (100%) cash, (ii) fifty
percent (50%) cash and fifty percent (50%) Shares, or (iii) twenty percent (20%)
cash and eighty percent (80%) Shares; provided, however, that (i) the target
amount payable in Shares will be determined based on the Fair Market Value of a
Share as of the Grant Date (subject to the limitation under Section 6(a)) and
(ii) the timing of payments for installments of the award in cash and in Shares
will be determined using the respective values of the cash and Share portions of
the award as of 10/31/2013, with all cash installments of the award becoming
vested and payable before any Share denominated installments of the award
becomes vested and payable pursuant to Section 6(b) below. If a
Participant does not make a form of payment election on or prior to the Grant
Date, the form of payment for such Participant’s award shall be one hundred
percent (100%) cash.
|
a.
|
The
target award amount payable in Shares will be determined by dividing the
portion of the target award elected to be paid in Shares by the closing
Share price on the Grant Date, provided, however, that the Share price for
new Participants will be no less than the Share price on the Initial Grant
Date.
|
|
b.
|
Except
as provided in Section 6(c) – (e) below, as a condition of earning each
portion of the award, Participants must be employed through the vesting
dates outlined below. The vesting percentages relate to the
award value as of 10/31/2013.
|
|
i.
|
Fifty
percent (50%) of the award will become vested on 10/31/2013 and payable in
January 2014
|
|
ii.
|
Thirty
percent (30%) of the award will become vested on 10/31/2014 and payable in
January 2015
|
|
iii.
|
Twenty
percent (20%) of the award will become vested on 10/31/2015 and payable in
January 2016
|
Suppose
an original Participant’s target award is $270,000 and the closing Share price
on the Participant’s Grant Date is $6.50. At the outset of the
program, the Participant elected to receive fifty percent (50%) of the award in
cash and fifty percent (50%) of the award in Shares, resulting in a target cash
award of $135,000 (target award x 50%) and a target stock award of 20,769 Shares
(target award x 50% ÷ $6.50, rounded). Under this example, if the
Participant earns one hundred and fifty percent (150%) of the target award,
based on actual performance achievement, subject to the vesting requirements in
this section 6, the Participant will be eligible to receive a cash portion of
$202,500 ($135,000 target cash portion x 150%) and a Share portion of 31,154
Shares (20,769 target Share portion x 150%, rounded).
Assume
that the Share price on October 31, 2013 is $10.00 so the value of the Share
portion for vesting purposes is $311,540 (31,154 x $10.00). The value
of the cash portion of the award is not affected by stock price fluctuations and
therefore remains at $202,500 resulting in a total award value of $514,040
($311,540 + $202,500) as of 10/31/2013.
Per the
vesting schedule, the award vests fifty percent (50%) on 10/31/2013, thirty
percent (30%) on 10/31/2014 and twenty percent (20%) on 10/31/2015 with the cash
portion of the award vesting before the stock portion. Fifty percent
(50%) of the total award value as of 10/31/2013 is $257,020 ($514,040 x
50%). Since the cash portion is less than this amount, the full cash
portion of $202,500 and an additional $54,520 in Share value, or 5,452 Shares
($54,520 ÷ $10.00, rounded up) will vest on 10/31/2013 and be paid in January
2014.
On
10/31/2014, an additional thirty percent (30%) of the total award value as of
10/31/2013, or $154,212 ($514,040 x 30%), is scheduled to vest. Since
the entire cash portion of the award vested on 10/31/2013, only Shares are left
to vest. As a result, 15,422 Shares ($154,212 ÷ $10.00, rounded up)
will vest on 10/31/2014 and be paid in January 2015.
