UNITED STATESSECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549_____________
SCHEDULE 14A INFORMATIONProxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934_____________
FiledbytheRegistrant☒ FiledbyapartyotherthantheRegistrant☐
Checktheappropriatebox:
☐ PreliminaryProxyStatement☐ Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))☒ DefinitiveProxyStatement☐ DefinitiveAdditionalMaterials☐ SolicitingMaterialPursuantto§240.14a-12
TRI Pointe Group, Inc.(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
PaymentofFilingFee(Checktheappropriatebox):☒Nofeerequired.☐FeecomputedontablebelowperExchangeActRules14a‑6(i)(1)and0‑11.
(1)Titleofeachclassofsecuritiestowhichtransactionapplies:
(2)Aggregatenumberofsecuritiestowhichtransactionapplies:
(3) PerunitpriceorotherunderlyingvalueoftransactioncomputedpursuanttoExchangeActRule0‑11(setforththeamountonwhichthefilingfeeiscalculatedandstatehowitwasdetermined):
(4)Proposedmaximumaggregatevalueoftransaction:
(5)Totalfeepaid:
☐Feepaidpreviouslywithpreliminarymaterials.☐ CheckboxifanypartofthefeeisoffsetasprovidedbyExchangeActRule0‑11(a)(2)andidentifythefilingforwhichtheoffsettingfeewaspaidpreviously.Identifythepreviousfiling
byregistrationstatementnumber,ortheFormorScheduleandthedateofitsfiling.
(1)AmountPreviouslyPaid:
(2)Form,ScheduleorRegistrationStatementNo.:
(3)FilingParty:
(4)DateFiled:
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TotheStockholders:Anannualmeetingofstockholders(the"annualmeeting")ofTRIPointeGroup,Inc.("TRIPointe")willbeheldat10:00a.m.local
time,onTuesday,April30,2019,attheFourSeasonsHotelNewYorkDowntownlocatedat27BarclayStreet,NewYork,NewYork10007.Theannualmeetingwillbeheldforthefollowingpurposes:
• toelectthesevennomineesnamedintheproxystatementtoserveonTRIPointe'sBoardofDirectorsuntilhisorhersuccessoriselectedandqualifiedoruntilhisorherearlierresignation,removalordeath(ProposalNo.1);
• toratifytheappointmentofErnst&YoungLLPasTRIPointe'sindependentregisteredpublicaccountingfirmfor2019(ProposalNo.2);and
• totransactanyotherbusinessthatmayproperlycomebeforetheannualmeetingoranyadjournmentsorpostponementsthereof.
Theseitemsofbusinessaremorefullydescribedintheproxystatementaccompanyingthisnotice.Our Board of Directorsrecommends stockholders vote "FOR" the election of each of the seven director nominees listed in Proposal No. 1 and "FOR"Proposal No. 2.
AllTRIPointestockholdersarecordiallyinvitedtoattendtheannualmeeting,althoughonlythosestockholdersofrecordatthecloseofbusinessonMarch1,2019areentitledtoreceivenoticeoftheannualmeetingandtovoteattheannualmeetingandanyadjournmentsorpostponementsoftheannualmeeting.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON, PLEASE COMPLETE, DATE,SIGN, AND RETURN THE ENCLOSED PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR VOTE YOURSHARES OF TRI POINTE COMMON STOCK BY CALLING THE TOLL-FREE TELEPHONE NUMBER OR BY USING THEINTERNET AS DESCRIBED IN THE INSTRUCTIONS INCLUDED WITH YOUR PROXY CARD AT YOUR EARLIESTCONVENIENCE.
WehaveelectedtotakeadvantageoftherulesthatallowcompaniestofurnishtheirproxymaterialsviatheInternet.Asaresult,theproxystatementwasmadeavailableontheInternetandwemailedaNoticeofInternetAvailabilityofProxyMaterialscontaininginstructionsonhowtoaccessourproxystatementandannualreportonoraboutMarch21,2019.TheNoticeofInternetAvailabilityofProxyMaterialsalsocontainsinstructionsonhowtorequestapapercopyofourproxystatementandannualreport.TRI Pointe's proxy materials areavailable online at http://www.astproxyportal.com/ast/18094.
ByOrderoftheBoardofDirectors,
DavidC.LeeSecretary
Pleasevoteyoursharespromptly.Youcanfindinstructionsforvotingontheenclosedproxycard.
March21,2019
-i-
TABLE OF CONTENTS
Page
INFORMATIONABOUTTHEANNUALMEETING 1
QUESTIONSANDANSWERSABOUTTHEANNUALMEETING 4
PROPOSALNO.1ELECTIONOFDIRECTORS 8
PROPOSALNO.2RATIFICATIONOFSELECTIONOFINDEPENDENTREGISTEREDPUBLICACCOUNTINGFIRM 10
BOARDOFDIRECTORS 11
CORPORATEGOVERNANCE 16
COMPENSATIONDISCUSSIONANDANALYSIS 23
COMPENSATIONCOMMITTEEREPORT 40
OWNERSHIPOFOURCOMMONSTOCK 41
EQUITYCOMPENSATIONPLANINFORMATION 43
EXECUTIVECOMPENSATION 44
DIRECTORCOMPENSATION 57
REPORTOFTHEAUDITCOMMITTEE 59
MANAGEMENT 60
SECTION16(a)BENEFICIALOWNERSHIPREPORTINGCOMPLIANCE 62
CERTAINRELATIONSHIPSANDRELATEDPARTYTRANSACTIONS 63
AUDITCOMMITTEEMATTERS 64
STOCKHOLDERPROPOSALSFOR2020ANNUALMEETING 65
-ii-
INFORMATION ABOUT THE ANNUAL MEETING
General; Date; Time and Place; Purposes of the Meeting
TheenclosedproxyissolicitedonbehalfofourBoardofDirectorsforuseattheannualmeetingofstockholdersofTRIPointeGroup,Inc.("TRIPointe,""we,""us"orthe"Company")tobeheldat10:00a.m.localtime,onTuesday,April30,2019oratanyadjournmentsorpostponementsoftheannualmeeting,forthepurposessetforthinthisproxystatementandintheaccompanyingnoticeofannualmeeting.TheannualmeetingwillbeheldattheFourSeasonsHotelNewYorkDowntownlocatedat27BarclayStreet,NewYork,NewYork10007.
Attheannualmeeting,stockholderswillbeaskedto:
• electthesevennomineesnamedinthisproxystatementtoserveonourBoardofDirectorsuntilhisorhersuccessoriselectedandqualifiedoruntilhisorherearlierresignation,removalordeath(ProposalNo.1);
• ratifytheappointmentofErnst&YoungLLPasourindependentregisteredpublicaccountingfirmfor2019(ProposalNo.2);and
• transactanyotherbusinessthatmayproperlycomebeforetheannualmeetingoranyadjournmentsorpostponementsthereof.
Whenthisproxystatementreferstothe"annualmeeting,"itisalsoreferringtoanyadjournmentorpostponementoftheannualmeeting,ifitisdeterminedbyourBoardofDirectorstobenecessaryorappropriate.ThesematerialswerefirstsentormadeavailabletostockholdersonMarch21,2019.
Electronic Delivery
InaccordancewiththerulesandregulationsadoptedbytheSecuritiesandExchangeCommission("SEC"),wehaveelectedtofurnishtheproxymaterialstoourstockholdersviatheInternet.Webelieveelectronicdeliverywillexpeditestockholders'receiptofproxymaterials,whileloweringcostsandreducingtheenvironmentalimpactoftheannualmeetingbyreducingprintingandmailingoffullsetsofproxymaterials.ThisproxystatementwasmadeavailableontheInternetandwemailedaNoticeofInternetAvailabilityofProxyMaterials(the"Notice")containinginstructionsonhowtoaccesstheproxymaterialsonoraboutMarch21,2019.Ifastockholderwouldliketoreceiveapapercopyoftheproxymaterials,theNoticecontainsinstructionsonhowtoreceiveapapercopy.
Record Date; Quorum
HoldersofrecordofourcommonstockatthecloseofbusinessonMarch1,2019,therecorddatefortheannualmeeting,areentitledtoreceivenoticeof,andtovoteat,theannualmeetingandanyadjournmentsorpostponementsthereof.Atthecloseofbusinessontherecorddate,142,210,147sharesofourcommonstockwereoutstandingandentitledtovote.Stockholdersareentitledtoonevoteoneachmattersubmittedtothestockholdersforeachshareofourcommonstockheldasoftherecorddate.
Aquorummustbeestablishedinorderforourstockholderstotakeactionattheannualmeeting.Thepresenceattheannualmeeting,inpersonorbyproxy,oftheholdersofstockhavingamajorityofvotesthatcouldbecastbytheholdersofalloutstandingstockentitledtovoteattheannualmeetingwillconstituteaquorum.Ifashareisrepresentedforanypurposeattheannualmeeting,itwillbedeemedpresentforpurposesofdeterminingwhetheraquorumexists.Abstentionsand"brokernon-votes"willbe
-1-
countedaspresentandentitledtovoteforpurposesofdeterminingaquorum.Ifaquorumispresentwhentheannualmeetingisconvened,thesubsequentwithdrawalofstockholders,eveniflessthanaquorumremainsaftersuchwithdrawal,willnotaffecttheabilityoftheremainingstockholderstolawfullytransactbusiness.
AsofMarch1,2019,ourdirectorsandcurrentexecutiveofficersheldapproximately1.5%ofthesharesentitledtovoteattheannualmeeting.See"OwnershipofOurCommonStock."
Solicitation of Proxies
Wewillbeartheentirecostofsolicitingproxiesfromourstockholders.Inadditiontosolicitationofproxiesbymail,proxiesmaybesolicitedinperson,bytelephoneorotherelectroniccommunications,suchasemailsorpostingsonourwebsitebyourdirectors,officers,andemployees,whowillnotreceiveadditionalcompensationfortheseservices.WehaveretainedD.F.King&Co.,Inc.toassistinthesolicitationofproxiesforafeeof$12,000plusexpenses.Banks,brokers,andothernomineeswillberequestedtoforwardsolicitingmaterialtobeneficialownersofstockheldofrecordbythem,andwewillreimbursethosepersonsfortheirreasonableexpensesindoingso.
Adjournments and Postponements
Althoughitisnotcurrentlyexpected,ifitisdeterminedbyourBoardofDirectorstobenecessaryorappropriate,theannualmeetingmaybeadjournedorpostponed.Noticewillnotbegivenofanysuchadjournedmeetingifthedate,time,andplace,ifany,thereofandthemeansofremotecommunication,ifany,bywhichstockholdersandproxyholdersmaybedeemedpresentinpersonandvoteatsuchadjournedmeetingareannouncedatthemeetingatwhichtheadjournmentistaken.Attheadjournedmeeting,anybusinessmaybetransactedwhichmighthavebeentransactedattheoriginalmeeting.Iftheadjournmentisformorethan30days,orifaftertheadjournmentanewrecorddateisfixedfortheadjournedmeeting,anoticeoftheadjournedmeetingwillbegiventoeachstockholderofrecordentitledtovoteattheadjournedmeeting.IfourBoardofDirectorsfixesanewrecorddatefordeterminationofstockholdersentitledtovoteatanadjournedmeeting,ourBoardofDirectorswillalsofixastherecorddateforstockholdersentitledtonoticeofsuchadjournedmeetingthesameoranearlierdateastherecorddatedeterminedforstockholdersentitledtovoteattheadjournedmeeting.
Attending the Annual Meeting
Allstockholders,includingstockholdersofrecordandstockholderswhoholdtheirsharesin"streetname"throughbanks,brokers,orothernominees,areinvitedtoattendtheannualmeeting.Stockholdersofrecordcanvoteinpersonattheannualmeeting.Toattendtheannualmeeting,stockholdersofrecordneedtobringavalidpictureidentification.Ifastockholderholdssharesin"streetname"throughanaccountwithabank,brokerorothernominee,theholderwillneedtocontactitsbank,brokerorothernomineeandobtaina"legalproxy"fromthebank,brokerorothernomineeandpresentthe"legalproxy"andvalidpictureidentificationattheannualmeeting,which"legalproxy"willserveasthestockholder'sadmissionticket.Cellphonesmustbeturnedoffpriortoenteringtheannualmeeting.Camerasandvideo,audiooranyotherelectronicrecordingdeviceswillnotbeallowedinthemeetingroomduringtheannualmeeting,excepttotheextentpermittedbyus.Youcanobtaindirectionstobeabletoattendtheannualmeetingandvoteinperson,byrequestingtheminwritingorbytelephonefromusatthefollowingaddressandtelephonenumber:TRIPointeGroup,Inc.,19540JamboreeRoad,Suite300,Irvine,California92612,Attention:InvestorRelations;Telephone:(949)478-8696.
-2-
Householding
SECrulesallowdeliveryofasingledocumenttohouseholdsatwhichtwoormorestockholdersreside.Thisprocedure,referredtoas"householding,"reducesthevolumeofduplicateinformationreceivedbystockholders,aswellasourexpenses.Ifastockholderofrecordiseligibleforhouseholding,butitandotherstockholdersofrecordwithwhichitsharesanaddressreceivemultiplecopiesoftheNotice,orifastockholderofrecordholdsstockinmorethanoneaccount,andineithercasethestockholderwishestoreceiveasinglecopyoftheNoticeforitshousehold,itshouldnotifyourCorporateSecretary.IfastockholderparticipatesinhouseholdingandwishestoreceiveaseparatecopyoftheNotice,ordoesnotwishtoparticipateinhouseholdingandpreferstoreceiveseparatecopiesoftheNoticeinthefuture,itshouldnotifyourCorporateSecretary.AstockholdermaynotifyourCorporateSecretaryinwritingatTRIPointeGroup,Inc.,19540JamboreeRoad,Suite300,Irvine,California92612,Attention:CorporateSecretary,orbytelephoneat(949)438-1400.
Ifastockholderholdsitssharesthroughanintermediarythatisutilizinghouseholdingandthestockholderwishestoreceiveseparatecopiesofourannualreportandproxystatementinthefuture,orifitisreceivingmultiplecopiesofourproxymaterialsandannualreportandwishestoreceiveonlyone,itshouldcontactitsbank,broker,orothernomineerecordholder.
-3-
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING
Thefollowingaresomeofthequestionsthatstockholdersmayhaveabouttheannualmeetingandanswerstothosequestions.Thesequestionsandanswersarenotmeanttobeasubstitutefortheinformationcontainedintheremainderofthisproxystatement,andthisinformationisqualifiedinitsentiretybythemoredetaileddescriptionsandexplanationscontainedelsewhereinthisproxystatement.Weurgeourstockholderstoreadthisproxystatementinitsentiretypriortomakinganydecision.
Q: What proposals will be voted on at the annual meeting?
A: Stockholderswillvoteonthefollowingproposals:
• toelectthesevennomineesnamedinthisproxystatementtoserveonourBoardofDirectorsuntilhisorhersuccessoriselectedandqualifiedoruntilhisorherearlierresignation,removalordeath(ProposalNo.1);and
• toratifytheappointmentofErnst&YoungLLPasourindependentregisteredpublicaccountingfirmfor2019(ProposalNo.2).
Q: How does our Board of Directors recommend stockholders vote?
A: OurBoardofDirectorsrecommendsthatstockholdersvote:
• "FOR "theelectionofeachofthesevennomineestoourBoardofDirectorsuntilhisorhersuccessoriselectedandqualifiedoruntilhisorherearlierresignation,removal,ordeath(ProposalNo.1);and
• "FOR "theratificationoftheappointmentofErnst&YoungLLPasourindependentregisteredpublicaccountingfirmfor2019(ProposalNo.2).
Questions With Respect to the Election of Directors (Proposal No. 1)
Q: What vote is required for election of directors?
A: OurBylawsprovideformajorityvotinginuncontesteddirectorelections.Uncontesteddirectorelectionsaredefinedasanymeetingofstockholdersatwhichdirectorsaretobeelectedandthenumberofnomineesdoesnotexceedthenumberofdirectorstobeelected.Theelectionofdirectorsattheannualmeetingwillbeanuncontesteddirectorelection,asdefined.Therefore,eachnomineeforelectionasadirectorwillbeelectedattheannualmeetingifthenumberofvotescast"FOR "thenominee'selectionexceedsthenumberofvotescast"AGAINST "thenominee'selection.Abstentionsand"brokernon-votes"willnotbecountedasvotescastandwillnotaffecttheoutcomewithregardtothisproposal.Thereisnocumulativevotingintheelectionofdirectors.
Q: What if a stockholder returns a proxy but does not indicate how the shares should be voted with respect to Proposal No. 1?
A: Ifastockholdersubmitsaproperlyexecutedproxytousbuttheproxydoesnotindicatehowitshouldbevotedonthisproposal,thesharessubjecttotheproxywillbevoted"FOR "theelectionofeachofthesevennomineesnamedinthisproxystatementtoourBoardofDirectors.
-4-
Q: What if a stockholder returns a proxy but instructs the proxy holder to abstain with respect to one or more nominees?
A: Ifastockholdersubmitsaproperlyexecutedproxytousandinstructstheproxyholdertoabstainwithrespecttooneormorenominees,thesharessubjecttotheproxywillnotbevotedfororagainstthatnomineeorthosenomineesandwillbevoted"FOR "or"AGAINST "theremainingnominee(s),ifany,asindicatedontheproxy.
Q: What if a stockholder is a beneficial owner of shares held in "street name" and fails to provide voting instructions withrespect to Proposal No. 1?
A: Ifastockholderisthebeneficialownerofsharesheldin"streetname"throughitsbank,brokerorothernominee,thebank,brokerorothernomineewilltypicallybeprohibitedfromvotinginitsdiscretiononthisproposalwithrespecttothatstockholder'ssharesandthese"brokernon-votes"willnotaffecttheoutcomeoftheelection.
Questions With Respect to the Ratification of the Appointment of Auditors (Proposal No. 2)
Q: What vote is required to approve the ratification of the appointment of auditors?
A: PursuanttoourBylaws,thisproposalrequirestheaffirmativevoteoftheholdersofstockhavingamajorityofthevotesthatcouldbecastbythestockholdersentitledtovoteontheproposalthatarepresentinpersonorbyproxyattheannualmeeting.
Q: What if a stockholder returns a proxy but does not indicate how the shares should be voted with respect to Proposal No. 2?
A: Ifastockholdersubmitsaproperlyexecutedproxytousbuttheproxydoesnotindicatehowitshouldbevotedonthisproposal,thesharessubjecttotheproxywillbevoted"FOR "theratificationoftheappointmentofErnst&YoungLLPasourindependentregisteredpublicaccountingfirmfor2019.
Q: What if a stockholder returns a proxy but instructs the proxy holder to abstain with respect to Proposal No. 2?
A: Ifastockholdersubmitsaproperlyexecutedproxytousandtheproxyinstructstheproxyholdertoabstainfromvotingonthisproposal,thesharessubjecttotheproxywillnotbevoted,andwillhavetheeffectofavote"AGAINST ",withregardtothisproposal.
Q: What if a stockholder is a beneficial owner of shares held in "street name" and fails to provide voting instructions withrespect to Proposal No. 2?
A: Ifastockholderisthebeneficialownerofsharesheldin"streetname"throughitsbank,brokerorothernominee,thebank,brokerorothernomineewilltypicallyhavetheauthoritytoexerciseitsvotingdiscretiontovoteonthisproposal.
-5-
General Questions
Q: How can stockholders cast their vote?
A: Stockholdersmayvoteinoneofthefollowingways:
• byusingthetoll-freenumbershownontheproxycard(orvotinginstructioncardifastockholderreceiveditsproxymaterialsfromabank,brokerorothernominee);
• byvisitingthewebsiteshownontheproxycard(orvotinginstructioncard)tosubmitaproxyviatheInternet;
• bycompleting,signing,datingandreturningtheenclosedproxycard(orvotinginstructioncard)intheenclosedpostage-paidenvelope;or
• byattendingtheannualmeetingandvotingtheirshares.
Q: If a stockholder is not going to attend the annual meeting, should that stockholder return its proxy card or otherwise vote itsshares?
A: Yes.Returningtheproxycard(orvotinginstructioncardifastockholderreceiveditsproxymaterialsfromabank,brokerorothernominee)orvotingbycallingthetoll-freenumbershownontheproxycard(orvotinginstructioncard)orvisitingthewebsiteshownontheproxycard(orvotinginstructioncard)tosubmitaproxyviatheInternetensuresthattheshareswillberepresentedandvotedattheannualmeeting,evenifthestockholderwillbeunableto,ordoesnot,attend.
Q: If a stockholder's shares are held in "street name" through its bank, broker, or other nominee, will that bank, broker orother nominee vote those shares?
A: Banks,brokers,orothernomineeswillnotvotesharesofastockholderwithrespecttoProposalNo.1unlessthestockholderinstructsitsbank,brokerorothernomineehowtovote.Astockholdershouldfollowthedirectionsonthevotinginstructioncardprovidedbyitsbank,broker,orothernomineeregardinghowtoinstructitsbank,broker,orothernomineetovoteitsshares.Ifastockholderdoesnotprovideitsbank,broker,orothernomineewithinstructions,underNewYorkStockExchange("NYSE")rules,thatbank,broker,orothernomineewillnotbeauthorizedtovotewithrespecttoProposalNo.1,butmayvoteinitsdiscretionwithrespecttoProposalNo.2.
Q: Can a stockholder change or revoke its proxy after mailing its proxy card?
A: Yes.Ifastockholderhasproperlycompletedandsubmitteditsproxycard,thatstockholdercanchangeorrevokeitsproxyvoteinanyofthefollowingways:
• byfilingwithourCorporateSecretaryaninstrumentinwritingrevokingtheproxy;
• byfilingwithourCorporateSecretaryadulyexecutedproxybearingalaterdate;
• byloggingontothewebsitespecifiedontheproxycard(orvotinginstructioncardifastockholderreceiveditsproxymaterialsfromabank,brokerorothernominee)inthesamemannerastockholderwouldtosubmititsproxyelectronicallyorbycallingthetoll-freenumberspecifiedontheproxycard(orvotinginstructioncard)priortotheannual
-6-
meeting,ineachcaseifthestockholderiseligibletodoso,andfollowingtheinstructionsontheproxycard(orvotinginstructioncard);or
• byattendingtheannualmeetingandvotinginperson.
Simplyattendingtheannualmeetingwillnotrevokeaproxy.Intheeventofmultipleonlineortelephoneproxiessubmittedbyastockholder,eachproxywillsupersedeanyearlierdatedproxyandtheproxybearingthelatestdatewillbedeemedtobethefinalproxyofthatstockholderunlessthatproxyisrevoked.
Ifastockholderholdssharesin"streetname"throughitsbank,broker,orothernominee,andhasdirectedthatpersontovoteitsshares,itshouldinstructthatpersontochangeitsvote,orif,inthealternative,astockholderholdingsharesin"streetname"wishestovoteinpersonattheannualmeeting,thestockholdermustobtaina"legalproxy"fromthebank,broker,orothernomineeandpresentthe"legalproxy"attheannualmeeting.
Q: What should stockholders do now?
A: Aftercarefullyreadingandconsideringtheinformationcontainedinthisproxystatement,stockholdersshouldcompletetheirproxiesorvotinginstructioncardsassoonaspossiblesothattheirshareswillberepresentedandvotedattheannualmeeting.Stockholdersshouldfollowtheinstructionssetforthontheenclosedproxycard(orthevotinginstructioncardifastockholderreceiveditsproxymaterialsfromabank,broker,orothernominee).
