UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

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BEAZER HOMES USA, INC.

(Name of Registrant as Specified in Its Charter)

 

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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Beazer Homes USA, Inc.
1000 Abernathy Road, Suite 1200, Atlanta, Georgia 30328

 

***

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

TO THE STOCKHOLDERS OF BEAZER HOMES USA, INC.:

 

Notice is hereby given that the annual meeting of stockholders of Beazer Homes USA, Inc. (“Beazer Homes” or the “Company”) will be held at 2:00 p.m. on Tuesday, August 5, 2008 at 1000 Abernathy Road, Atlanta, Georgia 30328. At this meeting, stockholders will vote on:

 

1) The election of the six nominees for the Board of Directors named in the accompanying Proxy Statement.

 

2) The ratification of the selection of Deloitte & Touche LLP by the Audit Committee of the Board of Directors as independent auditor for the fiscal year ending September 30, 2008.

 

3) The approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to authorize a stock option/stock-settled stock appreciation right (“SSAR”) exchange program for eligible employees other than executive officers and directors.

 

4) The approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to treat awards of SSARs under the plan in the same manner as stock options.

 

5) Any other such business as may properly come before the meeting or any adjournments or postponements thereof.

 

The Board of Directors has fixed the close of business on June 16, 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting. A copy of Beazer Homes’ annual report to stockholders is being mailed to you together with this notice.

 

We encourage you to take part in the affairs of Beazer Homes by voting either in person by written ballot at the meeting or by telephone, internet or written proxy.

 

By Order of the Board of Directors,

 

BRIAN C. BEAZER

Non-Executive Chairman of the Board

 

Dated: July 1, 2008

 

 

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE

ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON AUGUST 5, 2008.

 

The Company’s Proxy Statement for the 2008 Annual Meeting of Stockholders and the Annual Report to Stockholders for the fiscal year ended September 30, 2007 are available at:
http://www.proxyvote.com

 

You will need the 12-digit Control Number included on your proxy card or voting instruction form to access these materials.

 

HOW TO VOTE

 

You can vote your shares in person by attending the meeting, by completing and returning a proxy by mail, or by using the telephone or the internet. Please refer to the proxy card or voting instruction form included with these proxy materials for information on the voting methods available to you. If you vote by telephone or on the internet, you do not need to return your proxy card. Please see page 1 of the accompanying Proxy Statement for more information.

 

ANNUAL MEETING ADMISSION

 

Please note that attendance at the meeting is limited to Company stockholders or their named representatives. Proof of ownership of Beazer common stock as of the record date and photo identification will be required for admittance to the annual meeting. If you are a registered stockholder, the top portion of your proxy card may serve as proof of ownership. If you are attending on behalf of an entity that is a stockholder, evidence of your employment or association with that entity is also required.

 

To obtain directions to attend the annual meeting and vote in person, contact Investor Relations at (770) 829-3700.

 

ELECTRONIC DELIVERY OF PROXY MATERIALS

 

Instead of receiving copies of the proxy statement and annual report in the mail, stockholders may elect to receive an email with a link to future proxy statements, proxy cards and annual reports on the internet. Receiving your proxy materials online saves us the cost of producing and mailing documents to you and significantly reduces the environmental impact. Stockholders may enroll to receive proxy materials online as follows:

 

TABLE OF CONTENTS

 

BEAZER HOMES USA, INC.
1000 Abernathy Road
Suite 1200
Atlanta, Georgia 30328

 

 

 

PROXY STATEMENT

 

 

 

This Proxy Statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors of Beazer Homes USA, Inc., a Delaware corporation (“Beazer Homes” or the “Company”), for use at the annual meeting of stockholders of Beazer Homes to be held on August 5, 2008 and at any adjournments or postponements thereof. Stockholders of record at the close of business on June 16, 2008 are entitled to notice of and to vote at the annual meeting. On June 16, 2008, we had outstanding 39,240,011 shares of common stock. Each share of common stock entitles the holder to one vote with respect to each matter to be considered. The common stock is our only outstanding class of voting securities. This Proxy Statement and the enclosed form of proxy are being mailed to stockholders, together with our annual report to stockholders (which includes our annual report on Form 10-K for our fiscal year ended September 30, 2007), commencing on or about July 3, 2008.

 

General — Shares represented by a proxy will be voted in the manner directed by the stockholder. If no direction is made, except as discussed below regarding broker non-votes, the completed proxy will be voted:

 

1. for the election of the six nominees for the Board of Directors named in this Proxy Statement;

 

2. for the ratification of the selection of Deloitte & Touche LLP as the Company’s independent auditor for fiscal year 2008;

 

3. for the approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to authorize a stock option/SSAR exchange program for eligible employees other than executive officers and directors;

 

4. for the approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to treat awards of SSARs under the plan in the same manner as stock options; and

 

5. in accordance with the judgment of the persons named in the proxy as to such others matters as may properly come before the annual meeting.

 

If you are a stockholder of record as of the close of business on June 16, 2008 you can give a proxy to be voted at the meeting either:

 

1. by mailing in the enclosed proxy card;

 

2. by written ballot at the meeting;

 

3. over the telephone by calling a toll-free number; or

 

4. electronically, using the internet.