On
10/31/2015, the remaining portion of the award is scheduled to
vest. Since the entire cash portion and 20,874 Shares had vested in
prior years, the remaining 10,280 Shares (31,154 – 5,452 – 15,422) will vest on
10/31/15 and be paid in January 2016.
|
c.
|
In
the event a Participant ceases to be employed by the Company due to death
prior to the end of the Performance Period, the Participant’s beneficiary
will be eligible for a prorata award payable in January
2014. The award will be determined based on actual performance
for the full Performance Period and will be prorated based on the number
of full months of eligible service completed during the thirty-six (36)
month Performance Period. In the event a Participant ceases to
be employed by the Company due to death following the end of the
Performance Period, the Participant’s beneficiary will be eligible to
receive any unpaid, earned portion of the award within seventy-five (75)
days.
|
|
d.
|
In
the event a Participant ceases to be employed by the Company due to
Disability prior to the end of the Performance Period, the Participant
will be eligible to receive a prorata award on the scheduled payout
dates. The award will be determined based on actual performance
for the full Performance Period and will be prorated based on the number
of full months of eligible service completed during the thirty-six (36)
month Performance Period. In the event a Participant ceases to
be employed by the Company due to Disability following the end of the
Performance Period, the Participant will be eligible to receive any
unpaid, earned portions of the award on the scheduled payout dates as if
there was no termination of
employment.
|
|
e.
|
In
the event a Participant ceases to be employed by the Company due to
“Retirement” following the end of the Performance Period, the Participant
will be eligible to receive any unpaid, earned portions of the award on
the scheduled payout dates as if there was no termination of
employment. "Retirement" shall mean termination of employment
on or after age 60, or on or after age 58 with at least 15 years of
"Service" to the Company and its Subsidiaries immediately preceding such
termination of employment. For this purpose, "Service" means
the period of employment immediately preceding Retirement, plus any prior
periods of employment with the Company and its Subsidiaries of one or more
years' duration, unless they were succeeded by a period of non-employment
with the Company and its Subsidiaries of more than three years'
duration.
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7.
|
Non-Solicitation
Covenants
|
|
a.
|
Each
Participant shall be required as a condition to receiving the award to
acknowledge and agree that, during the Participant's employment with the
Company and its Affiliates and upon the Participant's termination of
Employment with the Company and its Affiliates for any reason, for a
period commencing on the termination of such Employment and ending on the
second anniversary of such termination, the Participant shall not, whether
on Participant'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
any employee of the Company or its Affiliates with whom the Participant
had any contact during the last two years of the Participant's employment,
or who worked in the same business segment or division as the Participant
during that period to terminate employment with the Company or its
Affiliates;
|
|
ii.
|
solicit
the employment or services of, or hire, any such employee whose employment
with the Company or its Affiliates terminated coincident with, or within
twelve (12) months prior to or after the termination of Participant's
employment with the Company and its
Affiliates;
|
|
iii.
|
directly
or indirectly, solicit to cease to work with the Company or its Affiliates
any consultant then under contract with the Company or its
Affiliates.
|
|
b.
|
It
shall be expressly understood and agreed that although the Participant and
the Company consider the restrictions contained in this Section 7 to be
reasonable, if a final judicial determination is made by a court of
competent jurisdiction that the time or any other restriction contained in
this LTIP is an unenforceable restriction against the Participant, the
provisions of this LTIP 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 LTIP 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.
|
|
8.
|
Specific
Performance
|
Each
Participant shall acknowledge and agree that the Company's remedies at law for a
breach or threatened breach of any of the provisions of Section 7 would be
inadequate and the Company would suffer irreparable damages as a result of such
breach or threatened breach. In recognition of this fact, the
Participant shall agree 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 LTIP 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.
|
9.
|
Adjustments
|
Adjustments
Upon Certain Events. Subject to the terms of the 2008 Plan, in the
event of any change in the outstanding Shares by reason of any Share dividend or
split, reorganization, recapitalization, merger, consolidation, amalgamation,
spin-off or combination transaction or exchange of Shares or other similar
events (collectively, an "Adjustment Event"), the Committee shall, in its sole
discretion, make an appropriate and equitable adjustment in the number of Shares
subject to awards granted under this LTIP to reflect such Adjustment
Event. Any such adjustment made by the Committee shall be final and
binding upon the Participant, the Company and all other interested
persons.
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10.
|
Amendments
|
The
Committee may amend, alter or discontinue the LTIP at any time, provided that no
such amendment, alteration or discontinuation shall be made that would
materially adversely affect the rights of a Participant with respect to a
previously granted award hereunder without such Participant’s
consent.