Q: Who can answer my questions?
A: Ifyouhaveanyquestionsabouttheannualmeeting,needassistanceinvotingyoursharesorneedadditionalcopiesofthisproxystatementortheproxycard(orvotinginstructioncardifyoureceivedyourproxymaterialsfromabank,broker,orothernominee),youshouldcontact:
D.F.King&Co.,Inc.48WallStreet,22ndfloor
NewYork,NewYork10005(800)207-3158(TollFree)(212)269-5550(CallCollect)
or
TRIPointeGroup,Inc.19540JamboreeRoad,Suite300
Irvine,California92612Attention:InvestorRelationsTelephone:(949)478-8696
-7-
PROPOSAL NO. 1 ELECTION OF DIRECTORS
Allofourdirectorsareelectedannuallyattheannualmeetingofstockholders.StockholdersarerequestedtoelectthesevennomineesnamedinthisproxystatementtoserveonourBoardofDirectorsuntilhisorhersuccessoriselectedandqualifiedoruntilhisorherearlierresignation,removal,ordeath.
Thenamesofthesevennomineesfordirectorandtheircurrentpositionsandofficeswithusaresetforthbelow.Eachofthenomineesisnowadirector.Detailedbiographicalinformationregardingeachofthesenomineesisprovidedin"BoardofDirectors—DirectorNominees."TheNominatingandCorporateGovernanceCommitteeofourBoardofDirectorshasreviewedthequalificationsofeachofthenomineesandhasrecommendedtoourBoardofDirectorsthateachnomineebesubmittedtoavoteattheannualmeeting.
Allofthenomineesforelectionhaveconsentedtobeingnamedinthisproxystatementandtoserveifelected.Ifanynomineeisunableorunwillingtoserve,ourBoardofDirectorsmaydesignateasubstitutenomineeorreducethesizeofourBoardofDirectors.IfourBoardofDirectorsdesignatesasubstitutenominee,proxiesmaybevotedforthatsubstitutenominee.OurBoardofDirectorsknowsofnoreasonwhyanynomineewillbeunableorunwillingtoserveifelected.Listedbelowarethesevennomineesforelectionasadirectorattheannualmeeting.
Name Age PositionMr.StevenJ.Gilbert 71 ChairmanoftheBoardMr.DouglasF.Bauer 57 ChiefExecutiveOfficerandDirectorMr.LawrenceB.Burrows 66 IndependentDirectorMr.DanielS.Fulton 70 IndependentDirectorMs.VickiD.McWilliams 61 IndependentDirectorMs.ConstanceB.Moore 63 IndependentDirectorMr.ThomasB.Rogers 79 IndependentDirector
Required Vote
Eachnomineeforelectionasadirectorwillbeelectedifthenumberofvotescast"FOR "thenominee'selectionexceedsthenumberofvotescast"AGAINST "thenominee'selection.Abstentionsand"brokernon-votes"willnotbecountedasvotescastandwillnotaffecttheoutcomewithregardtothisproposal.Thereisnocumulativevotingintheelectionofdirectors.
Director Resignation Policy
Underourdirectorresignationpolicy,anyincumbentdirectorwhoisnotre-electedmustpromptlytenderawrittenofferofresignationasadirector.TheNominatingandCorporateGovernanceCommitteewillconsidertheresignationofferandrecommendtotheBoardofDirectorswhethertoacceptorrejecttheresignationoffer,orwhetherotheractionshouldbetaken.IndeterminingwhethertorecommendthattheBoardofDirectorsacceptanyresignationoffer,theNominatingandCorporateGovernanceCommitteewillbeentitledtoconsiderallfactorsbelievedrelevantbytheNominatingandCorporateGovernanceCommittee'smembers,including,butnotlimitedto:(i)anystatedorperceivedreasonsforthedirectornotreceivingamajorityvote,(ii)anyalternativesforcuringtheunderlyingcauseofthevotesagainst,(iii)thedirector'stenure,(iv)thedirector'squalifications,(v)thedirector'spastandexpectedfuturecontributionstotheBoardofDirectors,and(vi)theoverallcompositionoftheBoardof
-8-
Directors,includingwhetheracceptingtheresignationwouldcauseustofailtomeetanyapplicableSECorNYSErequirementsorviolateanyofourmaterialagreements.
Indeterminingwhatactiontorecommendortakeregardingadirector'sresignation,eachoftheNominatingandCorporateGovernanceCommitteeandtheBoardofDirectorsmayconsiderarangeofalternativesasitdeemsappropriate,including,butnotlimitedto:(i)acceptingtheresignationoffer,(ii)rejectingtheresignationoffer,(iii)rejectingtheresignationoffertoallowthedirectortoremainontheBoardofDirectorsbutagreeingthatthedirectorwillnotbenominatedforre-electiontotheBoardofDirectorsatthenextelectionofdirectors,(iv)deferringacceptanceoftheresignationofferuntiltheBoardofDirectorscanfindareplacementdirectorwiththenecessaryqualificationstofillthevacancythatacceptingtheresignationofferwouldcreate,or(v)deferringacceptanceoftheresignationofferifthedirectorcancuretheunderlyingcausefornotreceivingamajorityvotewithinaspecifiedperiodoftime.
TheBoardofDirectorswillactontheNominatingandCorporateGovernanceCommittee'srecommendationwithin90daysfollowingthecertificationofthestockholdervote.Indecidingwhethertoaccepttheresignationoffer,theBoardofDirectorswillconsiderthefactorsconsideredbytheNominatingandCorporateGovernanceCommitteeandanyadditionalinformationandfactorstheBoardofDirectorsbelievestoberelevant.IftheBoardofDirectorsacceptsadirector'sresignationofferpursuanttothisprocess,theNominatingandCorporateGovernanceCommitteewillrecommendtotheBoardofDirectorsandtheBoardofDirectorswillthereafterdeterminewhethertofillsuchvacancyorreducethesizeoftheBoardofDirectors.AnydirectorwhotendershisorherresignationpursuanttothisprovisionwillnotparticipateintheproceedingsofeithertheNominatingandCorporateGovernanceCommitteeortheBoardofDirectorswithrespecttohisorherownresignationoffer.IfotherdirectorswhoaremembersoftheNominatingandCorporateGovernanceCommitteedidnotreceiveamajorityvoteinthesameuncontestedelectionofdirectors,sothataquorumoftheNominatingandCorporateGovernanceCommitteecannotbeachieved,thentheotherindependentdirectorsontheBoardofDirectorswhoreceivedamajorityofvotescastinthatelectionwillconsidersuchresignationofferandrecommendtotheBoardofDirectorswhethertoacceptorrejecttheresignationoffer,orwhetherotheractionshouldbetaken,regardingtheresignationofeachdirectorwhodidnotreceiveamajorityvote.
Our Board of Directors recommends that stockholders vote "FOR" the election of each of the seven nominees to our Board ofDirectors.
-9-
PROPOSAL NO. 2RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheAuditCommitteehasapprovedtheappointmentofErnst&YoungLLPasourindependentregisteredpublicaccountingfirmforthefiscalyearendingDecember31,2019andhasfurtherrecommendedthatourBoardofDirectorssubmittheselectionofourindependentregisteredpublicaccountingfirmforratificationbystockholdersattheannualmeeting.Ernst&YoungLLPhasservedasourindependentregisteredpublicaccountingfirmsince2010.RepresentativesofErnst&YoungLLPareexpectedtobepresentattheannualmeeting.Theywillhaveanopportunitytomakeastatementiftheysodesireandwillbeavailabletorespondtoappropriatequestions.
NoneofourBylaws,ourCertificateofIncorporation,oranyothergoverningdocumentsorapplicablelawrequiresstockholderratificationoftheselectionofErnst&YoungLLPasourindependentregisteredpublicaccountingfirm.However,ourBoardofDirectorsissubmittingtheselectionofErnst&YoungLLPtostockholdersforratificationasamatterofgoodcorporatepractice.Ifthestockholdersfailtoratifytheselection,theAuditCommitteewillreconsiderwhetherornottoretainErnst&YoungLLP,butmay,nonetheless,retainErnst&YoungLLPasourindependentregisteredpublicaccountingfirm.Eveniftheselectionisratified,theAuditCommittee,initsdiscretion,maychangetheappointmentatanytimeifitdeterminesthatsuchachangewouldbeinthebestinterestofstockholders.ForinformationconcerningfeesbilledtousforthefiscalyearsendedDecember31,2017and2018,see"AuditCommitteeMatters—IndependentRegisteredPublicAccountingFirmFees."
Required Vote
Thisproposalmustbeapprovedbytheaffirmativevoteoftheholdersofstockhavingamajorityofthevotesthatcouldbecastbystockholdersentitledtovoteontheproposalthatarepresentinpersonorbyproxyattheannualmeeting.Abstentionswillbetreatedasbeingpresentandentitledtovote,andwillhavetheeffectofavoteagainst,withregardtothisproposal.Thisproposalisconsidered"routine,"thereforebanks,brokersorothernomineesmayexercisetheirvotingdiscretionintheabsenceofspecificinstructionswithregardtothisproposal.
Our Board of Directors recommends that stockholders vote "FOR" the ratification of the appointment of Ernst & YoungLLP as our independent registered public accounting firm for 2019.
-10-
BOARD OF DIRECTORS
Composition of our Board of Directors
OurCertificateofIncorporationprovidesthattheauthorizednumberofdirectorsshallnotbefewerthanthreeandshallbefixedfromtimetotimesolelybyresolutionadoptedbyaffirmativevoteofamajorityofdirectorstheninoffice.OurBoardofDirectorscurrentlyconsistsofsevendirectors.
PursuanttoouremploymentagreementwithMr.Bauer,wehaveagreedthatwhileheisemployedunderthatagreement,wewillnominatehimforre-electionasamemberofourBoardofDirectors.See"ExecutiveCompensation—EmploymentAgreementsandPerformance-BasedRSUAwards."
Director Nominees
ThenomineesforelectiontoourBoardofDirectors,togetherwithbiographicalinformationfurnishedbyeachofthemandinformationregardingeachnominee'squalifications,aresetforthbelow.Therearenofamilyrelationshipsamongourexecutiveofficersanddirectors.
DOUGLASF.BAUER,57,hasservedasourChiefExecutiveOfficerandasamemberofourBoardofDirectorssinceJanuary30,2013.HewasamemberofTRIPointeHomes,LLC's("TPHLLC")boardofmanagerspriortoitsconversionintoacorporation.PriortoformingTPHLLCinApril2009,from1989to2009,Mr.Bauerservedinseveralcapacities,includingmostrecentlythePresidentandChiefOperatingOfficer,forWilliamLyonHomes,ahomebuildingcompanywhosecommonstockwaslistedontheNYSEfrom1999untilthecompanywastakenprivatein2006.HispriortitlesatWilliamLyonHomesalsoincludedChiefFinancialOfficerand,priorthereto,PresidentofitsNorthernCaliforniaDivision.Priortohis20-yeartenureatWilliamLyonHomes,Mr.BauerspentsevenyearsatSecurityPacificNationalBankinLosAngeles,Californiainvariousfinancialpositions.Mr.Bauerhasmorethan30yearsofexperienceintherealestatefinance,developmentandhomebuildingindustry.Mr.BauerhasbeeninvolvedinbothlegislativeeffortsandcommunityenhancementprogramsthroughhisinvolvementintheCaliforniaBuildingIndustryAssociationandHomeAidOrangeCounty,acharitableorganizationwiththemissionofbuildingorrenovatingsheltersforthetemporarilyhomeless,whichservesindividualsandfamilieswhofindthemselveswithoutshelterduetosuchfactorsasdomesticviolence,jobloss,catastrophicillnessandcrisispregnancy.Mr.BauerreceivedhisB.A.fromtheUniversityofOregonandlaterreceivedhisM.B.A.fromtheUniversityofSouthernCalifornia.AsourChiefExecutiveOfficer,Mr.Bauerhasintimateknowledgeofourbusinessandoperations,andheprovidesourBoardofDirectorswithextensiveexperienceinrealestatefinance,operationsanddevelopment,aswellasafamiliaritywiththeworkingsofthehomebuildingindustry.
LAWRENCEB.BURROWS,66,hasservedasamemberofourBoardofDirectorssinceJuly7,2014.Mr.BurrowsservedasanexecutiveofficeroftheWeyerhaeuserCompanyfrom2008through2013,whenheretiredafter25yearswiththecompany.HewasSeniorVicePresidentofWoodProductsforWeyerhaeuserCompanyfrom2010through2013.From2008to2010,Mr.BurrowswasPresidentandChiefExecutiveOfficerofWeyerhaeuserRealEstateCompany("WRECO").PriortobecomingWRECO'sPresidentandChiefExecutiveOfficer,heservedasPresidentofWinchesterHomes,aWRECOsubsidiary,from2003to2008.Currently,Mr.BurrowsservesontheBoardofConnorIndustries,aprivately-heldindustrialwoodandpackagingsolutionscompany.HealsoservesasChairoftheDean'sAdvisoryBoardoftheEdwardJ.BlousteinSchoolofPlanningandPublicPolicyatRutgersUniversitywhereheisalsoaSeniorPlanningFellow.Mr.BurrowsisalsoanofficerandTreasurerofthenon-profitChesapeakeMulti-CulturalResourceCenter.BeforejoiningWeyerhaeuserCompanyand
-11-
WRECO,Mr.Burrowswasarealestateconsultantanddeveloper.Mr.BurrowsservedontheBoardofHabitatforHumanity,Seattle/KingCounty,andHomeAidofNorthernVirginia.Mr.BurrowsearnedaB.A.fromRutgersUniversity,aMastersinCityPlanningfromtheUniversityofPennsylvania,andisagraduateoftheWhartonSchoolofBusinessAdvancedManagementProgram.HeistheauthorofGrowthManagement:Issues,TechniquesandPolicyImplications,publishedbytheCenterforUrbanPolicyResearchatRutgersUniversity.OurBoardofDirectorsbelievesthatMr.Burrows'experienceinrealestatedevelopmentandhomebuildingisatremendousbenefittoourBoardofDirectors.
DANIELS.FULTON,70,hasservedasamemberofourBoardofDirectorssinceJuly7,2014.Mr.FultonservedasPresident,ChiefExecutiveOfficerandamemberoftheboardofdirectorsofWeyerhaeuserCompanyfrom2008through2013,whenheretiredafternearly38yearswiththecompany.PriortobecomingWeyerhaeuserCompany'sChiefExecutiveOfficer,Mr.FultonservedasthePresidentandChiefExecutiveOfficerofWRECOfrom2001to2008.DuringMr.Fulton'stenureasWeyerhaeuserCompany'sChiefExecutiveOfficer,hewasamemberoftheBusinessRoundtable(BRT),whereheservedasthechairoftheBRTHousingSubcommittee,andservedontheboardsofanumberofindustryassociations,includingNAFO(theNationalAllianceofForestOwners),NAREIT(NationalAssociationofRealEstateInvestmentTrusts),SFI(SustainableForestInitiative)andtheAF&PA(AmericanForestandPaperAssociation).Mr.FultonisthepastchairoftheWashingtonRoundtable,wherehecontinuesasamember,andisthepastchairofthePolicyAdvisoryBoardoftheJointCenterforHousingStudiesatHarvardUniversity,wherehecontinuestoserveasanExecutiveFellow.Mr.FultonisadirectorofSaltchukResources,aprivately-ownedcompanyprimarilyengagedintransportationanddistribution,andamemberoftheAdvisoryBoardfortheFosterSchoolofBusinessattheUniversityofWashington.HeisalsoadirectorofGreenDiamondResourceCompany,aprivately-held,Seattle-basedtimbercompany.Mr.FultongraduatedwithaB.A.ineconomicsfromMiamiUniversity(Ohio)in1970.HereceivedanM.B.A.infinancefromtheUniversityofWashingtonin1976,andhecompletedtheStanfordUniversityExecutiveProgramin2001.From1970to1974,heservedonactivedutyasanofficerintheU.S.NavySupplyCorps.OurBoardofDirectorsbelievesthatMr.Fulton'sextensiveexperienceinrealestatefinanceanddevelopment,alongwithhisexecutiveandleadershipexperience,makeshimavaluablecontributortoourBoardofDirectors.
STEVENJ.GILBERT,71,hasservedasadirectoronourBoardofDirectorssinceJanuary30,2013.Mr.GilbertisChairmanoftheBoardofGilbertGlobalEquityPartners,L.P.,abilliondollarprivateequityfund,andhasservedinthiscapacitysince1998.HeisalsoadirectorofFairholmeFunds(Nasdaq:FAIRX),anopen-endinvestmentcompany;SeniorAdvisortoContinentalGrain;adirectorofMBIA,Inc.,(NYSE:MBI)andOaktreeCapitalGroup(NYSE:OAK);andistheLeadIndependentDirectoroftheEmpireStateRealtyTrust(NYSE:ESRT).HeisViceChairmanofMidOceanEquityPartners,LP,andservedastheViceChairmanofStoneTowerCapitalfromJanuary2007untilApril2012andastheSeniorManagingDirectorandChairmanofSunGroup(USA)until2009.From1992to1997hewasaFounderandManagingGeneralPartnerofSorosCapitalL.P.,theprincipalventurecapitalandleveragedtransactionentityoftheQuantumGroupofFunds,andaprincipalAdvisortoQuantumIndustrialHoldingsLtd.From1988to1992,hewastheManagingDirectorofCommonwealthCapitalPartners,L.P.,aprivateequityinvestmentfirm.Priortothat,from1984to1988,Mr.GilbertwastheManagingGeneralPartnerofChemicalVenturePartners(nowJ.P.MorganCapitalPartners),whichhefounded.Mr.GilbertwasadmittedtotheMassachusettsBarin1970andpracticedlawatGoodwinProcter&HoarinBoston,Massachusetts.HewasanassociateincorporatefinanceatMorganStanley&Co.from1972to1976,aVicePresidentatWertheim&Co.,Inc.from1976to1978andaManagingDirectoratE.F.HuttonInternationalfrom1978to1980.Mr.GilbertwasrecentlyChairmanoftheBoardofDuraAutomotiveSystems,Inc.,ChairmanofCPMHoldings,TrueTemperSportsandaDirectorofJ.O.HambroCapitalManagementGroupandtheAsianInfrastructureFund.Previously,Mr.GilberthasbeenaDirectorofnumerouscompanies,includingMontpelierRe,OlympusTrust,OfficeDepot,Inc.,
-12-
Funk&Wagnalls,Inc.,ParkerPenLimited,PigglyWigglySouthern,Inc.,CoastCommunityNews,Inc.,GTS-Duratek,MagnavoxElectronicSystemsCompany,UroMedCorporation,StarCityCasinoHoldings,Ltd.,KatzMediaCorporation,AirportGroupInternational,BataviaInvestmentManagement,Ltd.,AffinityFinancialGroup,Inc.,ESATTelecom,Ltd.,ColepHolding,Ltd.,NFOWorldwide,TerraNova(Bermuda)Holdings,LimitedandVeritas-DCG.Hewastheprincipalowner,ChairmanandChiefExecutiveOfficerofLion'sGateFilmsfrom1980to1984.Mr.GilbertisamemberoftheCouncilonForeignRelationsandtheGlobalAgendaCouncilonCapitalFlowsoftheWorldEconomicForumandamemberoftheBoardofGovernorsoftheLauderInstitute.Mr.GilbertreceivedhisB.A.fromtheWhartonSchoolattheUniversityofPennsylvania,hisJ.D.fromtheHarvardLawSchoolandhisM.B.A.fromtheHarvardGraduateSchoolofBusiness.Mr.GilbertprovidesourBoardofDirectorswithvastinvestmentmanagementandleadershipexperience,andhispriorandcurrentserviceasadirectorofnumerouspublicly-heldcompaniesallowshimtomakevaluablecontributionstoourBoardofDirectors.
VICKID.McWILLIAMS,61,hasservedasamemberofourBoardofDirectorssinceJuly19,2018.ShehasservedasExecutiveVicePresidentofStoresforWilliams-Sonoma,Inc.(NYSE:WSM),aspecialtyretailerofhigh-qualityproductsforthehome,since2008.Herresponsibilitiesincludeleadingapproximately20,000associatesin620stores,aswellasthecustomercarefunction.Ms.McWilliams’responsibilitiesincludedevelopingretailstrategies,humanresources,profitandloss,margin,customerservice,innovationinserviceofferings,productfeedback,andrealestaterelocationsandremodels.PriortojoiningWilliams-Sonoma,Ms.McWilliamsheldseveralpositionsatNordstrom(NYSE:JWN)duringher29-yeartenurewiththeCompany.From1996to2008,sheservedasExecutiveVicePresident,leadingstoresinNorthernCaliforniaandWashington,D.C.Herresponsibilitiesincludedoverseeingstores,developingretailstrategies,distributioncenters,productdevelopment,annualbudgets,andnetincome.PriortoherEVProle,Ms.McWilliamsheldvariouspositionsatNordstrom,includingleadingthelargeststore,SanFranciscoCentre,andservinginbuyingrolesearlierinhercareer.Ms.McWilliamsreceivedherB.A.inClothingandTextilesfromWashingtonStateUniversity.Ms.McWilliamswashonoredbytheSanFranciscoBoardofSupervisorsin2006forexcellenceinbusinesspartnership,servedontheJuvenileDiabetesSanFranciscoBoardofDirectorsforovertenyears,andhasleadcampaignsforboththeUnitedWayandSt.Jude’s.Mrs.McWilliamsprovidesourBoardofDirectorswithexpertiseinconsumerretailandthenewhomespaceandprovidestheBoardofDirectorswithvaluableinsightsregardingthecustomerexperience.
CONSTANCEB.MOORE,63,hasservedasamemberofourBoardofDirectorssinceJuly7,2014.ShehasservedasadirectorofCiveoCorporation(NYSE:CVEO)sinceJune2014.ShehasservedasadirectorofColumbiaPropertyTrust(NYSE:CXP)sinceNovember2017andasadirectorofStriveCommunities,aprivatecompany,sinceJanuary2019.Ms.MooreservedasaDirectorofBREProperties,Inc.(NYSE:BRE)fromSeptember2002untilBREwasacquiredinApril2014.Ms.MooreservedasPresidentandChiefExecutiveOfficerofBREfromJanuary2005untilApril2014,servedasPresidentandChiefOperatingOfficerfromJanuary2004untilDecember2004andservedasExecutiveVicePresident&ChiefOperatingOfficerfromSeptember2002toDecember2003.Ms.Moorehasmorethan40yearsofexperienceintherealestateindustry.PriortojoiningBREin2002,shewasamanagingdirectorofSecurityCapitalGroup&Affiliates.From1993to2002,Ms.MooreheldseveralexecutivepositionswithSecurityCapitalGroup,includingco-chairmanandchiefoperatingofficerofArchstoneCommunitiesTrust.Ms.MooreholdsanM.B.A.fromtheUniversityofCalifornia,Berkeley,HaasSchoolofBusinessandabachelor'sdegreefromSanJoseStateUniversity.In2009,sheservedaschairoftheNAREIT.Currently,sheisthechairoftheFisherCenterforRealEstateandUrbanEconomicsPolicyAdvisoryBoardatUCBerkeley,aGovernorandaTrusteeoftheUrbanLandInstituteandservesontheBoardoftheUrbanLandInstituteFoundationandtheUrbanLandGlobalBoardofDirectors,servesontheboardofBridgeHousingCorporation,servesontheboardoftheHaasSchoolofBusinessatUCBerkeley,andservesontheboardoftheTowerFoundationatSanJoseStateUniversity.OurBoard
-13-
ofDirectorsbelievesthatMs.Mooreprovidesitwithsignificantleadershipandrealestatemanagementexperience.
THOMASB.ROGERS,79,hasservedasadirectorofourBoardofDirectorssinceJanuary30,2013.UntilhisretirementinJanuary2009,Mr.RogersservedasExecutiveVicePresidentinchargeofCityNationalBank'sSouthernRegion.Inthatposition,heoversawthedeliveryofcommercialbanking,privateclientandwealthmanagementservicestoclientsthroughoutOrangeCounty,thegreaterSanDiegoareaandtheInlandEmpire.BeforejoiningCityNationalBankin2000,Mr.RogersservedforeightyearsasSeniorVicePresidentandTreasurerofTheIrvineCompany.Priortothat,Mr.Rogersspentmorethan25yearswithtwomajorfinancialinstitutions.Specifically,heservedasExecutiveVicePresidentandDivisionAdministratorofSecurityPacificNationalBank'sRealEstateIndustriesGroup,SouthernDivision,andpriortothatwasSeniorVicePresidentandChiefCreditOfficerforSecurityPacific'sCaliforniaCorporateGroup.Hispreviousbankingcareeralsoincluded15yearswiththeNationalBankofDetroitincorporatelendingassignments.Inhisretirement,Mr.RogersservedasChairmanoftheBoardofDirectorsofPlazaBancorpandPlazaBank,untilitssaleonNovember1,2017.HeservesontheBoardofDirectorsofMemorialHealthServices,anotforprofit,fourhospital,integratedhealthcareorganizationheadquarteredinFountainValley,California.Mr.RogersreceivedhisB.A.inBusinessAdministrationfromEasternMichiganUniversity,attendedgraduateschoolatWayneStateUniversityinDetroit,andcompletedthecurriculumoftheGraduateSchoolofBankingattheUniversityofWisconsininMadisonandtheNationalCommercialLendingSchoolattheUniversityofOklahoma.Mr.RogersprovidesourBoardofDirectorswithawealthoffinancialmanagementknowledge,andhisextensiveexecutiveandleadershipexperiencemakeshimavaluablecontributortoourBoardofDirectors.
Qualifications and Characteristics for Directors
OurBoardofDirectorsbelievesthattheBoard,asawhole,shouldpossessacombinationofskills,professionalexperienceanddiversityofbackgroundsnecessarytooverseeourbusiness.Inaddition,ourBoardofDirectorsbelievestherearecertainattributeseverydirectorshouldpossess,includinghighpersonalandprofessionalethicalstandards,practicalwisdom,maturejudgmentandintegrity.OurBoardofDirectorsseeksout,andourBoardofDirectorsiscomprisedof,individualswhosebackgroundandexperiencecomplementthoseofourotherdirectors.Accordingly,ourBoardofDirectorsandtheNominatingandCorporateGovernanceCommitteeconsiderthequalificationsofdirectorsanddirectorcandidatesindividuallyandinthebroadercontextofourBoardofDirectors'overallcompositionandourcurrentandfutureneeds.OurBoardofDirectorsbelievesthateachdirectornomineepossessesthequalitiesandexperiencethatourBoardofDirectorsandtheNominatingandGovernanceCommitteebelieveareimportant,asdescribedinfurtherdetailbelowinthesectionentitled"CorporateGovernance—CommitteesofourBoardofDirectors—NominatingandCorporateGovernanceCommittee."
IndeterminingtonominateMessrs.BurrowsandFulton,ourBoardofDirectorsconsideredtheirpriorserviceasexecutiveofficersofWRECO,withwhichwecompletedamergertransactioninJuly2014,andWRECO'sformerparent,WeyerhaeuserCompany,alargepubliclytradedcompanythatisnotaffiliatedwithTRIPointe.Messrs.BurrowsandFultonceasedservingasexecutiveofficersofWRECOmorethanfiveyearsagoin2010and2008,respectively,andceasedservingasexecutiveofficersofWeyerhaeuserCompanyin2013,theyearbeforetheywereappointedtoourBoardofDirectors.Moreover,followingtheWRECOmergertransaction,theseniormanagementofTRIPointeremainedinplaceandWRECO'sprincipalexecutiveandfinancialofficersdepartedandwerereplacedbyexecutiveofficersofTRIPointe.TheseniorleadersofWRECO'shomebuildingsubsidiariesnowreporttoTRIPointe'sseniorexecutiveteam.Thus,indeterminingtonominateMessrs.BurrowsandFulton,our
-14-
BoardofDirectorsconcludedthatMessrs.BurrowsandFultonhadnosubstantialconnectionstoWRECO'smanagementthatwouldimpacttheirabilitytoexerciseindependentjudgment.OurBoardofDirectorsalsoconcludedthattheirextensiverealestateindustryexperience,whichincludesexperienceinhomebuilding,realestatefinanceanddevelopment,makeMessrs.BurrowsandFultonvaluablecontributorstoourBoardofDirectors.
-15-
CORPORATE GOVERNANCE
Corporate Governance Highlights
ü SeparateindependentChairmanofourBoardofDirectorsandChiefExecutiveOfficer("CEO") ü AlldirectorsareindependentunderNYSEstandards,exceptCEO
ü Audit,CompensationandNominatingandCorporateGovernanceCommitteesareeachcomprisedsolelyofindependentdirectors
ü Annualelectionofdirectors
ü Majorityvotinginuncontesteddirectorelections
ü Directorresignationpolicyrequiringincumbentdirectorswhoarenotre-electedtotenderpromptlyawrittenofferofresignation
ü Stockownershipguidelinesforourdirectorsandexecutiveofficers
ü Policyforrecoupmentofexecutiveofficerincentivebasedcompensationintheeventofcertainrestatementsofourfinancialresults
ü Regularexecutivesessionsofindependentdirectors
Director Independence
OurBoardofDirectorshasdeterminedthatsixofitsdirectors,Mses.McWilliamsandMooreandMessrs.Burrows,Fulton,Gilbert,andRogers,constitutingamajorityofdirectors,satisfythelistingstandardsforindependenceoftheNYSE.
Thenon-managementdirectorsmeetregularlyinexecutivesessionsoutsidethepresenceofmanagement,andMr.Gilbert,asChairmanofourBoardofDirectors,currentlypresidesatallexecutivesessionsofthenon-managementdirectors.
Leadership Structure of our Board of Directors
OurCorporateGovernanceGuidelinesprovidethatourBoardofDirectorsisfreetoselectaChairmaninthemanneritconsiderstobeinourbestinterestandthattherolesofChairmanofourBoardofDirectorsandChiefExecutiveOfficermaybefilledbyasingleindividualortwodifferentpersons.In2014,ourBoardofDirectorsamendedourBylawstoprovidethatthepositionofChairmanofourBoardofDirectorsisnotanofficerposition.ThisprovidesourBoardofDirectorswithflexibilitytodecidewhatleadershipstructureisinourbestinterestsatanypointintime.Currently,twodifferentpersonsserveintheseroles:Mr.GilbertservesasChairmanofourBoardofDirectorsandMr.BauerservesasChiefExecutiveOfficer.Atthistime,ourBoardofDirectorshasdeterminedthathavingMr.GilbertserveasChairmanofourBoardofDirectorsandMr.BauerserveasChiefExecutiveOfficerisinourbestinterest,asitallowsMr.GilberttofocusontheeffectivenessofourBoardofDirectorsandoversightofourseniormanagementteamwhileMr.Bauerfocusesonexecutingourstrategyandmanagingourbusiness.Inthefuture,however,ourBoardofDirectorsmaydeterminethatitisinourbestinteresttohaveasingleindividualserveasbothChairmanofourBoardofDirectorsandChiefExecutiveOfficer.
-16-
Role of our Board of Directors in Risk Oversight
OneofthekeyfunctionsofourBoardofDirectorsisinformedoversightoftheriskmanagementprocess.OurBoardofDirectorsadministersthisoversightfunctiondirectly,withsupportfromthreeofitsstandingcommittees—theAuditCommittee,theCompensationCommittee,andtheNominatingandCorporateGovernanceCommittee,eachofwhichaddressesrisksspecifictoitsrespectiveareasofoversight.ThefullBoardofDirectorsmonitorsrisksthroughregularreportsfromeachofthecommitteechairs,andisapprisedofparticularriskmanagementmattersinconnectionwithitsgeneraloversightandapprovalofcorporatematters.Inconnectionwithitsreviewsofouroperationsandcorporatefunctions,ourBoardofDirectorsaddressestheprimaryrisksassociatedwiththoseoperationsandcorporatefunctions.Inaddition,ourBoardofDirectorsreviewstherisksassociatedwithourbusinessstrategiesperiodicallythroughouttheyearaspartofitsconsiderationofundertakinganysuchbusinessstrategies.
Inconnectionwithitsriskmanagementrole,theAuditCommitteeconsidersanddiscusseswithmanagementourmajorfinancialriskexposuresandthestepsmanagementtakestomonitorandcontroltheseexposures.TheAuditCommitteeoverseesthepoliciesandprocessesrelatingtofinancialstatements,financialreportingprocesses,complianceandauditing,aswellastheguidelines,policiesandprocessesformonitoringandmitigatingrelatedrisks.TheAuditCommitteealsomonitorscompliancewithlegalandregulatoryrequirements,inadditiontooversightoftheperformanceofourinternalauditfunction.TheCompensationCommitteeassessesandmonitorswhetheranyofourcompensationpoliciesandprogramshavethepotentialtoencourageexcessiverisk-takingandreviewsanddiscusses,atleastannually,therelationshipbetweenriskmanagementpoliciesandpractices,businessstrategyandourcompensationpoliciesandprograms.Basedonthisoversightapproach,wedonotbelievethatourpresentemployeecompensationpoliciesandprogramsarelikelytohaveamaterialadverseeffectonus.TheNominatingandCorporateGovernanceCommitteeprovidesoversightwithrespecttocorporategovernanceandethicalconductandmonitorstheeffectivenessofourCorporateGovernanceGuidelines,includingwhethersuchguidelinesaresuccessfulinpreventingillegalorimproperliability-creatingconduct.Inperformingtheirrespectivefunctions,eachcommitteehasfullaccesstomanagement,aswellastheabilitytoengageadvisors.
Itisneitherfeasiblenordesirabletoattempttomonitororeliminateallrisk.Accordingly,wenecessarilyface,andwillcontinuetoface,avarietyofrisksintheconductofourbusinessandtherecanbenoassurancethatourBoardofDirectorsandcommittees'oversightwillbeeffectiveinidentifyingandaddressingallmaterialrisks.TheforegoingdescriptionoftheroleofourBoardofDirectorsinriskoversightdoesnotexpressorimplyanyadditionalorspecialduties,thedutiesofdirectorsbeingonlythoseprescribedbyapplicablelaw,norisitarepresentationastotheexistenceornon-existenceoffactsrelatingtorisksassociatedwithourbusiness.
Meetings of our Board of Directors
OurBoardofDirectorsheldfourmeetingsduringfiscalyear2018.EachmemberofourBoardofDirectorsattended75%ormoreoftheaggregatenumberofmeetingsofourBoardofDirectors,andofthecommitteesonwhichheorshewasserving,heldduringfiscalyear2018.InaccordancewithourCorporateGovernanceGuidelines,weinviteandgenerallyexpectourdirectorstoattendtheannualmeeting.AllofthemembersofourBoardofDirectorsattendedthe2018annualmeetingofstockholders.
-17-
Committees of our Board of Directors
OurBylawspermitourBoardofDirectorstodesignateoneormorecommittees,including(i)anAuditCommittee,(ii)aCompensationCommitteeand(iii)aNominatingandCorporateGovernanceCommittee.Thecurrentmembersofeachofthesecommitteesaresetforthinthefollowingtable:
Name Audit Compensation Nominating and
Corporate GovernanceLawrenceB.Burrows XDanielS.Fulton X X StevenJ.Gilbert X X*VickiD.McWilliams X X ConstanceB.Moore X X* ThomasB.Rogers X* X__________*CommitteeChair
TheAudit,Compensation,andNominatingandCorporateGovernancecommitteeseachhaveawrittencharterthatisavailableonourwebsiteatwww.tripointegroup.comintheCorporateGovernance—GovernanceDocumentssectionoftheInvestorswebpage.WealsohaveanExecutiveLandCommittee,comprisedofMessrs.Burrows,Fulton,andGilbert,whichreviewsandapproveslandacquisitionsordispositionswithapurchasepricegreaterthan$30millionbutlessthan$75million.
Audit Committee . TheAuditCommitteeofourBoardofDirectors,pursuanttoitswrittencharter,oversees,amongothermatters:
• ourfinancialreporting,auditingandinternalcontrolactivities;
• theintegrityandauditsofourfinancialstatements;
• ourcompliancewithlegalandregulatoryrequirements;
• thequalificationsandindependenceofourindependentauditors;
• theperformanceofourinternalauditfunctionandindependentauditors;and
• ouroverallriskexposureandmanagement.
DutiesoftheAuditCommitteealsoincludethefollowing:
• annuallyreviewingandassessingtheadequacyoftheAuditCommitteecharterandtheperformanceoftheAuditCommittee;
• beingresponsiblefortheappointment,retentionandterminationofourindependentauditorsanddeterminingthecompensationofourindependentauditors;
• reviewingwiththeindependentauditorstheplansandresultsoftheauditengagement;
• evaluatingthequalifications,performanceandindependenceofourindependentauditors;
• havingsoleauthoritytoapproveinadvanceallauditandnon-auditservicesbyourindependentauditors,thescopeandtermsthereof,andthefeestherefor;
• reviewingtheadequacyofourinternalaccountingcontrols;
-18-
• periodicallyreviewingwithmanagementourcybersecurityprogram;
• meetingatleastquarterlywithourseniormanagementteam,internalauditstaffandindependentauditorsinseparateexecutivesessions;and
• preparingtheAuditCommitteereportrequiredbySECregulationstobeincludedinourannualproxystatement.
TheAuditCommitteeiscurrentlycomprisedoffourdirectors,Messrs.RogersandFultonandMses.McWilliamsandMoore,eachofwhomisanon-employeeandsatisfiestheindependencerequirementsundertheapplicablelistingstandardsoftheNYSEandtheapplicablerulesoftheSEC,andotherwisesatisfiestheapplicablerequirementsforauditcommitteeserviceimposedbytheExchangeAct,theNYSE,aswellasanyotherapplicablelegalorregulatoryrequirements.OurBoardofDirectors,initsbusinessjudgment,hasdeterminedthateachofthesemembersis"financiallyliterate"undertherulesoftheNYSE.Mr.RogersservesastheChairpersonoftheAuditCommittee.OurBoardofDirectorshasdesignatedMr.RogersastheAuditCommittee"financialexpert,"asthattermisdefinedbytheSEC.TheAuditCommitteemetfourtimesduringfiscalyear2018.
Compensation Committee . TheCompensationCommitteeofourBoardofDirectors,pursuanttoitswrittencharter,hasthefollowingresponsibilities,amongothers:
• assistsourBoardofDirectorsindevelopingandevaluatingpotentialcandidatesforexecutiveofficerpositionsandoverseeingthedevelopmentofexecutivesuccessionplans;
• administers,reviewsandmakesrecommendationstoourBoardofDirectorsregardingourcompensationplans;
• annuallyreviewsandapprovesourcorporategoalsandobjectiveswithrespecttocompensationforexecutiveofficersand,atleastannually,evaluateseachexecutiveofficer'sperformanceinlightofsuchgoalsandobjectivestoseteachexecutiveofficer'sannualcompensation,includingsalary,bonusandequityandnon-equityincentivecompensation,subjecttoapprovalbyourBoardofDirectors;
• providesoversightofmanagement'sdecisionsregardingtheperformance,evaluationandcompensationofotherofficers;
• reviewsourincentivecompensationarrangementstoconfirmthatincentivepaydoesnotencourageunnecessaryrisk-takingandreviewsanddiscusses,atleastannually,therelationshipbetweenriskmanagementpoliciesandpractices,businessstrategyandourexecutiveofficers'compensation;
• assistsmanagementincomplyingwithourproxystatementandannualreportdisclosurerequirements;
• discusseswithmanagementthecompensationdiscussionandanalysisrequiredbySECregulations;and
• preparesareportonexecutivecompensationtobeincludedinourannualproxystatement.
TheCompensationCommitteemayform,anddelegateauthorityto,subcommitteeswhenitdeemsappropriatetotheextentpermittedunderapplicablelaw.Inaddition,theCompensationCommitteemaydelegatesomeorallofitsauthorityunderour2013Long-TermIncentivePlan(the"2013LTIP")toourBoardofDirectorsor,subjecttoapplicablelaw,toourChiefExecutiveOfficerorsuch
-19-
otherexecutiveofficerastheCompensationCommitteedeemsappropriate;provided,thattheCompensationCommitteemaynotdelegateitsauthorityunderthe2013LTIPtoourChiefExecutiveOfficeroranyotherofficerwithregardtotheselectionforparticipationinthe2013LTIPofanexecutiveofficer,director,orotherpersonsubjecttoSection16oftheExchangeActordecisionsconcerningthetiming,price,oramountofanawardtosuchanofficer,director,orotherperson.
TheCompensationCommitteeiscurrentlycomprisedoffourdirectors,Mses.McWilliamsandMooreandMessrs.FultonandGilbert,eachofwhomisanon-employeeand(i)satisfiestheindependencerequirementsundertheapplicablelistingstandardsoftheNYSEandtheapplicablerulesoftheSEC,(ii)otherwisesatisfiestheapplicablerequirementsforcompensationcommitteeserviceimposedbytheExchangeActandtheNYSE,(iii)meetstherequirementsfora"non-employeedirector"containedinRule16b‑3undertheExchangeAct,and(iv)meetstherequirementsforan"outsidedirector"forthepurposesofSection162(m)oftheInternalRevenueCode(beforeenactmentoftheTaxCutsandJobsAct),aswellasanyotherapplicablelegalorregulatoryrequirements.
OurChiefExecutiveOfficer,President,ChiefFinancialOfficer,andChiefHumanResourcesOfficerdonotparticipateintheCompensationCommittee'sdeliberationsconcerningtheirowncompensationorthecompensationofdirectors.However,theymeetwiththeCompensationCommitteeandprovideinputregardingtheamountandformofthecompensationofourexecutiveofficersandkeyemployees.NootherexecutiveofficersparticipateintheCompensationCommittee'sdeliberationsoftheamountorformofthecompensationofexecutiveofficersordirectors.
TheCompensationCommitteehastheauthoritytoretainandterminateanycompensationconsultanttobeusedtoassistintheevaluationofexecutiveofficercompensation.TheCompensationCommitteehasengagedSemlerBrossyConsultingGroup,LLC("SemlerBrossy")asitsindependentcompensationconsultant.ThecompensationconsultantprovidestheCompensationCommitteewithdataaboutthecompensationpracticesandlevelsofapeergroupofcompaniesandothercompaniesthatmaycompetewithusforexecutivesanddevelopsrecommendationsforstructuringourcompensationprograms.Thecompensationconsultantisretainedby,andreportsdirectlyto,theCompensationCommitteeanddoesnotprovideanyservicesdirectlytousorourmanagement.TheCompensationCommitteemetthreetimesduringthefiscalyear2018.
Compensation Committee Interlocks and Insider Participation. NomemberoftheCompensationCommitteeis,orhasbeenatanytime,ourofficeroremployee,norhasanymemberhadanyrelationshipwithusrequiringdisclosureunderItem404ofRegulationS-K.Noneofourexecutiveofficerscurrentlyserves,orinthepastyearhasserved,asamemberoftheboardofdirectorsorcompensationcommitteeofanyentitythathasoneormoreexecutiveofficersservingonourBoardofDirectorsorCompensationCommittee.
Nominating and Corporate Governance Committee. TheNominatingandCorporateGovernanceCommitteeofourBoardofDirectors,pursuanttoitswrittencharter,hasthefollowingresponsibilities,amongothers:
• identifiesindividualsqualifiedtobecomemembersofourBoardofDirectorsandensuresthatourBoardofDirectorshastherequisiteexpertiseanditsmembershipconsistsofpersonswithsufficientlydiverseandindependentbackgrounds;
• develops,andrecommendstoourBoardofDirectorsforitsapproval,qualificationsfordirectorcandidatesandperiodicallyreviewsthesequalificationswithourBoardofDirectors;
-20-
• reviewsthecommitteestructureofourBoardofDirectorsandrecommendsdirectorstoserveasmembersorchairsofeachcommitteeofourBoardofDirectors;
• reviewsandrecommendscommitteeslatesannuallyandrecommendsadditionalcommitteememberstofillvacanciesasneeded;
• developsandrecommendstoourBoardofDirectorsasetofcorporategovernanceguidelinesapplicabletousand,atleastannually,reviewssuchguidelinesandrecommendschangestoourBoardofDirectorsforapprovalasnecessary;and
• overseestheannualself-evaluationsofourBoardofDirectorsandmanagement.
TheNominatingandCorporateGovernanceCommitteeiscurrentlycomprisedofthreedirectors,Messrs.Gilbert,BurrowsandRogers,eachofwhomisanon-employeeandsatisfiestheindependence-relatedrequirementsoftheNYSEaswellasanyotherapplicablelegalorregulatoryrequirements.TheNominatingandCorporateGovernanceCommitteemetonceduringfiscalyear2018.
InevaluatingcandidatesfornominationtoourBoardofDirectors,theNominatingandCorporateGovernanceCommitteetakesintoaccounttheapplicablerequirementsfordirectorsundertheExchangeActandthelistingstandardsoftheNYSE.TheNominatingandCorporateGovernanceCommitteemaytakeintoconsiderationsuchotherfactorsandcriteriathatitdeemsappropriateinevaluatingacandidate,includingthecandidate'sjudgment,skill,integrity,diversity,businessorotherexperience,timeavailabilityinlightofothercommitments,andconflictsofinterest.TheNominatingandCorporateGovernanceCommitteemay(butisnotrequiredto)considercandidatessuggestedbymanagementorothermembersofourBoardofDirectors.AlthoughtheNominatingandCorporateGovernanceCommitteedoesnothaveaformalpolicyondiversitywithregardtoitsconsiderationofdirectornominees,itconsidersdiversityinitsselectionprocessandseekstonominatecandidatesthathaveadiverserangeofviews,backgrounds,leadership,andbusinessexperience.
Policy Regarding Stockholder Recommendations
Weidentifynewdirectorcandidatesthroughavarietyofsources.AlthoughtheNominatingandCorporateGovernanceCommitteedoesnothaveaformalpolicyregardingconsiderationofdirectorcandidatesrecommendedbystockholders,ourCorporateGovernanceGuidelinesprovidethat,whenformulatingitsdirectornominationrecommendations,theNominatingandCorporateGovernanceCommitteewillconsidercandidatesrecommendedbystockholdersandothers,asitdeemsappropriate.Inconsideringcandidatessubmittedbystockholders,theNominatingandCorporateGovernanceCommitteewilltakeintoconsiderationapplicablelegalandexchangelistingrequirements,theneedsofourBoardofDirectorsandthequalificationsofthecandidate.Stockholdersmayproposedirectornomineesbyadheringtotheadvancenoticeproceduresdescribedinthesectionentitled"StockholderProposalsfor2020AnnualMeeting"inthisproxystatement.TheNominatingandCorporateGovernanceCommitteemayalsoestablishprocedures,fromtimetotime,regardingsubmissionofcandidatesbystockholdersandothers.
Inconsideringdirectorcandidatesforelectionattheannualmeeting,theNominatingandCorporateGovernanceCommitteedidnotconsidernomineesotherthanthesevenincumbentdirectorslistedinProposalNo.1ofthisproxystatement,asnonewcandidateswereproposedandthesevenincumbentdirectorscontinuetoexhibitthequalificationsdescribedabove.
-21-
Code of Business Conduct and Ethics
OurBoardofDirectorshasadoptedtheTRIPointeGroup,Inc.CodeofBusinessConductandEthicsthatappliestoallofficers,directorsandemployees.Additionally,ourBoardofDirectorshasadoptedtheTRIPointeGroup,Inc.CodeofEthicsforSeniorExecutiveandFinancialOfficersthatappliestotheChiefExecutiveOfficer,ChiefFinancialOfficer,andChiefAccountingOfficer(orpersonsperformingsimilarfunctionstotheaforementionedofficers).TheCodeofBusinessConductandEthicsalongwiththeCodeofEthicsforSeniorExecutiveandFinancialOfficersareavailableonourwebsiteatwww.tripointegroup.comintheCorporateGovernance—GovernanceDocumentssectionoftheInvestorswebpage.IfanysubstantiveamendmentstoeithertheCodeofBusinessConductandEthicsortheCodeofEthicsforSeniorExecutiveandFinancialOfficersaremade,oranywaiverfromaprovisionofeitherCodeisgrantedtoanyexecutiveofficerordirector,wewillpromptlydisclosethenatureoftheamendmentorwaiveronourwebsite.Wehaveadoptedthesecodesasguidesforfutureconductandtheyshouldnotbeconsideredtoconstituterepresentationsastopastcompliance.
Corporate Governance Guidelines
OurCorporateGovernanceGuidelinesareavailableonourwebsiteatwww.tripointegroup.comintheCorporateGovernance—GovernanceDocumentssectionoftheInvestorswebpage.
Stockholder Communications with our Board of Directors
OurstockholdersandotherinterestedpersonswhowanttocommunicatedirectlywithourBoardofDirectorsasagroup,theChairmanofourBoardofDirectors,thenon-managementdirectorsasagroup,oranyindividualdirectormaydosobydeliveringsuchcommunicationincareofourCorporateSecretaryat:TRIPointeGroup,Inc.,PresidingDirectororNon-ManagementDirectorsc/oCorporateSecretary,19540JamboreeRoad,Suite300,Irvine,California92612.
Allcommunicationsmustbeaccompaniedbythefollowinginformation:
• ifthepersonsubmittingthecommunicationisastockholder,astatementofthenumberofsharesofourcommonstockthatthepersonholds;
• ifthepersonsubmittingthecommunicationisnotastockholder,thenatureoftheperson'sinterestinus;
• anyspecialinterest,meaninganinterestnotinthecapacityasastockholder,ofthepersoninthesubjectmatterofthecommunication;and
• theaddress,telephonenumberande-mailaddress,ifany,ofthepersonsubmittingthecommunication.
Communicationsreceivedinwritingareforwardedto(i)ourBoardofDirectors,(ii)thenon-managementdirectorsasagroup,or(iii)anyindividualdirectortowhomthecommunicationisdirected.However,thefollowingcommunicationswillnotbeforwarded:anythreatening,incoherent,obscene,defamatoryorsimilarlyinappropriatecommunication;anycommunicationthatinvolvesanordinarybusinessmatter(suchasajobinquiry,abusinessaccountortransaction,arequestforinformationaboutus,formletters,spam,invitationsandotherformsofmassmailings);surveys;andanycommunicationthatdoesnotrelatetomattersrelevanttousorourbusiness,unlessrequestedbyadirectororatmanagement'sdiscretion.AteachmeetingofourBoardofDirectors,asummaryofallsuchcommunicationsreceivedsincethelastmeetingthatwerenotforwardedwillbepresentedandthosecommunicationsareavailabletodirectorsonrequest.
-22-
COMPENSATION DISCUSSION AND ANALYSIS
InthisCompensationDiscussionandAnalysis,wedescribeourcompensationpractices,programs,anddecisionsforournamedexecutiveofficers("NEOs"),whowereasfollowsfor2018:
• DouglasF.Bauer,CEO
• ThomasJ.Mitchell,PresidentandChiefOperatingOfficer("COO")
• MichaelD.Grubbs,ChiefFinancialOfficer("CFO")andTreasurer
• DavidC.Lee,VicePresident,GeneralCounselandSecretary
• GlennJ.Keeler,VicePresidentandChiefAccountingOfficer
Formoreinformationregardingourcurrentexecutiveofficers,see"Management."
Introduction and Compensation Philosophy
Wedesignourcompensationprogramstoachievethefollowingkeyobjectives:
• aligntheinterestsofourexecutiveofficerswiththoseofourstockholders;
• motivateexecutiveofficerstogrowlong-termstockholdervalue;
• reinforceourpayforperformanceculturebyaligningthecompensationrealizedbyourexecutiveofficerswiththeachievementofcompanygoals;
• providetotalcompensationopportunitiesthatallowustoattract,retainandmotivatetalentedexecutiveofficers;and
• promotedesiredbehaviorthroughincentivecompensationwithoutencouragingimprudentrisk-taking.
Outlinedbelowarethetoolsweusetoobtaintheseobjectives:
Link Pay to Performance :Welinkasignificantportionofexecutiveofficercompensationtoperformance.Onaverage,morethanone-halfof2018NEOtotalcompensationwasperformance-basedandwastiedtoseveralfinancialperformancemetrics.
Balance Performance Considerations :Weutilizeshort-termandlong-termperformanceawardstomotivateperformancewhilemitigatingincentivesforunduerisk-taking.
Short-TermPerformance.In2018,wegrantedcashincentiveawardswithpayoutsbasedonachievementofpre-taxincomeobjectivesfortheyear.
Long-TermPerformance.In2018,wegrantedequityawardsintheformofrestrictedstockunits("RSUs")tomotivatelong-termperformance,aligntheinterestsofourexecutiveofficerswiththoseofourstockholders,andencourageretention.Onaverage,morethanone-halfof2018NEOtotalcompensationwasequitybased.InthecaseofMessrs.Bauer,Mitchell,andGrubbs,60%oftheRSUsgrantedin2018(attargetperformance)wereperformance-basedand40%weretime-based.TheRSUsawardedtoMessrs.LeeandKeelerwere100%time-based.
-23-
Maintain Rigorous Stock Ownership Guidelines :Ourminimumstockownershipguidelinesencourageownershipandfurtheraligntheinterestsofourexecutiveofficerswiththoseofourstockholders.
Thesepaypracticesarediscussedinmoredetailunder"—2018NEOCompensationDecisions"below.
Other Compensation and Governance Practices
What We Do
ü Independent Consultant: OurCompensationCommitteeengagesanindependentcompensationconsultantthatdoesnotprovideanyotherservicestous.
ü Independent Chairman of the Board of Directors: WeseparatetherolesofChairmanoftheBoardofDirectorsandChiefExecutiveOfficer.ThisseparationallowstheChairmantofocusontheeffectivenessofourBoardofDirectorsandoversightofourseniormanagementwhileourCEOfocusesonexecutingourstrategyandmanagingourbusiness.
ü Prohibition on Hedging: Weprohibitalldirectors,officersandemployeesfromengagingintransactionsthathavetheeffectofhedgingtheeconomicvalueoftheirinterestsinourcommonequity.
ü Clawback Policy: Wehaveapolicythatprovidesforrecoupmentofincentivecompensationintheeventofanaccountingrestatementandmisconductofanexecutiveofficer.
ü Equity Grant Time Policy: Wehaveadoptedapolicyregardingthetimingofequityawards.
What We Do Not Do
û Provide Tax Gross Ups on Change in Control Benefits.û Provide Excessive Executive Perquisites.û Provide Tax Gross Ups on Perquisites or Benefits.û Guarantee Base Salary Increases or Incentive Payments for Executives.û Allow for Re-Pricing of Underwater Stock Options without Stockholder Approval.
Compensation Decision-Making Process
Role of the Compensation Committee
TheCompensationCommitteeisresponsibleforreviewingandapproving,onanannualbasis,thecorporategoalsandobjectiveswithrespecttothecompensationofallofourexecutiveofficers,asdescribedintheCompensationCommitteeCharter.TheCompensationCommitteereliesonitsownreviewandtheadviceofitsindependentcompensationconsultantinestablishingexecutiveofficerpay.TheCompensationCommitteeseekstheinputoftheCEOinmakingexecutiveofficerpaydecisions,buttheCompensationCommitteemakesalldecisions.
-24-
InFebruary2018,theCompensationCommitteeapproved,subjecttotheapprovalofourBoardofDirectors,annualincentiveperformanceobjectivesforfiscalyear2018andlong-termincentiveawardstoourNEOsunderour2013LTIP.Afterthecompletionoffiscalyear2018,theCompensationCommitteerecommendedandourBoardofDirectors(i)approved2018annualincentivepayoutsforourNEOsbasedontheachievementoftheperformanceobjectivesestablishedatthebeginningoftheyear,and(ii)determinedachievementofperformanceobjectiveswithrespecttothelong-termincentiveawardsgrantedtoMessrs.Bauer,Mitchell,andGrubbsin2016thathadaperformanceperiodendingDecember31,2018.Adescriptionofthesepayoutscanbefoundunder"—2018NEOCompensationDecisions"below.InFebruary2019,theCompensationCommitteerecommendedandourBoardofDirectorsapprovedannualincentiveperformanceobjectivesforfiscalyear2019andlong-termincentiveawardstoourexecutiveofficersunderour2013LTIP.
Independent Compensation Consultant to the Compensation Committee
TheCompensationCommitteehasengagedSemlerBrossyasitsindependentcompensationconsultant.SemlerBrossy'sdutiesincludepreparationofmaterialfortheCompensationCommittee'sexecutiveofficerpayanalysis,reviewofourpeergroup,recommendationsfornon-employeedirectorcompensation,discussionandanalysisofpotentialincentiveprograms,reviewandanalysisofexecutiveofficeremploymentagreements,andworkonbehalfoftheCompensationCommitteetoreviewmanagement'srecommendationstotheCompensationCommitteeaboutexecutiveofficerpaymatters.SemlerBrossyhasbeenretainedby,andreportsdirectlyto,theCompensationCommittee,anddoesnotprovideanyservicestousotherthanthosedescribedabove.TheCompensationCommitteehasassessedSemlerBrossy'sindependenceinlightoftheSECrequirementsandNYSElistingstandardsrelatingtoadviserindependenceanddeterminedthatSemlerBrossy'sworkdoesnotraiseanyconflictofinterestorindependenceconcerns.
Peer Group and Market Data
TheCompensationCommitteeexaminesmarketdataannuallytounderstandbothpaylevelsandpaypractices.TheCompensationCommitteeprimarilyreviewsdatafromapeergroupthatconsistsofpublicly-tradedhomebuildingcompanies,whichtheCompensationCommitteebelievesisanappropriatelistofcompetitorsforbusinessandtalent.TheCompensationCommitteeusespeergroupdatatoassessthereasonablenessofexecutiveofficerpayandgenerallyseekstoensuretheaggregatecompensationfortheexecutiveofficersiscomparableovertimetocompaniessimilartous.ForMessrs.LeeandKeeler,theCompensationCommitteereviewspaydatafromcompensationsurveysforbothhomebuildersandnon-homebuilderswhenassessingpaydecisions.
Overtime,theCompensationCommitteeintendstotargetaggregatepayforourexecutiveofficersaroundthemedianofourpeers.TheCompensationCommitteedoesnothaveanexplicitpaypositioningstrategyrelativetopeersbycomponentofpayorbyexecutive,andourpaylevelsforMessrs.BauerandMitchellareintentionallylessdifferentiatedthanwouldbeexpectedinthemarketgivenourlegacyasaprivatecompanyandthegreatersharingofmanagementresponsibilitiesbetweentheseexecutivesthanwouldbethecaseatmanyotherpeercompanies.
TheCompensationCommittee,inconsultationwithSemlerBrossyandourmanagement,periodicallyreviewsandconsiderschangestothemakeupofourpeergroup.Thecompaniesinour2018peergroupareshowninthetablebelow.Asfurtherdiscussedbelow,theCompensationCommitteealsobasedvestingofone-halfoftheperformance-basedRSUsgrantedtoMessrs.Bauer,Mitchell,andGrubbsin2018onourtotalstockholderreturn("TSR")relativetoourpeergroup.
-25-
Our Peer GroupBeazerHomesUSA M/IHomesD.R.Horton MeritageHomesHovnanianEnterprises NVRKBHome PulteGroupLennar TaylorMorrisonM.D.C.Holdings TollBrothers
For2018,theCompensationCommitteeeliminatedD.R.HortonandLennarfromourpeergroupforaggregatepaybenchmarkingpurposes,althoughbothD.R.HortonandLennarremainedinourpeergroupforpurposesofmeasuringourrelativeTSR.D.R.HortonandLennarwereremovedforbenchmarkingpurposesbecausetheannualrevenueofeachcompanywasgreaterthanfivetimestheannualrevenueofTRIPointe.Asaresult,theCompensationCommitteedeterminedbothtobeoutliersforpaycomparisonpurposes.
Advisory Vote on Executive Compensation
Atour2014AnnualMeetingofStockholders,ourstockholdersvotedonanadvisorybasiswithrespecttothefrequencyoffutureadvisoryvotestoapprovethecompensationofourNEOs.Approximately66.4%ofthevotescastonthisproposalwerecastforafrequencyofeverythreeyears.OurBoardofDirectorsconcludedthatavoteeverythreeyearswasthemostappropriatetimeframeforstockholderstoassessourexecutiveofficerpaypracticesbecausethesepracticescontinuetoevolveandchangewiththetransformationoftheCompany,andthesechangeswilltakeplaceoveratimeframelongerthanasingleyear.
Atour2017AnnualMeetingofStockholders,ourstockholdersvotedtoapproveonanadvisorybasisthecompensationofourNEOs.Morethan97.5%ofthevotescastwithrespecttothisproposalwerecastforapprovalofourNEOs'compensation.TheCompensationCommitteedeterminedthattheexecutivecompensationphilosophyandcompensationelementscontinuedtobeappropriate.Althoughwecontinuetorefineourcompensationprogramsasapubliccompany,wehavenotmadeanychangespecificallyinresponsetotheadvisoryvoteofourstockholders.
Pay Design and Compensation Elements
Ourcompensationprogramsarecomprisedofthefollowingcompensationelements:
• Base salary. Thebasesalariesofourexecutiveofficersareintendedtoprovideacompetitiveleveloffixedcompensationinordertoattract,retain,andmotivatetalentedexecutiveofficers.Basesalariesaregenerallysetbasedoneachexecutiveofficer’sresponsibilities,performance,skills,andexperienceascomparedwithrelevantmarketdata.
• Annual Incentive Program. Infurtheranceofourcompensationphilosophytoawardincentivebonusesbasedonperformance,wedesignourannualincentiveprogramstomotivateandrewardexecutiveofficersforachievingpre-establishedcompanyfinancialperformanceobjectives.
• Long-term Incentive Awards. TheCompensationCommitteebelievesthatasubstantialportionofeachexecutiveofficer'scompensationshouldbeintheformoflong-termequityincentivecompensation.Whileourannualincentiveprogramsrewardexecutiveofficersforactionsthatimpactshort-andmid-termperformance,theCompensationCommitteerecognizesthatlong-termequityincentiveawardsalsoservetheinterestsofourstockholdersby:
-26-
◦ givingthesekeyemployeestheopportunitytoparticipateinthelong-termappreciationofourcommonstock;
◦ encouragingexecutiveofficerstocreateandsustainstockholdervalueoverlongerperiodsbecausethevalueofequityawardsisdirectlyattributabletochangesinthepriceofourcommonstockovertime;and
◦ promotingexecutiveofficerretentionbecausethefullvalueofequityawardscannotberealizeduntilvestingoccurs,whichgenerallyrequirescontinuedemploymentformultipleyears.
Inaddition,asignificantportionofthelong-termincentiveawardsgrantedtoMessrs.Bauer,Mitchell,andGrubbsareintheformofperformance-basedequityawardslinkedtospecifiedperformancemetrics.
2018 NEO Pay Programs
In2018,theCompensationCommitteecontinuedtheprocessofaligningourpaypracticeswithotherlargehomebuilders.
Thegraphsbelowillustratetherelativeaveragemixofthe(i)basesalary,(ii)annualincentivetarget,and(iii)long-termincentiveawardtargetforMessrs.Bauer,Mitchell,andGrubbsandallotherNEOsfor2018.TheincentivemixforMessrs.Bauer,Mitchell,andGrubbswasmoresubstantiallyperformance-based,recognizingthehigherlevelofresponsibilityoftheseNEOsandtheirgreaterabilitytoinfluenceoverallbusinessresults.
-27-
Thetablebelowsummarizesthethreeelementsof2018compensationforourNEOs.Inadditiontothesecompensationelements,ourNEOsparticipateinbenefitsandotherprogramsasdescribedin"—OtherCompensationProgramsandPolicies."
-28-
Pay Element Purpose 2018 Description Base Salary
Provideacompetitiveleveloffixedcompensationtoattract,retainandmotivatetalentedexecutiveofficers
TheCompensationCommitteereviewedfixedcashcompensationlevelsandmadeadjustmentsdependingontheexecutiveofficer’sresponsibilities,performance,skills,andexperienceascomparedtorelevantmarketdata.
Annual CashIncentive
Motivateandrewardexecutiveofficersforachievingpre-establishedcompanyperformancegoals
TheCompensationCommitteeapprovedcashperformanceawardsforourNEOsunderthe2013LTIPwithaperformanceperiodofJanuary1,2018toDecember31,2018.ActualpayoutamountswerebasedontheCompany'slevelofachievementofthe2018fiscalyearadjustedpre-taxincomeannualincentiveperformanceobjective(equaltotheCompany'sbusinessplan)establishedbytheCompensationCommittee.
Long-term Incentive
Motivateandrewardexecutiveofficers'contributionstoenhancinglong-termstockholdervalueandtheachievementoflong-termbusinessobjectives;encourageexecutiveretention
Messrs.Bauer,Mitchell,andGrubbsweregrantedamixofperformance-basedandtime-basedRSUs,with60%oftheawardsintheformofperformance-basedRSUs(attargetperformance)and40%oftheawardsintheformoftime-basedRSUs.Thismixofperformance-basedandtime-basedincentivesisconsistentwithourpeersandbalancesperformanceandretentionobjectives.Theperformance-basedRSUshaveaperformanceperiodfromJanuary1,2018toDecember31,2020andareallocatedinequalpartstotwoseparateperformancemetrics:(i)TSR,withvestingbasedonourTSRrelativetoourpeer-group;and(ii)earningspershare("EPS").TheCompensationCommitteebelievestheseperformancemetricsrewardappropriatelyforCompanyperformanceovertimeandaligntheexecutive'sinterestswiththoseofourstockholders.Thelong-termincentiveawardsforMessrs.LeeandKeelerwere100%time-basedRSUs.TheawardvaluesforMessrs.LeeandKeelerareintendedtoreflecttheirindividualperformance,contributions,responsibilities,skills,andexperience.
2018 NEO Compensation Decisions
Inevaluating2018NEOcompensationdecisionsandmakingitsrecommendationtoourBoardofDirectors,theCompensationCommitteeconsideredmedianexecutivepayforthetopthreeexecutivesatotherpublicly-tradedhomebuildingcompanies(see"—PeerGroupandMarketData"above)butdidnottargetanyspecificpercentileofmarketwhenmakingindividualpaydecisions.PayforourCEOandCOOcontinuestobelessdifferentiatedthanistypicalofotherlargehomebuildersgivenourlegacyasaprivatecompanyandthenatureofthesharedmanagementresponsibilitiesofMessrs.BauerandMitchell.
Base Salary
BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorsapproved2018basesalaryincreasesforcertainofourNEOs.TheCompensationCommitteeandourBoardofDirectorsconsideredeachoftheNEO'sresponsibilities,performance,skillsandexperienceascomparedwithrelevantpeergroupmarketdataindeterminingtoincreasetheirbasesalaries.TheCompensationCommitteetooktherecommendationsofMr.BauerintoconsiderationwhendeterminingthecompensationofMessrs.LeeandKeeler.
-29-
ThetablebelowcomparestheNEOs'basesalariesfor2018and2017.
Executive 2018
Base Salary 2017
Base Salary %
Increase
DouglasF.Bauer $ 800,000 $ 775,000 3%ThomasJ.Mitchell $ 770,000 $ 745,000 3%MichaelD.Grubbs $ 600,000 $ 600,000 0%DavidC.Lee $ 500,000 —(1) —(1)
GlennJ.Keeler $ 290,000 $ 280,000 4%__________
(1) Mr.LeebecameanexecutiveofficeroftheCompanyinJanuary2018inconnectionwithhisappointmentasVicePresident,GeneralCounselandSecretary.
Annual Cash Incentive
Atthebeginningof2018,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsapprovedannualincentivetargetsforourNEOs.TheseannualincentivetargetsweredefinedasapercentageoftheirbasesalariesandweredeterminedbasedoneachNEO'sresponsibilities,skills,andexperienceascomparedwithrelevantmarketdata.The2018annualincentivetargetsforMessrs.Bauer,Mitchell,andGrubbswereincreasedaspartofourtransitiontomarket-basedpracticesandreflectedarebalancingbetweenshort-termandlong-termincentivesdesignedtobringthemixofpaymoreintolinewithpeerpractices.
ThetablebelowcomparestheNEOs'2018and2017annualincentivetargets:
2018 Annual Incentive Target 2017 Annual Incentive TargetExecutive % of Salary $ % of Salary $
DouglasF.Bauer 160% $ 1,280,000 140% $ 1,085,000ThomasJ.Mitchell 160% $ 1,232,000 140% $ 1,043,000MichaelD.Grubbs 125% $ 750,000 120% $ 720,000DavidC.Lee 25% $ 125,000 —(1) —(1)
GlennJ.Keeler 75% $ 217,500 75% $ 210,000__________(1) Mr.LeebecameanexecutiveofficeroftheCompanyinJanuary2018inconnectionwithhisappointmentasVicePresident,GeneralCounseland
Secretary.
For2018,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsestablishedpre-taxincomeastheperformancemetricforcashperformanceawardstoallNEOs.Pre-taxincomeisacommonmetricusedwithinthehomebuildingindustryingeneralandtheCompensationCommitteeandourBoardofDirectorsbelieveitiswellalignedwiththeobjectiveofstockholdervaluecreation.
For2018,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsapprovedanadjustedpre-taxincomeannualincentiveperformanceobjectiveof$357.4million,whichwasequaltoourbusinessplan.Adjustedpre-taxincomemeansourincomefromcontinuingoperationsbeforetaxes,asreportedinourconsolidatedfinancialstatementsfortherelevantperiods,aftersuchadjustmentstheretoastheCompensationCommitteerecommendsandourBoardofDirectorsdeemsappropriateinitssolediscretion(i)toexcludetheeffectofextraordinary,unusualand/ornonrecurringitems,includingnetincomeattributabletonon-controllinginterests,andchangesinapplicableaccounting
-30-
standardsand(ii)toreflectsuchotherfactorsastheCompensationCommitteeandourBoardofDirectorsdeemappropriatetofairlyreflectpre-taxincome.PayoutswerebasedonourlevelofachievementofthisperformanceobjectiveandwerecalculatedbasedonpercentagesofeachNEO'sannualincentivetarget,assetforthinthetablebelow:
Performance ObjectiveAchievement Level % of Business Plan
NEO Payout(as % of 2018 Annual Incentive
Target)BelowThreshold Below75% 0%
Threshold 75% 50%
Target 100% 100%
Maximum 125% 200%
Achievementbetweenthethreshold,target,andmaximumlevelswouldbedeterminedbystraightlineinterpolationandachievementbelowthresholdwouldresultinzeroincentivepayoutfortheNEO.
TheCompany'spre-taxincomeforfiscalyear2018wasapproximately$362.1million,andbasedontheCompensationCommittee'sdetermination,ourBoardofDirectorscertifiedthatouradjustedpre-taxincomefor2018wasapproximately$379.3million,or106.1%oftheannualincentiveperformanceobjective.See "—Non-GAAP Measures" below for a reconciliation of adjusted pre-tax income to themost directly comparable GAAP financial measure.
Thetablebelowpresentstheresultsofour2018annualcashincentiveprogramandthecorrespondingpayoutstoeachoftheNEOsbasedontheseresults.
2018 Annual Incentive PayoutAnnual Incentive Based on Pre-tax Income % of Target % of Salary $
DouglasF.Bauer 124.4% 199.2% $ 1,593,600ThomasJ.Mitchell 124.4% 199.2% $ 1,533,840MichaelD.Grubbs 124.4% 155.6% $ 933,750DavidC.Lee 124.4% 31.1% $ 155,625GlennJ.Keeler 124.4% 93.4% $ 270,788
Long-Term Incentives
Atthebeginningof2018,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsdeterminedthetargetvalueofthelong-termincentiveawardsthatwouldbegrantedtoeachoftheNEOsin2018basedontheNEO'sresponsibilities,skills,experienceandcontributions.TheCompensationCommitteeandourBoardofDirectorsalsotookintoconsiderationtherelativemixofcashandequitycompensationrelativetoourpeerswhendeterminingthetargetvalueoflong-termincentives.RecognizingthehigherlevelofresponsibilityofMessrs.Bauer,Mitchell,andGrubbsandtheirgreaterabilitytoinfluenceoverallbusinessresults,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsstructuredthe2018long-termincentiveprogramsothatthesethreeNEOsweregrantedamixofperformance-basedandtime-basedRSUs.Allofthelong-termincentiveawardsgrantedtoMessrs.LeeandKeelerin2018weretime-basedRSUs.
-31-
Thetargetvalueofthelong-termincentiveawardsgrantedtotheNEOsin2018wasasfollows:
2018 Long-term Incentive Award Target Values
Executive Performance- Based
RSUs Time-Based RSUs Total
DouglasF.Bauer $ 1,560,000 $ 1,040,000 $ 2,600,000ThomasJ.Mitchell $ 1,500,000 $ 1,000,000 $ 2,500,000MichaelD.Grubbs $ 720,000 $ 480,000 $ 1,200,000DavidC.Lee $ — $ 50,000 $ 50,000GlennJ.Keeler $ — $ 244,575 $ 244,575
Indeterminingthetargetvalueoflong-termincentiveawardsthatwouldbegrantedin2018,theCompensationCommitteeandourBoardofDirectorsconsideredthevalueofthelong-termincentiveawardsgrantedin2017andthestructureofthe2017long-termincentiveprogram.BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorsmaintainedthetargetvalueofthelong-termincentiveawardsgrantedtoMessrs.Bauer,Mitchell,andGrubbsin2018ascomparedto2017.OurBoardofDirectorsincreasedthetargetvalueoflong-termincentiveawardswithrespecttoMr.KeelerinrecognitionofhisrolesandresponsibilitieswithintheCompany.
BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorsstructuredthe2018long-termincentiveprogramforMessrs.Bauer,Mitchell,andGrubbstobe60%performance-basedRSUs(attargetperformance)and40%time-basedRSUs.Thismixofperformance-basedandtime-basedincentiveawardsisconsistentwithourpeersandbalancesperformanceandretentionobjectives.
Performance-basedRSUs
OurBoardofDirectorsgranted184,179,177,095,and85,005performance-basedRSUstoMessrs.Bauer,Mitchell,andGrubbs,respectively,pursuanttoour2013LTIP.Thenumberofperformance-basedRSUswasdeterminedbymultiplying(i)thequotientof(x)thetargetvalueoftheawardand(y)theclosingmarketpriceoftheCompany'scommonstockonthedateofgrantby(ii)two,representingthemaximumnumberofRSUsthatmayvestassumingourattainmentofthemaximumperformanceobjectivesetbytheCompensationCommittee.BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorsselectedTSRastheperformancemetricforone-halfoftheperformance-basedRSUsgrantedin2018,withvestingoftheRSUsbasedonourTSRrelativetoourpeergroup,whichtheCompensationCommitteeandourBoardofDirectorsbelieverewardsappropriatelyforperformanceovertimeandalignstheexecutive'sinterestswiththoseofourstockholders.TheCompensationCommitteerecommendedandourBoardofDirectorsselectedEPSastheperformancemetricfortheotherone-halfoftheperformance-basedRSUsgrantedin2018inordertofurtheraligntheinterestsoftheNEOswiththoseofourstockholders.
BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorsstructuredtheperformance-basedRSUssothatthevesting,ifatall,oftheseRSUswillbebasedonourpercentageattainmentofspecifiedthreshold,target,andmaximumperformanceobjectiveswithrespecttoeachperformancemetric.Withrespecttotheperformance-basedRSUsallocatedtoeachperformancemetric:
• atthresholdperformance,theNEOwillvestin25%oftheperformance-basedRSUs,representing50%ofthetargetvalueoftheperformance-basedRSUsonthegrantdate;
-32-
• attargetperformance,theNEOwillvestin50%oftheperformance-basedRSUs,representing100%ofthetargetvalueoftheperformance-basedRSUsonthegrantdate;
• atmaximumperformance,theNEOwillvestin100%oftheperformance-basedRSUs,representing200%ofthetargetvalueoftheperformance-basedRSUsonthegrantdate;
• thepercentageoftheperformance-basedRSUsthatwillvestifourperformanceisbetweenthethreshold,target,andmaximumperformancelevelswillbedeterminedbystraightlineinterpolation;and
• achievementbelowthresholdwouldresultinvestingofzerooftheperformance-basedRSUs.
InthecaseoftheTSRperformance-basedRSUs,theperformanceobjectivesareassetforthinthetablebelow(TSRpercentilemeansourpercentilerankduringtheperformanceperiodrelativetotheTSRforourpeergroup):
Performance Level The Company’s TSR Percentile on Vesting Date Percentage of Award that VestsMaximum 75thTSRPercentileandAbove 100%Target 50thTSRPercentile 50%Threshold 35thTSRPercentile 25%BelowThreshold Below35thTSRPercentile 0%
InthecaseoftheEPSperformance-basedRSUs,theperformanceobjectivesareassetforthinthetablebelow:
Performance Level The Company’s Cumulative EPS Percentage of Award that VestsMaximum 125%ofCumulativeEPSPlanandAbove 100%Target 100%ofCumulativeEPSPlan 50%Threshold 75%ofCumulativeEPSPlan 25%BelowThreshold Below75%ofCumulativeEPSPlan 0%
Theperformanceperiodfortheperformance-basedRSUsisJanuary1,2018toDecember31,2020.Iftheperformance-basedRSUsdonotvestonorbeforeDecember31,2020,theywillbecancelledandforfeitedfornoconsideration.TSRisdeterminedbasedonchangesinstockpriceplusdividendspaidduringtheapplicableperformanceperiod.OurBoardofDirectorsmaymakeadjustmentstoourpeergroupbasedondevelopmentsthatoccurduringtheperformanceperiod,suchasremovingfromthepeergroup,retroactivelytothebeginningoftheperformanceperiod,anycompanynolongerexistingasanindependententityorwhichhasannounceditisbeingacquired.
InthecaseoftheEPSperformance-basedRSUs,ourBoardofDirectorsmayadjustEPSasitdeemsappropriateto(i)excludetheeffectofextraordinary,unusual,and/ornonrecurringitemsandchangesinapplicableaccountingstandardsand(ii)reflectsuchotherfactorsasitdeemsappropriatetofairlyreflectearningspersharegrowth.
TheCompensationCommitteeandourBoardofDirectorsbelieveexceptionalCompanyperformanceisrequiredtoachievethemaximumperformanceobjectiveandthatitwouldbedifficulttoachievemaximumvestingoftheperformance-basedRSUs.Thedifficultyofattainingtheperformanceobjectivesfortheperformance-basedRSUsisinherentlyuncertainbecausetheyaresubjecttoanumber
-33-
offactorsbeyondthecontrolofeithertheCompanyortheNEO,includingoveralleconomicconditions,theperformanceofthesecuritiesmarketsgenerally,andotherrisksanduncertaintiesthatweface,includingthosedescribedinourannualreportonForm10‑KandotherSECfilings.
Time-basedRSUs
OurBoardofDirectorsalsogranted61,393,59,031,28,335,2,951,and14,437time-basedRSUstoMessrs.Bauer,Mitchell,Grubbs,Lee,andKeeler,respectively,vestingone-thirdeachyearbeginningonthefirstanniversary.Thenumberoftime-basedRSUsgrantedtoeachNEOwasdeterminedbydividingthetargetvalueoftheawardbytheclosingmarketpriceoftheCompany'scommonstockonthedateofgrant.The2018time-basedRSUawardspromoteexecutiveofficerretentionbyvestingannuallyastoone-thirdofeachawardoverathree-yearperiod.
ThevalueoftheawardstoMessrs.LeeandKeelerwasbasedonrecommendationsmadebyourCEOtotheCompensationCommitteeafterevaluationofeachsuchNEO'sresponsibilities,skills,experience,andcontributions,andrelevantmarketinformation.
2019 Executive Officer Pay Programs
BasedontheCompensationCommittee'srecommendation,ourBoardofDirectorstookthefollowingactionswithrespectto2019executivecompensation:
• Base Salary. OurBoardofDirectorsapproveda2019basesalaryincreaseforMr.Keelerof$35,000basedoncompetitivemarketpracticesforexecutiveofficersinasimilarrole.OurBoardofDirectorsdidnotmakeanychangestothe2019basesalariesfortheotherNEOs.
• Annual Cash Incentive Program. OurBoardofDirectorsapprovedatargetannualincentivepercentageincreaseforMr.Lee,increasinghis2019targetannualincentivepercentageto35%from25%in2018.OurBoardofDirectorsdidnotmakeanychangestothetargetannualincentivepercentagesfortheotherNEOs.Thepayoutamounts,ifany,mayrangefrom0%to200%ofthetargetannualincentivebasedontheCompany'sachievementofanadjustedpre-taxincomeperformanceobjectiveandwillbecalculatedbasedonpercentagesofeachofficer'starget.
• Long-Term Incentive Program.
For2019,ourBoardofDirectorsgrantedMessrs.Bauer,Mitchell,andGrubbsamixofperformance-basedandtime-basedRSUs,with60%oftheawardsintheformofperformance-basedRSUs(attargetperformance)and40%oftheawardsintheformoftime-basedRSUs.Thismixofperformance-basedandtime-basedincentivesisconsistentwiththeawardsmadein2018andbalancesperformanceandretentionobjectives.Theperformance-basedRSUsareallocatedtotwoseparateperformancemetricsasfollows:(i)30%aretiedtoTSR,withvestingbasedontheCompany'sTSRrelativetoitspeer-grouphomebuilders;and(ii)70%aretiedtoEPS.BasedontherecommendationoftheCompensationCommittee,ourBoardofDirectorsadjustedtheallocationofperformance-basedRSUstiedtoTSRandEPSfor2019toplaceadditionalemphasisonlong-termfinancialresults,aswellasbetteralignwiththecompetitivepracticesofourpeergroup.Theperformanceperiodfortheperformance-basedRSUsisJanuary1,2019toDecember31,2021.TheCompensationCommitteeandourBoardofDirectorsbelievetheseperformancemetricsreward
-34-
appropriatelyforCompanyperformanceovertimeandaligntheexecutive'sinterestswiththoseofourstockholders.Thelong-termincentiveawardsforMessrs.LeeandKeelerare100%time-basedRSUsastheseexecutiveshavelessdirectresponsibilityandimpactoverdrivingTSR.
OurBoardofDirectorsgranted247,619,238,095,and114,285performance-basedRSUstoMessrs.Bauer,Mitchell,andGrubbs,respectively.Thenumberofperformance-basedRSUsgrantedtotheseexecutiveofficersin2019wasdeterminedbymultiplying(i)thequotientof(x)thetargetvalueoftheawardand(y)theclosingmarketpriceoftheCompany'scommonstockonthedateofgrantby(ii)two,representingthemaximumnumberofRSUsthatmayvestassumingourattainmentofthemaximumperformanceobjectivesetbyourBoardofDirectorsbasedontheCompensationCommittee'srecommendation.Theseperformance-basedRSUsweregrantedpursuanttoour2013LTIP.
OurBoardofDirectorsalsoawarded82,539,79,365,38,095,8,904,and22,261time-basedRSUstoMessrs.Bauer,Mitchell,Grubbs,Lee,andKeeler,respectively,vestingone-thirdeachyearbeginningonthefirstanniversaryofthegrantdateoftheawardunits.
Thetargettotalannualcompensationofourcurrentexecutiveofficersfor2019isasfollows:
2019 Total Target Compensation by Element
Executive Base
Salary Target
Annual Incentive
TargetLong-termIncentive Total
DouglasF.Bauer $ 800,000 $ 1,280,000 $ 2,600,000 $ 4,680,000ThomasJ.Mitchell $ 770,000 $ 1,232,000 $ 2,500,000 $ 4,502,000MichaelD.Grubbs $ 600,000 $ 750,000 $ 1,200,000 $ 2,550,000GlennJ.Keeler $ 325,000 $ 243,750 $ 280,500 $ 849,250DavidC.Lee $ 500,000 $ 175,000 $ 112,200 $ 787,200
Forcomparison,thetargettotalannualcompensationofMessrs.Bauer,Mitchell,Grubbs,Lee,andKeelerin2018wasasfollows:
2018 Total Target Compensation by Element
Executive Base
Salary Target
Annual Incentive
TargetLong-termIncentive Total
DouglasF.Bauer $ 800,000 $ 1,280,000 $ 2,600,000 $ 4,680,000ThomasJ.Mitchell $ 770,000 $ 1,232,000 $ 2,500,000 $ 4,502,000MichaelD.Grubbs $ 600,000 $ 750,000 $ 1,200,000 $ 2,550,000GlennJ.Keeler $ 290,000 $ 217,500 $ 244,575 $ 752,075DavidC.Lee $ 500,000 (1) $ 125,000 $ 50,000 $ 725,000
__________(1)Inaddition,Mr.Leereceiveda$50,000signingbonuswhenhewashiredinJanuary2018.
2016 Performance-Based RSUs
InMarch2016,ourBoardofDirectorsgrantedMessrs.Bauer,Mitchell,andGrubbsperformance-basedRSUstiedtoTSR,withvestingbasedontheCompany'sTSRrelativetoitspeer-
-35-
grouphomebuilders.Theperformanceperiodfortheperformance-basedRSUswasJanuary1,2016toDecember31,2018.Thevesting,ifatall,oftheseperformance-basedRSUswasbasedonourpercentageattainmentofspecifiedthreshold,target,andmaximumperformanceobjectivesassetforthinthetablebelow:
Performance Level The Company's TSR Percentile on Vesting Date Percentage of Award that VestsMaximum 75thTSRPercentileandAbove 100%Target 55thTSRPercentile 50%Threshold 35thTSRPercentile 37.5%BelowThreshold Below35thTSRPercentile 0%
OnFebruary20,2019,basedontheCompensationCommittee'srecommendation,ourBoardofDirectorsdeterminedthattheCompany’srelativeTSRfortheperformanceperiodendingDecember31,2018wasbelowthresholdandthereforenoneoftheTSRperformance-basedRSUsvested.
Other Compensation Programs and Policies
Severance and Change in Control Benefits
TheCompanyhasemploymentagreementswitheachofMessrs.Bauer,Mitchell,andGrubbs.Theseagreementsgoverntheirtreatmentuponaterminationofemployment,amongotherconsiderations.Thechangeincontrolcomponentoftheseagreementsreflectsourbeliefthattheinterestsofstockholderswillbebestservediftheinterestsoftheseexecutivesarealignedwiththestockholders,andthatprovidingchangeincontrolbenefitsshouldeliminateoratleastreducedisincentivestopursuepotentialchangeincontroltransactionsthatmaybeinthebestinterestsofstockholders.
TheCompanyalsohasseveranceandchangeincontrolprotectionagreementswitheachofMessrs.LeeandKeeler.Theseagreementsgovernthetreatmentofeachofthemuponaterminationofemployment,includinginconnectionwithachangeincontrol.
Seethe"ExecutiveCompensation—PotentialPaymentsUponTerminationorChangeinControl"sectionofthisproxystatementforfurtherinformationregardingtheseveranceandchangeincontrolprovisionsoftheseagreementsandaquantificationofthecompensationtobereceivedintheeventofachangeincontrolorterminationoftheemploymentofMessrs.Bauer,Mitchell,Grubbs,Lee,andKeelerasofDecember31,2018.
Benefits
Ourexecutiveofficersparticipateinretirementandbenefitplansgenerallyavailabletoour,andonthesametermsas,otheremployees.Thesebenefitsincludea50%matchontheir401(k)contributionsupto$8,250aswellasmedical,vision,dental,employeeassistanceprogram,lifeinsuranceandlong-termdisabilitycoverage.Wealsoprovidecertainofourexecutiveofficerswithareimbursementoflifeinsurancepremiumsandreimbursementofclubmembershipdues.
Equity Grant Time Policy
ItisthepolicyoftheCompensationCommitteethatregularannualequityawardsaregrantedonthelaterofthesecondbusinessdayafterthepublicreleaseoffiscalyear-endearnings,or(iflater)the
-36-
MondayfollowingthedateonwhichtheCompensationCommitteeapprovestheawards.TheCompensationCommitteemayinitsdiscretionmakeequityawardsatothertimesinconnectionwithnewhires,promotions,orspecialcircumstances.ThegrantdatefortheseawardswillbetheMondayfollowingthedateonwhichtheCompensationCommitteeapprovestheaward.IfthegrantdateisaMondayandaclosingpriceisnotreportedforthatday,thegrantdatewillbethenextfollowingdayonwhichaclosingpriceisreported.
Stock Ownership Guidelines
OurBoardofDirectorshasadoptedthefollowingstockownershipguidelines:
Position Ownership GuidelineDirectors 5timesannualcashretainerCEO 5timesbasesalaryCOO 5timesbasesalaryCFO 3timesbasesalaryCorporatevicepresidents 1timesbasesalaryPresidentsofhomebuildingsubsidiaries 1timesbasesalary
Directorsandexecutiveofficershavefiveyearsfromthedateonwhichtheybecomesubjecttotheguidelinestosatisfytheapplicableguidelinelevel.Forthepurposesoftheseguidelines,ownershipincludessharesbeneficiallyownedandunvestedrestrictedstockandRSUawardssubjectonlytotime-basedvesting.Unexercisedoptions,whethervestedornot,donotcountasstock"owned"undertheseguidelines.Duringtheapplicablefive-yeartransitionperiod,ifaparticipantisnotincompliancewiththeapplicableguideline,heorsheisrequiredtoretain60%ofsharesearnednetoftaxesfromanyofourincentiveplansuntilheorsheisincompliancewiththeguidelines.Ifaparticipantfailstoachievetherequiredownershipduringtheapplicablefive-yeartransitionperiod,thatpersonwillthereafterberequiredtoretain100%ofsharesearnednetoftaxesuntilthetargetedownershiplevelisattained.
"Clawback "Policy
TheCompensationCommitteeadministersour"clawback"policythatprovidesforrecoupmentfromourexecutiveofficersofincentivecompensationintheeventofcertainrestatementsofourfinancialresults.Incentivecompensationunderthispolicymeansallcashbonusesandequitycompensationawardedtoacoveredexecutive,theamount,paymentand/orvestingofwhichwascalculatedbasedwhollyorinpartontheapplicationofobjectiveperformancecriteria.Itdoesnotcoveranexecutive'sbasesalary.Atriggereventoccursunderthepolicywhenwearerequiredtoprepareanaccountingrestatementofourfinancialstatementsduetoamaterialnoncompliancewithanyfinancialreportingrequirementunderthesecuritieslaws.If,followingatriggerevent,theCompensationCommitteedeterminesthat:
• theamountofanyincentivecompensationawardedto,orreceivedby,acoveredexecutiveduringthethree-yearperiodprecedingthedateonwhichwearerequiredtopreparetheaccountingrestatementwouldhavebeenlower(andnotearned)haditbeencalculatedbasedontherestatedfinancialresults;and
-37-
• theexecutiveengagedinfraud,intentionalmisconductorgrossnegligence,theCompensationCommitteewillseektorecoupfromtheexecutivetheafter-taxportionofthedifferencebetweentheawardedcompensationandtheactualcompensation.
TheCompensationCommitteeisnotrequiredtoseekrecoupmentfromanexecutiveifitdeterminesthatseekingrecoverywouldnotbeinourbestinterests.Inmakingthisdetermination,theCompensationCommitteemaytakeintoaccount,amongotherfactors,theprobabilityofsuccessunderapplicablelaw;thecostofseekingrecoupment;theeffectofseekingrecoupmentonanypendingorthreatenedinvestigations,litigationorotherproceedingsinvolvingus;thedifficultyofproof;thepossibilityofcounterclaimsagainstus;andtheamountsubjecttorecoupment.TheCompensationCommitteeisauthorizedunderthepolicytodetermineinitsdiscretionthemethodforobtainingrecoupment.
No Hedging of Company Stock
Asdescribedfurtherintheourpolicyoninsidertrading,alldirectors,officers,andotheremployeesareprohibitedfromenteringintotransactionswhichhavetheeffectofhedgingtheeconomicvalueofanydirectorindirectinterestsofthepersoninourcommonequity.
Tax Deductibility; Section 162(m)
Asapublicly-tradedcompany,wearesubjecttoSection162(m)oftheInternalRevenueCode("Section162(m)")whichlimitsourabilitytodeductforU.S.incometaxpurposescompensationinexcessof$1millionpaidtoourCEOandthreeothermosthighlycompensatedofficers(otherthantheCFO)unlessthecompensationisperformance-basedunderSection162(m).TheTaxCutsandJobsActmadesignificantchangestoSection162(m).Beginningin2018,Section162(m)limiteddeductionsto$1millionforcompensationpaidtoourCFOaswellasourCEOandourthreeothermosthighlycompensatedofficers.Inaddition,beginningin2018theexceptiontothe$1milliondeductionlimitationforcommissionandperformance-basedcompensationwaseliminated.However,compensationpaidpursuanttoawrittenbindingagreementineffectonNovember2,2017thathasnotbeenmateriallymodifiedthereafterisgrandfatheredandcancontinuetoqualifyfortheperformance-basedcompensationexemption,assumingallotherSection162(m)requirementsaremet.Becauseoftheambiguitiesanduncertaintiesastothescopeofthisgrandfatherprovision,noassurancecanbegiventhatcompensationoriginallyintendedtoqualifyfortheexemptionwill,infact,befullydeductible.
TheCompensationCommitteeandourBoardofDirectorsconsidertaxdeductibilitytobeanimportant,butnotthesole,orprimary,considerationinsettingexecutivecompensation.BecausetheCompensationCommitteeandourBoardofDirectorsalsorecognizetheneedtomaintainflexibilitytomakecompensationdecisionsthatmaynotmeetthestandardsofSection162(m)whennecessarytoenableustocontinuetoattract,retain,andmotivatetalentedexecutiveofficers,itreservestheauthoritytoapprovepotentiallynon-deductiblecompensation.
Non-GAAP Measures
InthisCompensationDiscussionandAnalysis,wereferenceadjustedpre-taxincome,afinancialmeasureusedbytheCompensationCommitteeinconnectionwithexecutivecompensationcalculatedotherthaninaccordancewithU.S.generallyacceptedaccountingprinciples("GAAP"),whichisreconciledtothenearestGAAPfinancialmeasureintheinformationbelow.Thisnon-GAAPfinancialmeasuremaynotbecomparabletoothersimilarlytitledmeasuresofothercompaniesandshouldnotbeconsideredinisolationorasasubstitutefor,orsuperiorto,financialmeasurespreparedinaccordancewithGAAP.
-38-
Reconciliation of Adjusted Pre-Tax Income for 2018 Annual Cash Incentive (dollars in thousands) Year Ended December 31, 2018Income before income taxes $ 362,067Add:$17.5millionsettlementpaymentinconnectionwiththesettlementofalawsuitinvolvinga1987legacyWRECOlandsaleandtransactionrelatedexpensesof$1,286,000inconnectionwithanacquisition
$ 18,786
Less:Netincomeattributabletononcontrollinginterest $ (1,602)
Adjusted pre-tax income $ 379,251
-39-
COMPENSATION COMMITTEE REPORT
TheCompensationCommitteehasreviewedanddiscussedtheCompensationDiscussionandAnalysiswithmanagement.
Basedonsuchreviewanddiscussionwithmanagement,theCompensationCommitteerecommendedtoourBoardofDirectorsthattheCompensationDiscussionandAnalysisbeincludedinthisproxystatementandincorporatedbyreferenceinourAnnualReportonForm10-KfortheyearendedDecember31,2018.
Respectfullysubmittedby:
THECOMPENSATIONCOMMITTEEOFTHEBOARDOFDIRECTORS
ConstanceB.Moore,CompensationCommitteeChairDanielS.FultonStevenJ.GilbertVickiD.McWilliams
-40-
OWNERSHIP OF OUR COMMON STOCK
ThefollowingtablesetsforththebeneficialownershipofourcommonstockasofMarch1,2019by(i)eachofourdirectors,(ii)eachoftheexecutiveofficersnamedinthetableentitled"Fiscal2018SummaryCompensationTable",(iii)allofourdirectorsandcurrentexecutiveofficersasagroupand(iv)eachpersonknownbyustobethebeneficialownerof5%ormoreofouroutstandingcommonstock.
Toourknowledge,exceptasotherwisesetforthinthefootnotestothetable,eachpersonnamedinthetablehassolevotingandinvestmentpowerwithrespecttoallofthesecuritiesshownasbeneficiallyownedbysuchperson.Thenumberofsecuritiesshownrepresentsthetotalnumberofsecuritiestheperson"beneficiallyowns,"asdeterminedbytherulesoftheSEC.TheSEChasdefined"beneficial"ownershipofasecuritytomeanthepossession,directlyorindirectly,ofvotingpowerand/orinvestmentpower.Asecurityholderisalsodeemedtobe,asofanydate,thebeneficialownerofallsecuritiesthatsuchsecurityholderhastherighttoacquirewithin60daysafterthatdatethrough(i)theexerciseofanyoption,warrantorright,(ii)theconversionofasecurity,(iii)thepowertorevokeatrust,discretionaryaccountorsimilararrangementor(iv)theautomaticterminationofatrust,discretionaryaccountorsimilararrangement.Exceptasnotedbelow,theaddressforallbeneficialownersinthetablebelowis19540JamboreeRoad,Suite300,Irvine,California92612.
Name of Beneficial Owner Shares Beneficially Owned (1) Percentage (2)
Directors and Executive Officers:
DouglasF.Bauer(3) 977,236 *LawrenceB.Burrows 54,805 *
DanielS.Fulton(4) 76,342 *StevenJ.Gilbert 65,480 *VickiD.McWilliams 6,677 *ConstanceB.Moore 66,269 *ThomasB.Rogers 62,770 *
MichaelD.Grubbs(5) 364,513 *GlennJ.Keeler 11,159 *DavidC.Lee 582 *
ThomasJ.Mitchell(6) 879,625 *Alldirectorsandcurrentexecutiveofficersasagroup(11persons) 2,565,458 1.8%
5% or more Stockholders:
BlackRock,Inc.(7)(8) 17,645,317 12.4%
DimensionalFundAdvisorsLP(7)(9) 12,757,242 9.0%
FMRLLC(7)(10) 11,504,235 8.1%
HotchkisandWileyCapitalManagement,LLC(7)(11) 8,450,228 5.9%T.RowePriceAssociates,Inc.(7)(12) 8,565,545 6.0%
TheVanguardGroup(7)(13) 13,243,175 9.3%
WellingtonManagementGroupLLP(7)(14) 13,784,491 9.7%__________*Representslessthan1%ofthenumberofsharesofourcommonstockoutstanding.
-41-
(1) Beneficialownershipincludesthefollowingsharesthatthedirectorsandexecutiveofficerscouldacquirebyexercisingstockoptionsonorwithin60daysofMarch1,2019:Mr.Bauer:146,921;Mr.Gilbert:3,699;Mr.Grubbs:144,278;andMr.Mitchell:145,600.ForeachofMessrs.Burrows,Fulton,Gilbert,andRogersandMs.Moore,thebeneficialownershipalsoincludes8,182RSUsthatvestonorwithin60daysofMarch1,2019.ForMs.McWilliams,thebeneficialownershipincludes6,677RSUsthatvestonorwithin60daysofMarch1,2019.Foralldirectorsandcurrentexecutiveofficersasagroup,thesestockoptionsandRSUsrepresentanaggregateof488,085shares.
(2) Thepercentagesarecalculatedbasedon142,210,147sharesofourcommonstockoutstandingandentitledtovoteasofMarch1,2019.Foreachperson,separately,hisorherpercentageiscalculatedbyincludinghisorheroptionsandRSUssetforthinFootnote(1)aboveinboththenumeratoranddenominator,andforthedirectorsandcurrentexecutiveofficersasagroup,thepercentageiscalculatedbyincludingthestockoptionsandRSUssetforthinFootnote(1)aboveinboththenumeratoranddenominator.
(3) Amountincludes830,315sharesareheldintrustforthebenefitofMr.Bauerandhisimmediatefamily.Mr.Bauerhassolevotinganddispositivepowerwithrespectto146,921sharesandsharedvotinganddispositivepowerwithrespectto830,315shares.
(4) Amountincludes30,073sharesheldinajointaccountwithMr.Fulton'sspouse.Mr.Fultonhassolevotinganddispositivepowerwithrespectto46,269sharesandsharedvotinganddispositivepowerwithrespectto30,073shares.
(5) Amountincludes197,149sharesareheldintrustforthebenefitofMr.Grubbsandhisimmediatefamily.Mr.Grubbshassolevotinganddispositivepowerwithrespectto167,364sharesandsharedvotinganddispositivepowerwithrespectto197,149shares.
(6) Amountincludes610,000sharesareheldintrustforthebenefitofMr.Mitchellandhisimmediatefamily.Mr.Mitchellhassolevotinganddispositivepowerwithrespectto269,625sharesandsharedvotinganddispositivepowerwithrespectto610,000shares.
(7) Thebeneficialownershipfiguresforthe5%ormorestockholdersweretakenfromtheirrespectiveSchedule13GorSchedule13G/AfilingswiththeSEC.
(8) AccordingtotheSchedule13G/AfiledonJanuary31,2019,BlackRock,Inc.hassolevotingpowerwithrespectto17,270,734sharesandsoledispositivepowerwithrespectto17,645,317shares.Itsaddressis55East52ndStreet,NewYork,NY10022.
(9) AccordingtotheSchedule13G/AfiledonFebruary8,2019,DimensionalFundAdvisorsLPhassolevotingpowerwithrespectto12,556,932sharesandsoledispositivepowerwithrespectto12,757,242shares.ItsaddressisBuildingOne,6300BeeCaveRoad,Austin,TX78746.
(10) AccordingtotheSchedule13GfiledonFebruary13,2019,FMRLLChassolevotingpowerwithrespectto752sharesandsoledispositivepowerwithrespectto11,504,235shares.Itsaddressis245SummerStreet,Boston,MA02210.
(11) AccordingtotheSchedule13G/AfiledonFebruary13,2019,HotchkisandWileyCapitalManagement,LLChassolevotingpowerwithrespectto7,671,338sharesandsoledispositivepowerwithrespectto8,450,228shares.Itsaddressis725S.FigueroaStreet39thFl.,LosAngeles,CA90017.
(12) AccordingtoSchedule13G,filedonFebruary14,2019,T.RowePriceAssociates,Inc.hassolevotingpowerwithrespectto1,758,595sharesandsoledispositivepowerwithrespectto8,565,545shares.Itsaddressis100E.PrattStreet,Baltimore,MD21202.
(13) AccordingtotheSchedule13G/AfiledonFebruary12,2019,TheVanguardGrouphassolevotingpowerwithrespectto150,374shares,soledispositivepowerwithrespectto13,090,506shares,sharedvotingpowerwithrespectto18,092shares,andshareddispositivepowerwithrespectto152,669shares.Itsaddressis100VanguardBlvd.,Malvern,PA19355.
(14) AccordingtotheSchedule13GfiledonFebruary12,2019,WellingtonManagementGroupLLPhassharedvotingpowerwithrespectto7,997,895sharesandshareddispositivepowerwithrespectto13,784,491shares.Itsaddressis280CongressStreet,Boston,MA2210.
-42-
EQUITY COMPENSATION PLAN INFORMATION
Thefollowingtablesetsforthcertaininformation,asofDecember31,2018,withrespecttoourequitycompensationplansunderwhichourequitysecuritiesareauthorizedforissuance.
Plan Category
Number of Securities to be
Issued Upon Exercise of
Outstanding Options,
Warrants and Rights (#)
(a)
Weighted-Average Exercise Price of
Outstanding Options, Warrants
and Rights ($) (b)
Number of Securities Remaining Available for Future
Issuance Under Equity Compensation Plans
(Excluding Securities Reflected in Column (a)) (#)
(c)
Equitycompensationplansapprovedbysecurityholders 4,295,753 $3.24(1) 6,455,011
Equitycompensationplansnotapprovedbysecurityholders — — —
Total 4,295,753 $3.24(1) 6,455,011__________(1)Thisweighted-averageexercisepriceincludesoutstandingRSUsthatcanbeexercisedfornoconsideration,resultinginareducedprice.Theweighted-averageexercisepriceofoutstandingoptions,excludingthoseRSUsthatcanbeexercisedfornoconsideration,is$14.58.AtDecember31,2018,therewere513,407sharesofourcommonstocktobeissuedupontheexerciseofoutstandingoptionsandvestingofRSUsthatweassumedinconnectionwithourmergertransactionwithWRECOduringtheyearendedDecember31,2014.Theweighted-averageexercisepriceoftheseassumedoptionsandRSUswas$12.74atDecember31,2018.Theweighted-averageexercisepriceoftheseassumedoptions,excludingthoseRSUsthatcanbeexercisedfornoconsideration,was$12.74atDecember31,2018.
-43-
EXECUTIVE COMPENSATION
Fiscal 2018 Summary Compensation Table
Thefollowingtablesummarizesinformationregardingthecompensationawardedto,earnedbyorpaidtoMr.DouglasBauer,ourChiefExecutiveOfficer,Mr.ThomasMitchell,ourPresidentandChiefOperatingOfficer,Mr.MichaelGrubbs,ourChiefFinancialOfficerandTreasurer,Mr.DavidLee,ourVicePresident,GeneralCounselandSecretary,andMr.GlennKeeler,ourVicePresidentandChiefAccountingOfficer,collectivelyourNEOsfor2018.
Name and PrincipalPosition Year Salary ($) Bonus ($)
Stock Awards($) (1)
OptionAwards ($)
Non-EquityIncentive Plan
Compensation ($) All Other
Compensation ($) Total ($)
DouglasF.BauerChiefExecutiveOfficer
2018 793,269 — 2,830,216 — 1,593,600(2) 34,305(3) 5,251,391
2017 754,808 — 2,614,175 — 1,272,705 29,640 4,671,328
2016 673,077 — 2,455,747 — 1,108,380 29,070 4,266,274
ThomasJ.Mitchell
PresidentandChiefOperatingOfficer
2018 763,269 — 2,721,347 — 1,533,840(2) 16,210(4) 5,034,667
2017 726,154 — 2,513,617 — 1,223,439 15,810 4,479,020
2016 648,077 — 2,361,284 — 1,067,795 15,660 4,092,816
MichaelD.Grubbs
ChiefFinancialOfficerandTreasurer
2018 600,000 — 1,306,234 — 933,750(2) 14,350(5) 2,854,334
2017 586,539 — 1,206,539 — 844,560 13,950 2,651,587
2016 536,539 — 1,038,962 — 746,460 13,800 2,335,761
DavidC.Lee(6)
VP–GeneralCounselandSecretary
2018 471,154 50,000(7) 49,990 — 155,625(2) 8,250 735,019
2017 — — — — — — —
2016 — — — — — — —
GlennJ.Keeler
VP–ChiefAccountingOfficer
2018 287,308 — 244,563 — 270,788(2) 8,500 811,159
2017 274,616 — 230,432 — 246,330 8,100 759,478
2016 257,308 — 202,992 — 254,280 7,950 722,530
__________(1) InaccordancewithSECrules,theamountshownistheaggregategrantdatefairvalueforawardsgrantedduringthefiscalyearcalculatedinaccordance
withFASBASCTopic718.Thegrantdatefairvalueofperformance-basedRSUawardsisbasedontheprobableoutcomeoftheperformance-basedconditions,determinedasofthegrantdate.Themaximumpotentialpayoutfortheperformance-basedRSUawardsis200%ofthetargetawardonthegrantdate.Thetargetvaluesoftheperformance-basedRSUawardsfor2018determinedasofthedateofgrantforMessrs.Bauer,MitchellandGrubbswas$1,560,000,$1,500,000and$720,000,respectively.Themaximumvaluesoftheperformance-basedRSUawardsfor2018determinedasofthedateofgrantforMessrs.Bauer,Mitchell,andGrubbswas$3,120,000,$3,000,000,and$1,440,000,respectively.Noperformance-basedRSUawardsweremadein2018toMessrs.LeeorKeeler.Amountsshowndonotreflectcompensationactuallyreceivedorthatmayberealizedinthefuturebytheexecutiveofficer.Foradiscussionoftheassumptionsrelatingtothevaluationoftheawards,pleaseseeNote14.Stock-BasedCompensationtoourauditedconsolidatedfinancialstatementsincludedinourAnnualReportonForm10-KforthefiscalyearendedDecember31,2018.
(2) Representstheamountearnedunderour2018non-equity,annualcashincentivecompensationplan,asdescribedinfurtherdetailabovein"CompensationDiscussionandAnalysis."
-44-
(3) Representstheamountpaidbyusin2018forclubmembershipduesfortheNEO($22,875),contributionstodefinedcontributionplan($8,250)andthereimbursementoflifeinsurancepremiums($3,180).
(4) Representscontributionstodefinedcontributionplan($8,250)andthereimbursementoflifeinsurancepremiums($7,710)fortheNEO.(5) Representscontributionstodefinedcontributionplan($8,250)andthereimbursementoflifeinsurancepremiums($5,850)fortheNEO.(6) Mr.LeebecameanexecutiveofficeroftheCompanyinJanuary2018inconnectionwithhisappointmentasVicePresident,GeneralCounseland
Secretary.(7)Mr.Leereceiveda$50,000signingbonuswhenhewashiredinJanuary2018.
Grants of Plan-Based Awards
Estimated Possible Payouts Under Non-Equity
Incentive Plan AwardsEstimated Future Payouts Under Equity
Incentive Plan Awards
All Other StockAwards;
Number ofShares of Stock
or Units (#)
All Other OptionAwards; Number
of SecuritiesUnderlyingOptions (#)
Exercise or BasePrice of OptionAwards ($/Sh)
Grant Date FairValue of Stock
and OptionAwards(1)
Name Grant Date Threshold ($) Target ($) Maximum ($) Threshold (#) Target (#) Maximum (#) DouglasF.Bauer 2/22/2018 640,000 1,280,000 2,560,000 46,045 92,090 184,179 61,393 — N/A $2,830,216
ThomasJ.Mitchell 2/22/2018 616,000 1,232,000 2,464,000 44,274 88,548 177,095 59,031 — N/A $2,721,347
MichaelD.Grubbs 2/22/2018 375,000 750,000 1,500,000 21,251 42,503 85,005 28,335 — N/A $1,306,234
DavidC.Lee 2/22/2018 62,500 125,000 250,000 — — — 2,951 — N/A $49,990
GlennJ.Keeler 2/22/2018 108,750 217,500 435,000 — — — 14,437 — N/A $244,563
__________(1) InaccordancewithSECrules,theamountshownistheaggregategrantdatefairvalueforawardsgrantedduringthefiscalyearcalculatedinaccordance
withFASBASCTopic718.Thegrantdatefairvalueofperformance-basedRSUawardsisbasedontheprobableoutcomeoftheperformance-basedconditions,determinedasofthegrantdate.Themaximumpotentialpayoutfortheperformance-basedRSUawardsis200%ofthetargetawardasofthegrantdate.Thetargetvaluesoftheperformance-basedRSUawardsfor2018determinedasofthedateofgrantforMessrs.Bauer,MitchellandGrubbswas$1,560,000,$1,500,000and$720,000,respectively.Themaximumvaluesoftheperformance-basedRSUawardsfor2018determinedasofthedateofgrantforMessrs.Bauer,Mitchell,andGrubbswas$3,120,000,$3,000,000,and$1,440,000,respectively.Amountsshowndonotreflectcompensationactuallyreceivedorthatmayberealizedinthefuturebytheexecutiveofficer.Foradiscussionoftheassumptionsrelatingtothevaluationoftheawards,pleaseseeNote14.Stock-BasedCompensationtoourauditedconsolidatedfinancialstatementsincludedinourAnnualReportonForm10‑KforthefiscalyearendedDecember31,2018.
Employment Agreements and Performance-Based RSU Awards
During2018,wehademploymentagreementswitheachofMessrs.Bauer,Mitchell,andGrubbs(the"2018EmploymentAgreements").InMarch2019,weenteredintonewemploymentagreementswitheachofthesethreeexecutives(the"2019EmploymentAgreements"),whichreplacedthe2018EmploymentAgreements.Eachofthe2019EmploymentAgreementshasaninitialtermofthreeyearsandonthethirdanniversarydate(andeachannualanniversarydatethereafter)willbeautomaticallyextendedforoneadditionalyearunlesseitherpartyprovidestheotherwithatleast60days'priorwritten
-45-
noticeofnon-renewal.Ifa"changeincontrol"(asdefinedinthe2019EmploymentAgreements)occursduringtheinitialorextendedterm,thenthetermwillcontinuefornotlessthan24monthsbeyondthemonthinwhichthechangeincontroloccurs.Bothpartieshavetherighttoterminatetheexecutive'semploymentatanytime,withorwithoutcause,andwithorwithoutpriornotice.
The2018EmploymentAgreementsprovidethatuponterminationofemployment,eachexecutivewillreceiveanyaccruedbutunpaidbasesalaryandotheraccruedandunpaidcompensation,includinganyaccruedandunpaidvacationandannualbonus.Uponeitheran"involuntaryterminationwithoutcause"(asdefinedintheagreement)oravoluntaryterminationfora"goodreason"(asdefinedintheagreement),theexecutive,subjecttohisdeliveryofareleaseofclaims,willalsobeentitledtoreceivespecifiedseverancebenefits.Ifacoveredterminationoccurspriorto,ormorethan18monthsaftera"changeincontrol"(asdefinedintheagreement),Messrs.Bauer,Mitchell,andGrubbswillbeentitledtoreceiveanamountequalto2,1.5,and1.5,respectively,timesthesumofhisannualbasesalaryplustheaverageofthegreaterof(i)theaverageoftheannualcashbonusesreceivedforthetwofiscalyearsendingbeforethetermination;and(ii)thetargetannualbonusfortheyearinwhichtheterminationoccurs.Ifacoveredterminationoccursduringthe18-monthperiodcommencingonachangeincontrol,thenthemultiplierwillbe3withrespecttoMr.Bauer,and2.5withrespecttoMessrs.MitchellandGrubbs.IneithercaseandiftheexecutiveelectscontinuedhealthcarecoverageunderCOBRA,theCompanywillalsodirectlypay,orreimbursetheexecutivefor,thepremiumforhisandhiscovereddependentsthroughtheearlierof(i)the18monthanniversaryofthedateofhisterminationofemployment,and(ii)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s).Intheeventthattheexecutive'semploymentisterminateddueto"deathordisability"(asdefinedintheagreement),theexecutiveorhisbeneficiariesorestatewillbeentitledtoreceiveapro-rataportionofhisannualbonusforthefiscalyear.
The2018EmploymentAgreementsalsoprovidefor,amongotherthings:
• anannualbasesalaryequalto$600,000(Mr.Bauer);$575,000(Mr.Mitchell),and$500,000(Mr.Grubbs),subjecttoincreaseinthediscretionofourBoardofDirectorsoracommitteeofourBoardofDirectors;
• eligibilityforannualcashperformancebonusestargetedat110%oftheexecutive'sbasesalaryontermsandconditionsdeterminedbyourBoardofDirectorsoracommitteeofourBoardofDirectors;
• eligibilitytoreceivestockoptionsandotherequityincentivegrantsasdeterminedbyourBoardofDirectorsoracommitteeofourBoardofDirectors;and
• entitlementtoallrightsandbenefitstowhichtheexecutiveisentitledunderourbenefitsandcompensationpracticesthatareineffectfromtimetotimeandprovidedtoourexecutiveemployeesgenerally,aswellasbenefitsprovidedtotheexecutiveconsistentwithpastpractices;providedwearenotobligatedtoadoptormaintainanybenefitsorcompensationpracticesatanytime.
The2018EmploymentAgreementscontainnon-competitionprovisionsandnon-solicitationprovisionsthatapplyduringthetermofsuchagreementsandforoneyearaftertheterminationoftheexecutive'semploymentforanyreason.However,thepost-employmentnon-competitionprovisionsdonotapplyandwillnotbeenforcedinCaliforniaorotherstateswheresuchrestrictivecovenantsarenotpermitted.
-46-
The2019EmploymentAgreementsmadevariouschangestothetermsofthe2018EmploymentAgreements,includingthefollowing:
• ReflectedtheannualbasesalariesoftheexecutivesasapprovedbyourBoardofDirectorsof$800,000forMr.Bauer,$770,000forMr.Mitchell,and$600,000forMr.Grubbs,subjecttoincreaseinthediscretionofourBoardofDirectorsoracommitteeofourBoardofDirectors;
• Specifiedthattheexecutivesareeligibleforannualcashperformancebonusestargetedat160%(Mr.Bauer);160%(Mr.Mitchell);and125%(Mr.Grubbs)oftheexecutives'basesalariesorsuchotheramountasdeterminedinthesolediscretionoftheBoardofDirectorsoracommitteeoftheBoardofDirectors;
• RevisedthedefinitionofchangeincontroltoincludecertainchangestothecompositionofourBoardofDirectorsandpercentagethresholds;
• Extendedthetimeperiodforacoveredterminationto3monthspriortoand24monthsfollowingachangeincontrol;
• Specifiedthatnotwithstandinganythingsetforthinanawardagreementorincentiveplantothecontrary,intheeventofacoveredtermination,theexecutivewillalsobeentitledto(i)aprorataportionoftheexecutive’sannualbonusforthefiscalyearinwhichtheterminationoccursbasedonactualachievementoftheapplicablebonusobjectivesand/orconditionsdeterminedbytheBoardofDirectorsoracommitteeoftheBoardofDirectorsforthatyear;and(ii)healthcarecoveragepursuanttoCOBRAthroughtheearlierof(a)the24-monthanniversaryofthedateofhisterminationofemployment,and(b)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s);and(iii)paymentorreimbursementofthepremiumstomaintainhislifeanddisabilityinsurancecoveragethroughthe24-monthanniversarydateofhisterminationofemployment;and
• Specifiedthatintheeventthattheexecutive’semploymentisterminatedduetodeathordisability,theexecutiveorhisbeneficiariesorestatewillbeentitledtoreceiveanamountequaltotheexecutive’stargetbonusforthefiscalyearinwhichtheterminationoccursplus,ifemploymentisterminatedduetoadisability,theCompanywilldirectlypay,orreimburse,theexecutivefor(i)thepremiumforexecutiveandhisdependentstomaintaincontinuedhealthcarecoveragepursuanttoCOBRAthroughtheearlierof(a)the24-monthanniversaryofthedateofhisterminationofemployment,and(b)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s);and(ii)thepremiumstomaintaintheexecutive’slifeanddisabilityinsurancecoveragethroughthe24-monthanniversarydateofhisterminationofemployment.
In2018,wegranted184,179,177,095,and85,005performance-basedRSUstoMessrs.Bauer,Mitchell,andGrubbs,respectively.Thenumberofperformance-basedRSUsgrantedwasdeterminedbymultiplying(i)thequotientof(x)thetargetvalueoftheawardand(y)theclosingmarketpriceoftheCompany'scommonstockonthedateofgrantby(ii)two,representingthemaximumnumberofRSUsthatmayvestassumingourattainmentofthemaximumperformanceobjectivesetbyourBoardofDirectors.Foradditionaldetailsconcerningtheseperformance-basedRSUs,see"CompensationDiscussionandAnalysis—2018NEOPayProgram—Long-TermIncentives."
-47-
Potential Payments Upon Termination or Change in Control
TheemploymentagreementswitheachofMessrs.Bauer,MitchellandGrubbsprovideforcertainpaymentsuponeitherterminationofemploymentorachangeincontrol,asdescribedin"—EmploymentAgreementsandPerformance-BasedRSUAwards"above.
InFebruary2016,theCompanyenteredintoaseveranceandchangeincontrolprotectionagreementwithMr.Keeler,andinJanuary2018,weenteredintoaseveranceandchangeincontrolprotectionagreementwithMr.Lee(the"OriginalSeveranceAgreements").InMarch2019,theOriginalSeveranceAgreementswerereplacedwithnewseveranceandchangeincontrolprotectionagreementswithMessrs.KeelerandLee(the"2019SeveranceAgreements").Eachofthe2019SeveranceAgreementshasaninitialtermofthreeyearsandonthethirdanniversarydate(andeachannualanniversarydatethereafter)willbeautomaticallyextendedforoneadditionalyearunlesseithertheexecutiveortheCompanygiveswrittennoticeofnon-renewal.Ifa"changeincontrol"(asdefinedinthe2019SeveranceAgreements)occursduringtheinitialorextendedterm,thenthetermwillcontinuefornotlessthan24monthsbeyondthemonthinwhichthechangeincontroloccurs.The2019SeveranceAgreementsdonotcreateacontractofemploymentbetweentheCompanyandtheexecutive,andboththeCompanyandtheexecutivewillhavetherighttoterminatetheexecutive'semploymentatanytime,withorwithoutcause,andwithorwithoutpriornotice.
TheOriginalSeveranceAgreementsprovidethatuponterminationofemployment,eachexecutivewillreceiveanyaccruedbutunpaidbasesalaryandotheraccruedandunpaidcompensation,includinganyaccruedandunpaidvacationandannualbonus.Uponeitheran"involuntaryterminationwithoutcause"(asdefinedintheagreement)oravoluntaryterminationfora"goodreason"(asdefinedintheagreement),Messrs.LeeandKeeler,subjecttohisdeliveryofareleaseofclaims,willbeentitledtoreceiveanamountequaltothesumofhisannualbasesalaryplusthegreaterof(i)theaverageoftheannualcashbonusesreceivedforthetwofiscalyearsendingbeforethetermination;and(ii)thetargetannualbonusfortheyearinwhichtheterminationoccurs.IneithercaseandiftheexecutiveelectscontinuedhealthcarecoverageunderCOBRA,theCompanywillalsodirectlypay,orreimbursetheexecutivefor,thepremiumforhisandhiscovereddependentsthroughtheearlierof(i)theoneyearanniversaryofthedateofhisterminationofemployment,and(ii)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s).Intheeventthattheexecutive'semploymentisterminateddueto"deathordisability"(asdefinedintheagreement),theexecutiveorhisbeneficiariesorestatewillbeentitledtoreceiveapro-rataportionofhisannualbonusforthefiscalyear.
The2019SeveranceAgreementschangedthetermsofthe2018SeveranceAgreements,amongotherthings,toprovidethat:(i)notwithstandinganythingsetforthinanawardagreementorincentiveplantothecontrary,intheeventofacoveredtermination,theexecutivewillalsobeentitledtoaprorataportionoftheexecutive’sannualbonusforthefiscalyearinwhichtheterminationoccursbasedonactualachievementoftheapplicablebonusobjectivesand/orconditionsdeterminedbytheBoardofDirectorsoracommitteeoftheBoardofDirectorsforthatyear;(ii)thedefinitionofchangeincontrolincludescertainchangestothecompositionofourBoardofDirectorsandpercentagethresholds;(iii)theCompanywilldirectlypay,orreimburse,theexecutivefor,themonthlypremiumforhisandhiscovereddependentstomaintainhealthcarecoveragepursuanttoCOBRAthroughtheearlierof(a)the24-monthanniversaryofthedateofhisterminationofemployment,and(b)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s);and(iv)theCompanywilldirectlypay,orreimburse,theexecutiveforthepremiumstomaintaintheexecutive’slifeanddisabilityinsurancecoveragethroughthe24-monthanniversarydateofhisterminationofemployment.Inadditi
-48-
on,intheeventthattheexecutive’semploymentisterminatedduetodeathordisability,theexecutiveorhisbeneficiariesorestatewillbeentitledtoreceiveanamountequaltotheexecutive’stargetbonusforthefiscalyearinwhichtheterminationoccursplus,ifemploymentisterminatedduetoadisability,theCompanywilldirectlypay,orreimburse,theexecutivefor(i)thepremiumforexecutiveandhisdependentstomaintaincontinuedhealthcarecoveragepursuanttoCOBRAthroughtheearlierof(a)the24-monthanniversaryofthedateofhisterminationofemployment,and(b)thedateheandhiscovereddependentsbecomeeligibleforhealthcarecoverageunderanotheremployer'splan(s);and(ii)thepremiumstomaintaintheexecutive’slifeanddisabilityinsurancecoveragethroughthe24-monthanniversarydateofhisterminationofemployment.
Our2013LTIPprovidesthatupona"changeincontrol"(asdefinedinthe2013LTIP),ourBoardofDirectorsmay,initsdiscretion,determinewhethersomeoralloutstandingoptionsandstockappreciationrightswillbecomeexercisableinfullorinpart,whethertherestrictionperiodandperformanceperiodapplicabletosomeoralloutstandingrestrictedstockawardsandRSUawardswillbedeemedsatisfied.
Time-based RSUs awarded to executives. Thetime-basedRSUawardsgrantedtoourNEOsprovidethatif(i)theexecutiveremainscontinuouslyemployedbyusthroughthedateoftheclosingofachangeincontroltransaction,and(ii)theawardisnotassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrolorotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUsgrantedpursuanttotheawardwillvestasofthedateoftheclosingofthechangeincontrol.If(i)theexecutiveremainscontinuouslyemployedbyusthroughthedateoftheclosingofthechangeincontroltransaction,and(ii)theawardisassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrol,orisotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUsgrantedpursuanttotheawardwillbecomevestedinaccordancewiththeprovisionsofawardagreement,providedthatiftheexecutivesuffersaqualifyingtermination(asdefinedintheawardagreement)beforealltheRSUsbecomevestedandtheexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethereofthroughthedateofsuchqualifyingtermination,theRSUswillbecomefullyvestedastoallremainingRSUsupontheeffectivedateofsuchqualifyingtermination.
Theperformance-basedRSUawardsgrantedtoMessrs.Bauer,MitchellandGrubbsin2018and2017includechangeincontrolprovisionsthataresummarizedasfollows:
2018 performance-based RSUs with vesting based on TSR and EPS. IntheeventachangeincontroloccursbeforeDecember31,2020,theperformanceperiodwillterminateonclosingofthechangeincontroltransactionandthefollowingprovisionswillapply:
• If(i)theclosingofthechangeincontroltransactionoccursonorbeforeJanuary1,2019,(ii)theexecutiveremainscontinuouslybyusthroughthedateoftheclosingofthechangeincontroltransaction,and(iii)theawardisnotassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrolorotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,50%oftheRSUsgrantedpursuanttotheawardwilldateoftheclosingofthechangeincontrol.
• If(i)theclosingofthechangeincontroltransactionoccursonorbeforeJanuary1,2019,(ii)theexecutiveremainscontinuouslyemployedbyusthroughthedateoftheclosingofthechangeincontroltransaction,and(iii)theawardisassumedinfullbytheacquiring
-49-
orsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrol,orisotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,50%oftheRSUsgrantedpursuanttotheawardmayvestasfollows:if(a)theexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethroughtheDecember31,2020,50%oftheRSUswillbecomefullyvestedeffectiveasofDecember31,2020or(b)ifexecutivesuffersa“qualifyingtermination”(asdefinedintheawardagreement)beforeDecember31,2020,50%oftheRSUswillbecomevestedupontheeffectivedateofsuchqualifyingtermination.
• If(i)theclosingofthechangeincontroltransactionoccursafterJanuary1,2019,(ii)theexecutiveremainscontinuouslyemployedbyusthroughthedateoftheclosingofthechangeincontroltransaction,and(iii)theawardisnotassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrolorotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUgrantedpursuanttotheawardwillvestasofthedateoftheclosingofthechangeincontroltransaction,butonlywithrespecttoanumberofRSUsequaltothe“changeincontrolunits”(asdefinedintheawardagreement).
• If(i)theclosingofthechangeincontroltransactionoccursafterJanuary1,2019,(ii)theexecutiveremainscontinuouslyemployedbyusthroughthedateoftheclosingofthechangeincontroltransaction,and(iii)theawardisassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosingofthechangeincontrol,orisotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUsgrantedpursuanttotheawardmaybecomevested,butonlywithrespecttoanumberofRSUsequaltothe“changeincontrolunits”(asdefinedintheawardagreement),asfollows:if(a)theexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethroughDecember31,2020,suchchangeincontrolunitsshallbecomefullyeffectiveasoftheVestingDateor(b)iftheexecutivesuffersa“qualifyingtermination”beforeDecember31,2020andtheexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethroughthedateofsuchqualifyingtermination,thechangeincontrolunitswillbecomevestedupontheeffectivedateofthequalifyingtermination.
2017 performance-based RSUs with vesting based on TSR and EPS. IntheeventachangeincontroloccursbeforeDecember31,2019,theperformanceperiodwillterminateonclosingofthechangeincontroltransactionandthefollowingprovisionswillapply:
• If(i)theexecutiveremainscontinuouslyemployedbyusthroughtheclosingofthechangeincontroltransaction,and(ii)theawardisnotassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateuponclosingofthechangeincontroltransactionorotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUsgrantedpursuanttotheawardwillvestasofthedateoftheclosingofthechangeincontrol,butonlywithrespecttoanumberofRSUsequaltothe"changeincontrolunits"(asdefinedintheawardagreement).
• If(i)theexecutiveremainscontinuouslyemployedbyusthroughtheclosingofthechangeincontroltransaction,and(ii)theawardisassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateupontheclosing,orisotherwiseexpresslycontinuedinfullforceandeffectpursuanttothetermsofthechangeincontroltransaction,theRSUsgrantedpursuanttotheawardmaybecomevested,butonlywithrespectanumberofRSUsequaltothechangeincontrolunits(asdefinedintheawardagreement),as
-50-
follows:if(a)theexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethroughDecember31,2019,thechangeincontrolunitswillbecomefullyvestedasofDecember31,2019;or(b)theexecutivesuffersaqualifyingterminationbeforeDecember31,2019andtheexecutiveremainscontinuouslyemployedbyusoroursuccessor-in-interestoranaffiliatethroughthedateofthequalifyingtermination,thechangeincontrolunitswillbecomevestedontheeffectivedateofthequalifyingtermination.
ThefollowingtableshowstheestimatedpotentialpaymentsuponterminationofemploymentorachangeincontrolfortheNEOs.Thetableassumesthat(i)thetriggeringeventtookplaceonDecember31,2018,thelastbusinessdayofourfiscal2018;(ii)exceptinthecaseofterminationforcausebytheCompanyandterminationbyexecutivewithoutgoodreason,ourBoardofDirectorsdeterminesthatalloutstandingoptionswouldbecomeexercisable;(iii)exceptinthecaseofterminationforcausebytheCompany,terminationbyexecutivewithoutgoodreasonanddeathordisability,ourCompensationCommitteewouldacceleratealltime-basedRSUsthatremainunvested;(iv)theintrinsicvalueofequityvestingaccelerationiscomputed,(a)inthecaseofunexercisedoptions,bymultiplyingthedifferencebetweentheexercisepricesoftheunexercisedoptionsandtheclosingmarketpriceofourcommonstockonDecember31,2018($10.93),thelasttradingdayofourfiscalyear2018,bythenumberofunexercisedoptionsand,(b)inthecaseofunvestedRSUs,bymultiplyingtheclosingmarketpriceofourcommonstockonDecember31,2018($10.93),thelasttradingdayofourfiscalyear2018,bythenumberofunvestedRSUs;(v)inthecaseofdeathordisability,aperformanceincentivebonuswasearnedunderour2018annualincentiveplanatthelevelsetforthintheSummaryCompensationtableforeachindividual;(vi)inthecaseofMessrs.Bauer,Mitchell,andGrubbs,theexecutiveelectstoreceivecontinuedhealthcarecoveragepursuanttotheprovisionsofCOBRAfor18monthsusingratesofapproximately$2,000permonth;(vii)inthecaseofMessrs.LeeandKeeler,theexecutiveelectstoreceivecontinuedhealthcarecoveragepursuanttotheprovisionsofCOBRAfor12monthsusingratesofapproximately$2,000permonth;and(viii)inthecaseofMessrs.Bauer,Mitchell,Grubbs,Lee,andKeeler,theexecutiveremainscontinuouslyemployedbyusthroughthedateofclosingofthechangeincontroltransaction,theawardisnotassumedinfullbytheacquiringorsuccessorcompanyoritsaffiliateorotherwisecontinuedinfullforceandeffect,andthechangeincontroltransactionclosedonDecember31,2018.TheCompanyandtheaffectedexecutivesmay,dependinguponthecircumstances,negotiatefordifferentpaymentsthatmaybehigherorlowerthanthosedescribedinthetable.Amountstobeprovidedtoanexecutiveunderarrangementsthatdonotdiscriminateinscope,termsoroperationinfavorofourexecutiveofficersandareavailabletoallsalariedemployeesarenotincludedinthefollowingtableinaccordancewithSECregulations.
-51-
Name Payments and Benefits
InvoluntaryTermination For
Cause or VoluntaryTermination Other
Than for GoodReason ($)
InvoluntaryTermination
Without Cause orVoluntary
Termination forGood Reason ($)
Change in ControlWithout
Termination ($)
Change in ControlWith Voluntary
Termination for GoodReason or
InvoluntaryTermination Without
Cause ($)Death or Disability
($)
DouglasF.BauerSeverance — 4,160,000 — 6,240,000 1,593,600Equityawards — — 4,074,234 4,074,234 1,194,150
Healthbenefits — 36,000 — 36,000 —
Total — 4,196,000 4,074,234 10,350,234 2,787,750
ThomasJ.MitchellSeverance — 3,003,000 — 5,005,000 1,533,840Equityawards — — 3,917,509 3,917,509 1,148,219
Healthbenefits — 36,000 — 36,000 —
Total — 3,039,000 3,917,509 8,958,509 2,682,059
MichaelD.GrubbsSeverance — 2,093,265 — 3,488,775 933,750Equityawards — — 1,866,522 1,866,522 395,193
Healthbenefits — 36,000 — 36,000 —
Total — 2,129,265 1,866,522 5,391,297 1,328,943
DavidC.LeeSeverance — 625,000 — 625,000 155,625Equityawards — — 32,254 32,254 —
Healthbenefits — 24,000 — 24,000 —
Total — 649,000 32,254 681,254 155,625
GlennJ.KeelerSeverance — 540,305 — 540,305 270,788Equityawards — — 367,084 367,084 —
Healthbenefits — 24,000 — 24,000 —
Total — 564,305 367,084 931,389 270,788
Theabovetabledoesnotgiveeffecttoperformance-basedandtime-basedRSUsawardedtoourNEOsinFebruary2019nordoesitgiveeffecttothechangeseffectedbythe2019EmploymentAgreementsandthe2019SeveranceAgreements.
Theforegoingdescriptionsoftheperformance-basedRSUawards,theemploymentagreementsandtheseveranceandchangeincontrolprotectionagreementsaresummariesonlyandarenotcomplete.Thefulltextofthe2018EmploymentAgreements,theOriginalSeveranceAgreements,andtheawardagreementsareincludedasexhibitstoourcurrentreportsfiledonForm8-KwiththeSEConNovember20,2015,March2,2016,andFebruary26,2019.
-52-
Outstanding Equity Awards as of December 31, 2018
ThefollowingtableprovidesinformationregardingtheequityawardsheldbytheNEOsasofDecember31,2018.
Option Awards Stock Awards
Name
Number ofSecurities
UnderlyingUnexercised
OptionsExercisable (#)
Number ofSecurities
UnderlyingUnexercised Options
Unexercisable (#)
OptionExercisePrice ($)
OptionExpiration
Date
Number ofShares or Unitsof Stock That
Have NotVested (#)
Market Valueof Shares or
Units of StockThat Have Not
Vested($)
Equity IncentivePlan Awards:
Number ofUnearned Shares,
Units or OtherRights That Have
Not Vested (#)
Equity Incentive PlanAwards: Market or
Payout Value ofUnearned Shares,
Units or Other RightsThat Have Not Vested
($)
DouglasF.Bauer 94,067(1) — 17.00 1/30/2023 52,854(2) — 16.17 4/7/2024
33,048(3) 361,215
57,301(4) 626,300
32,232(5) 352,290
128,925(5) 1,409,150
61,393(6) 671,025
23,023(7) 251,636
92,089(7) 1,006,533
ThomasJ.Mitchell
94,067(1) — 17.00 1/30/2023 51,533(2) — 16.17 4/7/2024
31,776(3) 347,312
55,097(4) 602,210
30,992(5) 338,740
123,966(5) 1,354,948
59,031(6) 645,209
22,137(7) 241,957
88,547(7) 967,819
MichaelD.Grubbs
94,067(1) — 17.00 1/30/2023 50,211(2) — 16.17 4/7/2024
13,982(3) 152,823
26,447(4) 289,066
14,876(5) 162,595
59,504(5) 650,379
28,335(6) 309,702
10,626(7) 116,139
42,502(7) 464,547
DavidC.Lee 2,951(6) 32,254
-53-
GlennJ.Keeler 6,451(3) 70,509
12,697(4) 138,778
14,437(6) 157,796__________(1) 1/30/2013stockoptiongrant.(2) 4/7/2014stockoptiongrant.(3) 3/1/2016RSUaward;theremainingawardvestedon3/1/2019.(4) 2/27/2017RSUaward;onethirdoftheawardvestedon2/27/2019andtheremainingonethirdvestson2/27/2020.(5) 2/27/2017RSUawardthatvests,ifatall,on12/31/2019basedontheachievementofcertainperformancemetrics.(6) 2/22/2018RSUaward;onethirdoftheawardvestedon2/22/2019andonethirdvestsoneachof2/22/2020and2/22/2021,respectively.(7) 2/22/2018RSUawardthatvests,ifatall,on12/31/2020basedontheachievementofcertainperformancemetrics.
Option Exercises and Stock Vested
ThefollowingtablesetsforthonanaggregatedbasisforeachoftheNEOs,thenumberandvalueofsharesofourcommonstockacquireduponexerciseofstockoptions,andthenumberandvalueofsharesofourcommonstockacquireduponvestingofRSUsduring2018.
Option Awards Stock Awards
Name
Number of SharesAcquired on Exercise
(#) Value Realized on
Exercise ($)
Number of SharesAcquired on Vesting
(#) (1) Value Realized on
Vesting ($) (2)
DouglasF.Bauer — — 78,142 2,290,679ThomasJ.Mitchell — — 74,374 2,165,315MichaelD.Grubbs — — 46,880 1,308,392DavidC.Lee — — — —GlennJ.Keeler — — 11,030 271,596
__________(1) Representsthenetsharesacquiredafterwithholdingsharesfortaxobligations.(2) Representsthevalueoftheacquiredsharesbasedontheclosingstockpriceonthedateofvesting.
-54-
Pay Ratio Disclosure
AsrequiredbySection953(b)oftheDodd-FrankWallStreetReformandConsumerProtectionAct,andItem402(u)ofRegulationS-K,weareprovidingthefollowinginformationfor2018.AspermittedbyItem402(u),weareusingthesamemedianemployeethatweidentifiedinourproxystatementforour2018annualmeetingofshareholders(“MedianEmployee”).Webelievethattherehavebeennochangesinouremployeepopulationoremployeecompensationarrangementsthatwouldsignificantlyimpactthepayratio.Inmakingthisassessment,wehaveomittedthe64personswhobecameouremployeesinDecember2018asaresultofouracquisitionofDunhillHomes,LLC.
• theannualtotalcompensationofourCEO,Mr.Bauer,was$5,270,086;and
• theannualtotalcompensationofourMedianEmployeewas$124,243.
Basedonthisinformation,for2018theratiooftheannualtotalcompensationofourCEOtothatofourMedianEmployeewas42to1.
Forpurposesofcalculatingthepayratio,wedeterminedtheannualtotalcompensationofourCEOandourMedianEmployeeasfollows:
• AsofDecember31,2017,ouremployeepopulationconsistedof1,251individuals.
• WeidentifiedourMedianEmployeebyrankingfromlowesttohighesttheamountoftotalcashcompensationpaidtoeachoftheseemployees(otherthantheCEO)in2017.Weexcludedfromtherankingeightemployeesthatwerehiredinthelasttwoweeksof2017andreceivednocashcompensationduringtheyear.Totalcashcompensationconsistsofallwages,cashbonuspayments,andothercashpaymentsrepresentingcompensationduringtheperiod.Weannualizedthetotalcashcompensationof242full-timeandpart-timeemployeesincludedinouremployeepopulationwhowerehiredin2017butdidnotworkforustheentireyear.
• Webelievetotalcashcompensationisaconsistentlyappliedcompensationmeasurebecausewedonotwidelydistributeannualequityawardstoemployees,withonlyapproximately8%ofouremployeesreceivingannualequityawardsaspartoftheircompensationpackagein2017.
• WecalculatedtheannualtotalcompensationofourCEOandourMedianEmployeeusingthesamemethodologythatweusetocalculatetheannualtotalcompensationofournamedexecutiveofficersassetforthintheFiscal2018SummaryCompensationTableincludedelsewhereinthisproxystatement,exceptthat,inordertobetterreflectouremployeecompensationpractices,theannualtotalcompensationforourCEOandforourMedianEmployeeincludesthedollarvalueofnon-discriminatoryhealthandwelfarebenefitcontributionsmadebytheCompany,whicharenotrequiredtobereportedascompensationforourCEOintheFiscal2018SummaryCompensationTable.ThedifferencebetweenourCEO’sannualtotalcompensationreportedinthe"Total"columnoftheFiscal2018SummaryCompensationTableandtheannualtotalcompensationsetforthaboverepresentshealthandwelfarebenefitcontributions(inanamountequalto$18,695).ThedifferencebetweenourMedianEmployee’stotalcashcompensationandannualtotalcompensationsetforthabove
-55-
representscontributionstoadefinedcontributionplan(inanamountequalto$2,999)andhealthandwelfarebenefitcontributions(inanamountequalto$18,695).
TheSEC’srulesforidentifyingthemediancompensatedemployeeandcalculatingthepayratiobasedonthatemployee’sannualtotalcompensationallowcompaniestoadoptavarietyofmethodologies,toapplycertainexclusions,andtomakereasonableestimatesandassumptionsthatreflecttheiremployeepopulationsandcompensationpractices.Asaresult,thepayratioreportedbyothercompaniesmaynotbecomparabletothepayratioreportedabove,asothercompanieshavedifferentemployeepopulationsandcompensationpracticesandmayutilizedifferentmethodologies,exclusions,estimatesandassumptionsincalculatingtheirownpayratios.
-56-
DIRECTOR COMPENSATION
Thefollowingtablesetsforththetotalcashandequitycompensationpaidtonon-employeedirectorsfortheirserviceonourBoardofDirectorsandcommitteesofourBoardofDirectorsduringfiscal2018:
Name Fees earned or paid in
cash ($) Stock Awards ($) (1) Total ($)
LawrenceB.Burrows 85,000 139,994 224,994DanielS.Fulton 101,000 139,994 240,994StevenJ.Gilbert 175,000 139,994 314,994VickiD.McWilliams(2) 50,500 109,302 159,802ConstanceB.Moore 111,000 139,994 250,994ThomasB.Rogers 110,000 139,994 249,994
__________(1) TheamountsreportedinthiscolumnreflecttheaggregategrantdatefairvalueofRSUawardstoeachofthenon-employeedirectors,computedin
accordancewithFASBASCTopic718.Amountsshowndonotreflectcompensationactuallyreceivedorthatmayberealizedinthefuturebythedirectors.Foradiscussionoftheassumptionsrelatingtothevaluationoftheawards,pleaseseeNote14.StockBasedCompensationtoourauditedconsolidatedfinancialstatementsincludedinourAnnualReportonForm10‑KforthefiscalyearendedDecember31,2018.
(2) Ms.McWilliamswasappointedtoourBoardofDirectorsonJuly19,2018andreceivedapro-ratedRSUaward.
Compensation of Non-Employee Directors
Directorswhoareemployeesdonotreceiveanycompensationfortheirservicesasdirectors.Thecashandequitycompensationthatwepaytoournon-employeedirectorsiscomprisedofthefollowing:
• anannualcashretainerof$75,000andarestrictedstockawardof$140,000(basedupontheclosingpriceonthedateofgrant);
• anadditionalannualcashretainerof$25,000totheChairoftheAuditCommitteeandanadditionalcashretainerof$16,000fortheothermembersoftheAuditCommittee;
• anadditionalannualcashretainerof$20,000totheChairoftheCompensationCommitteeandanadditionalcashretainerof$10,000fortheothermembersofsuchcommittee;
• anadditionalannualcashretainerof$15,000totheChairoftheNominatingandCorporateGovernanceCommitteeandanadditionalcashretainerof$10,000fortheothermembersofsuchcommittee;and
• anadditionalannualcashretainerof$75,000totheChairmanofourBoardofDirectors.
Wereimburseournon-employeedirectorsforreasonableout-of-pocketexpensesincurredinconnectionwiththeperformanceoftheirdutiesasdirectors,including,butnotlimitedto,travelexpensesinconnectionwiththeirattendancein-personatboardandcommitteemeetings.
-57-
Director Stock Ownership Requirement
Eachofourindependentdirectorsisrequired,withinfiveyearsofbecomingamemberofourBoardofDirectors,toownsharesofcommonstockequaltofivetimestheannualcashretainerpayabletonon-employeedirectors.
-58-
REPORT OF THE AUDIT COMMITTEE
ThisreportoftheAuditCommitteeofourBoardofDirectorsisrequiredbytheSECand,inaccordancewithSECrules,willnotbedeemedtobepartoforincorporatedbyreferencebyanygeneralstatementincorporatingbyreferencethisproxystatementintoanyfilingundertheSecuritiesActof1933,asamended(the"SecuritiesAct")ortheExchangeAct,excepttotheextentthatwespecificallyincorporatethisinformationbyreference,andwillnototherwisebedeemed"solicitingmaterial"or"filed"undereithertheSecuritiesActortheExchangeAct.
TheAuditCommitteehasreviewedanddiscussedwithmanagementourauditedfinancialstatementsforthefiscalyearendedDecember31,2018.TheAuditCommitteehasalsoreviewedanddiscussedwithErnst&YoungLLP,ourindependentregisteredpublicaccountingfirmfor2018,theauditedfinancialstatementsforthefiscalyearendedDecember31,2018.Inaddition,theAuditCommitteediscussedwithErnst&YoungLLPthosemattersrequiredtobediscussedbyAuditingStandardNo.1301:CommunicationswithAuditCommittees,asadoptedbythePublicCompanyAccountingOversightBoard("PCAOB").Additionally,Ernst&YoungLLPprovidedtotheAuditCommitteethewrittendisclosuresandtheletterrequiredbyapplicablerequirementsofPCAOBregardingErnst&YoungLLP'scommunicationswiththeAuditCommitteeconcerningindependence.TheAuditCommitteealsodiscussedwithErnst&YoungLLPtheaccountingfirm'sindependence.
Basedupontheforegoingreviewanddiscussionsdescribedinthisreport,theAuditCommitteerecommendedtoourBoardofDirectorsthattheauditedfinancialstatementsbeincludedinourForm10‑KforthefiscalyearendedDecember31,2018forfilingwiththeSEC.
Respectfullysubmittedby:
THEAUDITCOMMITTEEOFTHEBOARDOFDIRECTORS
ThomasB.Rogers,AuditCommitteeChairDanielS.FultonVickiD.McWilliamsConstanceB.Moore
February20,2019
-59-
MANAGEMENT
Setforthbelowarethenames,agesandpositionsofTRIPointe'sexecutiveofficersasofMarch1,2019.Eachexecutiveofficershallholdofficeuntiltheexecutiveofficer'srespectivesuccessoriselectedandqualifiedoruntiltheexecutiveofficer'searlierdeath,resignationorremoval.
Name Age Position with TRI PointeDouglasF.Bauer 57 ChiefExecutiveOfficerThomasJ.Mitchell 58 PresidentandChiefOperatingOfficerMichaelD.Grubbs 60 ChiefFinancialOfficerandTreasurerGlennJ.Keeler 42 VicePresidentandChiefAccountingOfficerDavidC.Lee 47 VicePresident,GeneralCounselandSecretary
ForbiographicalinformationforMr.DouglasF.Bauer,see"BoardofDirectors—DirectorNominees."
THOMASJ.MITCHELL.Mr.MitchellhasservedasTRIPointe'sPresidentandChiefOperatingOfficersinceJanuary30,2013.HeservedasamemberoftheboardofmanagersofTPHLLCpriortoitsconversionintoacorporation.PriortoformingTPHLLCinApril2009,from1988to2009,Mr.Mitchellservedinseveralcapacities,includingmostrecentlyExecutiveVicePresident,forWilliamLyonHomes,ahomebuildingcompanywhosecommonstockwaslistedontheNYSEfrom1999untilthecompanywastakenprivatein2006.Throughhisvariousroleswithinthatcompany,Mr.Mitchelldevelopedabroadbackgroundandexperienceinallaspectsofresidentialconstructionandlanddevelopment.Priortohis20-yeartenureatWilliamLyonHomes,Mr.MitchellspentovertwoyearswithTheIrvineCompanyintheircommunitydevelopmentgroupandovertwoyearswithPacificSavingsBank.Throughouthiscareer,Mr.Mitchellhasobtainedsignificantexperienceinlandacquisition,landentitlement,landdevelopment,projectplanning,productdesign,constructionoperations,projectandcompanyfinance,salesandmarketing,customersatisfactionandwarrantyservice.Mr.Mitchellhasmorethan30yearsofexperienceintherealestatedevelopmentandhomebuildingindustry.Hisaccomplishmentshavebeenrecognizedby,amongotherthings,himbeingawardedtheOutstandingHomeDesignandNationalHomeoftheYearawardsandbeingidentifiedbyHomeBuilderExecutiveasaTop100President.In2004,Mr.MitchellwasawardedtheBIAInlandEmpireBuilderoftheYear.Mr.MitchellreceivedhisB.A.fromCaliforniaStateUniversityofLongBeach.
MICHAELD.GRUBBS.Mr.GrubbshasservedasTRIPointe'sChiefFinancialOfficerandTreasurersinceJanuary30,2013.PriortoformingTPHLLCinApril2009,from1992to2009,Mr.Grubbsservedinseveralcapacities,includingmostrecentlytheSeniorVicePresidentandChiefFinancialOfficer,forWilliamLyonHomes,ahomebuildingcompanywhosecommonstockwaslistedontheNYSEfrom1999untilthecompanywastakenprivatein2006.Priortohis17-yeartenureatWilliamLyonHomes,Mr.GrubbsspentfiveyearsatKennethLeventhal&CompanywherehespecializedinrealestateaccountingandoverfiveyearsatJ.C.PenneyCompanyConstructionandRealEstateDivisionwhichbuiltretailfacilitiesthroughouttheWesternUnitedStates.Mr.Grubbshasmorethan30yearsofexperienceinresidentialrealestateandhomebuildingfinance.Mr.Grubbsisamember(inactive)oftheAmericanInstituteofCertifiedPublicAccountantsandtheCaliforniaSocietyofCertifiedPublicAccountants.Mr.GrubbsisalsoaformermemberoftheBoardofDirectorsforHomeAidOrangeCounty,acharitableorganizationwiththemissionofbuildingorrenovatingsheltersforthetemporarilyhomeless,whichservesindividualsandfamilieswhofindthemselveswithoutshelterduetosuchfactorsasdomesticviolence,jobloss,catastrophicillnessorcrisispregnancy.HeservedasTreasurerand
-60-
committeechairfortheFinanceFocusGroup.Mr.GrubbsreceivedhisB.A.,magnacumlaude,withhonorsfromArizonaStateUniversity.
GLENNJ.KEELER.Mr.KeelerjoinedTRIPointeinFebruary2013andcurrentlyservesasourVicePresidentandChiefAccountingOfficer.From2011until2013,heservedasCorporateControllerofSTEC,Inc.,apubliclytraded,globalproviderofenterprise-classsolidstatedrives.From2006until2011,Mr.KeelerservedasDirectorofFinanceandControllerofLantronix,Inc.,apubliclytradeddesigner,developer,marketerandsellerofnetworkingandcommunicationsproducts.Mr.KeelerspentsixyearsatErnst&YoungLLPservingclientsintherealestate,technologyandmanufacturingindustries.Mr.KeelerisaCertifiedPublicAccountant(inactive)inCaliforniaandearnedhisB.A.fromCaliforniaStateUniversityDominguezHills.
DAVIDC.LEE.Mr.LeehasservedasourVicePresident,GeneralCounselandSecretarysinceJanuary2018.From2013untiljoiningourmanagementteam,Mr.LeewasapartnerintheOrangeCountyandLosAngelesofficesofK&LGatesLLP,wherehefocusedoncapitalmarketstransactions,mergersandacquisitionsandgeneralcorporateandsecuritiesmatters.From2004to2013,Mr.LeewasacorporateandsecuritieslawyerwithGibson,Dunn&CrutcherLLP,andfrom1998to2004,Mr.LeeservedasspecialcounselintheOfficeofChiefCounselattheU.S.SecuritiesandExchangeCommission'sDivisionofCorporationFinanceandascounseltoanSECCommissioner.Mr.LeereceivedhisB.A.fromUniversityofCalifornia,Riverside,hisM.B.A.fromLoyolaMarymountUniversityandhislawdegreefromLoyolaLawSchool,LosAngeles.
-61-
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section16(a)oftheExchangeActrequiresTRIPointe'sdirectorsandcertainofficers,andpersonswhoownmorethan10%ofaregisteredclassofTRIPointeequitysecurities,tofilewiththeSECinitialreportsofownershipandreportsofchangesinownershipofTRIPointecommonstockandotherequitysecurities.Certainofficers,directorsandgreater-than-ten-percentstockholdersarerequiredbySECregulationtofurnishTRIPointewithcopiesofallSection16(a)formstheyfile.ToTRIPointe'sknowledge,basedoninformationfurnishedbythesepersons,allSection16(a)filingrequirementsapplicabletoTRIPointe'sdirectors,executiveofficers,andgreater-than-ten-percentstockholderswerecompliedwithonatimelybasisduringthefiscalyearendedDecember31,2018,exceptthatduetoanadministrativeerror,theinitialForm3forMr.Leewasnottimelyfiled.
-62-
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Inadditiontothecompensationdescribedinthesectionentitled"ExecutiveCompensation,"ourexecutiveofficers,directorsandotherrelatedpartieswillbeentitledtoreceive,orhavereceivedsincethebeginningofthelastfiscalyear,materialfinancialandotherbenefits,includingthefollowing:
Indemnification Agreements
Wehaveenteredintoanindemnificationagreementwitheachofourdirectorsandourcurrentexecutiveofficers.TheseagreementsrequireustoindemnifytheseindividualstothefullestextentpermittedunderDelawarelawagainstliabilitiesthatmayarisebyreasonoftheirservicetous,andtoadvanceexpensesincurredasaresultofanyproceedingagainstthemastowhichtheycouldbeindemnified.
Conflicts of Interest
TRIPointehasadoptedwrittenCorporateGovernanceGuidelinesthat,amongotherthings,requiredirectorstodisclosetotheChairmanofourBoardofDirectorspersonalorbusinessintereststhatinvolveanactualorpotentialconflictofinterest.Inaddition,ourCodeofBusinessConductandEthicsrequiresthata"RelatedPersonTransaction"mustbeapprovedinadvancebyavoteofamajorityofourdisinterestedandindependentdirectors.A"RelatedPersonTransaction"meansanytransaction,arrangementorrelationshipinwhich(i)TRIPointeisaparticipant,(ii)theamountinvolvedwill,ormaybeexpectedto,exceed$120,000,and(iii)a"RelatedPerson"has,orwillhave,adirectorindirectmaterialinterest."RelatedPerson"means(i)amemberoftheBoardofDirectorsoftheCompanyandanynominee;(ii)anexecutiveofficer(asdefinedunderSecuritiesandExchangeCommissionrules)oftheCompany;(iii)anystockholderbeneficiallyowningmorethanfivepercentofanyoutstandingclassofTRIPointe'svotingsecurities;(iv)anImmediateFamilyMemberofanysuchperson,and(v)anyentityinwhichanypersonidentifiedin(i)through(iii)isemployed,orisapartnerorprincipal(orholdsasimilarposition),orisabeneficialownerofa10%orgreaterdirectorindirectequityinterest."ImmediateFamilyMember"meansanyspouse,child,stepchild,son-in-lawordaughter-in-law,parent,stepparent,mother-in-laworfather-in-law,sibling,brother-in-laworsister-in-lawofaperson,andanypersonsharingthehouseholdofsuchperson(otherthanatenantoremployee).OurChiefExecutiveOfficer,ChiefFinancialOfficerandChiefAccountingOfficer(orpersonsperformingsimilarfunctions)(collectively,"SeniorOfficers"andeacha"SeniorOfficer")mustcomplywithourCodeofEthicsforSeniorExecutiveandFinancialOfficers,whichrequiresthepriorwrittenapprovaloftheAuditCommitteebeforeaSeniorOfficermakesanyinvestment,acceptsanypositionorbenefits,participatesinanytransactionorbusinessarrangementorotherwiseactsinamannerthatcreatesorappearstocreateaconflictofinterest.Neithertheadoptionofthesepoliciesnoranycommunicationconcerningthesepoliciesisintendedtoconstitutearepresentationconcerningpast,presentorfuturecompliancebythepersonssubjecttothem.Wecannotassureyouthatthesepolicieswillbesuccessfulineliminatingtheinfluenceofconflictsofinterest.ThesepoliciesmaybeamendedfromtimetotimeatthediscretionofourBoardofDirectors,withoutavoteofstockholders.
-63-
AUDIT COMMITTEE MATTERS
Independent Registered Public Accounting Firm Fees
ThefollowingtablerepresentsaggregatefeesbilledtousforthefiscalyearsendedDecember31,2018and2017byErnst&YoungLLP.AllfeesbelowwereapprovedbytheAuditCommitteeinconformitywiththeAuditCommittee'spre-approvalprocess.
Year Ended December 31,
2018 2017
AuditFees(1) $2,162,000 $2,325,214
Audit-RelatedFees(2) — —
TaxFees(3) 293,163 463,328
AllOtherFees(4) 2,000 2,000
Total $2,457,163 $2,790,542__________(1) ThesearefeesforprofessionalservicesperformedbyErnst&YoungLLPfortheauditofTRIPointe'sannualfinancialstatements,consentsand
comfortlettersandservicesthatarenormallyprovidedinconnectionwithstatutoryandregulatoryfilingsorengagements.(2) ThesearefeesforassuranceandrelatedservicesperformedbyErnst&YoungLLPthatarereasonablyrelatedtotheperformanceoftheauditor
reviewofTRIPointe'sfinancialstatements,includingconsultingonfinancialaccounting/reportingstandards.(3) ThesearefeesforprofessionalservicesperformedbyErnst&YoungLLPwithrespecttotaxcompliance,taxadviceandtaxplanning.Thisincludes
thepreparationofTRIPointe'sanditsconsolidatedsubsidiaries'originalandamendedtaxreturns,refundclaims,paymentplanning,taxauditassistanceandtaxworkstemmingfrom"Audit-Related"items.
(4) ThesearefeesforotherpermissibleworkperformedbyErnst&YoungLLPthatdoesnotmeettheabovecategorydescriptions.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
TheAuditCommitteehasresponsibilityforestablishingpoliciesandproceduresforthepre-approvalofauditandnon-auditservicesrenderedbyourindependentregisteredpublicaccountingfirm,Ernst&YoungLLP.TheAuditCommitteehasthesoleauthorityandresponsibilitytoselect,appoint,evaluate,compensate,retainandoverseetheworkofanyindependentregisteredpublicaccountingfirmengagedforthepurposeofpreparingorissuinganauditreportorperformingotheraudit,revieworattestservicesforus(includingresolutionofdisagreementsbetweenmanagementandtheindependentregisteredpublicaccountingfirmregardingfinancialreporting).OurinternalauditingfunctionandtheindependentregisteredpublicaccountingfirmreportsdirectlytotheAuditCommittee.TheAuditCommitteehasthesoleauthoritytoapproveallauditengagementfeesandterms,andtheAuditCommittee,ortheChairoftheAuditCommittee,mustpre-approveanyauditandnon-auditservicesprovidedtousbytheindependentregisteredpublicaccountingfirmandthefeesandtermsthereof(providedthattheChairmaynotpre-approveservicesinexcessof$25,000andmustreportanysuchapprovaltothefullAuditCommitteeatthenextregularlyscheduledmeetingoftheAuditCommittee).
-64-
STOCKHOLDER PROPOSALS FOR 2020 ANNUAL MEETING
Stockholderswhowishtosubmitaproposaltobeconsideredforinclusioninourproxystatementandformofproxyforthe2020AnnualMeetingofStockholdersmaydosobyfollowingtheproceduressetforthinRule14a‑8undertheExchangeAct.Tobeeligibleforinclusion,proposalsmustbesubmittedinwritingandreceivedbyusonorbeforeNovember22,2019atTRIPointeGroup,Inc.,19540JamboreeRoad,Suite300,Irvine,California92612,Attention:CorporateSecretary.
AnystockholderwhointendstonominateanindividualforelectiontoourBoardofDirectorsorsubmitamatterforconsiderationatthe2020annualmeeting,otherthanbysubmittingaproposaltobeincludedinour2020proxystatement,mustgivetimelynoticeaccordingtoourBylaws.OurBylawsprovidethat,tobetimelyforsubmissiontothe2020annualmeeting,astockholder'snoticemustbemailedtoandreceivedatourprincipalexecutiveoffices,at19540JamboreeRoad,Suite300,Irvine,California92612notlessthan90daysnormorethan120dayspriortothefirstanniversaryofthedateonwhichwefirstmailedourproxymaterialsornoticeofavailabilityofproxymaterials(whicheverisearlier)forthe2019annualmeeting;provided,however,thatifthe2020annualmeetingisheldorthe2020annualmeetingdateiscalledforadatethatisnotwithin30daysfromthefirstanniversarydateofthe2019annualmeeting,thenwrittennoticebyastockholderinordertobetimelymustbereceivednoearlierthanthe120thdaybeforethedateofsuchannualmeetingandnotlaterthanthelaterofthe90thdaybeforethedateofsuchannualmeeting,asoriginallyconvened,orthecloseofbusinessonthetenthdayfollowingthedayonwhichthefirstpublicdisclosureofthedateofsuchannualmeetingwasmade.Fortheavoidanceofdoubt,ifthenoticeofproposedmatterornominatedindividualisnotreceivedduringthistime-frame,suchproposalwillbedeemeduntimelyandwillnotbeaccepted.
Foreachmatteranystockholderintendstobringbeforethe2020annualmeeting,thestockholder'snoticemustcomplywithallapplicableprovisionsofourBylaws,includingadescriptionoftheproposalorbusiness(includingthecompletetextofanyresolutionstobepresentedattheannualmeeting,and,intheeventthatsuchbusinessincludesaproposaltoamendourBylaws,thetextoftheproposedamendment),thereasonsforconductingsuchbusinessattheannualmeeting,andanymaterialinterestthestockholderhasinthatbusinessaswellasinformationregardingthestockholder,thenumberofsharesofourcommonstockthatthestockholderownsandarepresentationthatsuchstockholderintendstoappearinpersonorbyproxyattheannualmeeting.AnystockholderproposalsmustalsocomplyinallrespectswiththerulesandregulationsoftheSEC.Formoreinformation,andformoredetailedrequirements,pleaserefertoourAmendedandRestatedBylaws,filedasExhibit3.1toourCurrentReportonForm8‑K,filedwiththeSEConOctober27,2016.
-65-