 

The telephone and internet voting procedures have been set up for your convenience and have been designed to authenticate your identity, to allow you to give voting instructions and to confirm that those instructions have been recorded properly. If you are a stockholder of record and you would like to vote by telephone or by using the internet, please refer to the instructions on the enclosed proxy card.

If you hold your shares in “street name,” you must vote your shares in the manner prescribed by your broker or nominee. Your broker or nominee has enclosed or provided a voting instruction form for you to use in directing the broker or nominee on how to vote your shares.

 

Signature Requirements — If stock is registered in the name of more than one person, each named person should sign the proxy. If the stockholder is a corporation, the proxy should be signed in the corporation’s name by a duly authorized officer. If a proxy is signed as an attorney, trustee, guardian, executor, administrator or a person in any other representative capacity, the signer’s full title should be given.

 

Revocation — A stockholder giving the enclosed proxy may revoke it at any time before the vote is cast at the annual meeting by executing and returning to the Secretary of Beazer Homes (Peggy J. Caldwell) at the Company’s principal office or to the official tabulator (Broadridge Financial Solutions, Inc., 51 Mercedes Way, Edgewood, NY 11717) either a written revocation or a proxy bearing a later date prior to the annual meeting. Any stockholder who attends the annual meeting in person will not be considered to have revoked his or her proxy unless such stockholder affirmatively indicates at the annual meeting his or her intention to vote in person the shares represented by such proxy. In addition, a stockholder may revoke a proxy by submitting a subsequent proxy by internet or telephone by following the instructions on the enclosed proxy.

 

Quorum: Vote Required — The presence, in person or by proxy, of the holders of a majority of the outstanding shares of common stock is required to constitute a quorum at the meeting. Shares represented by proxies which indicate that the stockholders abstain as to the election of directors or to other proposals will be treated as being present for the purpose of determining the presence of a quorum and, other than for the election of directors, the number of votes cast with respect to each proposal. Consequently, an abstention will have the effect of a vote against with respect to proposals other than the election of directors. If a broker does not receive instructions from the beneficial owner of shares of common stock held in street name for certain types of proposals it must indicate on the proxy that it does not have authority to vote such shares (a “broker non-vote”) as to such proposals. Shares represented by broker non-votes will be considered present for purposes of a quorum, but will not be considered voted with regard to or treated as present with respect to those proposals to which it relates.

 

The holders of common stock will be entitled to one vote for each share they hold. In uncontested elections of directors, such as this election, each director will be elected if the votes cast for such director exceed the votes cast against such director. See the Corporate Governance section below for a more detailed description of the majority voting procedures in our Bylaws and Corporate Governance Policy. The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of common stock present or represented at the annual meeting and entitled to vote on the matter is required to ratify the selection of Deloitte & Touche LLP as the Company’s independent auditor for fiscal year 2008 by the Audit Committee of the Board of Directors.

 

The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of common stock present or represented at the annual meeting and entitled to vote on the matter is required to approve the amendments to the Amended and Restated 1999 Stock Incentive Plan, either of which may be approved independently of the approval of the other, provided that a majority of the outstanding shares of common stock are voted with respect to each such amendment proposal to be approved. In determining whether the amendment proposals have received the requisite number of affirmative votes, abstentions will be counted and will have the same effect as a vote against the proposal in question. Broker non-votes will not be considered shares present for voting purposes, but may affect the voting to the extent that broker non-votes cause less than a majority of the outstanding shares of common stock to be voted on the matter.

 

New York Stock Exchange (“NYSE”) regulations prohibit broker or other nominees that are NYSE member organizations from voting in favor of proposals relating to equity compensation plans other than in accordance with specific instructions received from the beneficial owner of the shares with respect to the vote. If your shares are held through a broker or other nominee who is a NYSE member organization, your shares will only be voted with respect to the amendments to the Amended and Restated 1999 Stock Incentive Plan if you have provided specific voting instructions to your broker or other nominee regarding these proposals. If you do not provide instructions, your shares will be treated as broker non-votes for these proposals.

 

Expenses incurred in connection with the solicitation of proxies will be paid by Beazer Homes. Proxies are being solicited primarily by mail but, in addition, officers and other employees of Beazer Homes may solicit proxies by telephone, in person or by other means of communication but will receive no extra compensation for such services. In addition, Beazer Homes has engaged Morrow & Co., LLC to assist in the solicitation of proxies. Beazer Homes anticipates that the costs associated with this engagement will be approximately $12,500 plus costs and expenses incurred by Morrow & Co. Beazer Homes will reimburse banks, brokerage firms and other custodians, nominees and fiduciaries for costs incurred in connection with this solicitation.

 

The following table sets forth information as of June 16, 2008 with respect to the beneficial ownership of Beazer Homes’ common stock by all persons known by us to beneficially own more than 5% of our common stock.

 

 

 

General

 

Our by-laws provide that in uncontested elections of directors, such as this election, each director will be elected if the votes cast for such director exceed the votes cast against such director. See the Corporate Governance section below for a more detailed description of the majority voting procedures in our by-laws and Corporate Governance Policy. For other matters presented for stockholder approval, our by-laws require the affirmative vote of a majority of the shares present or represented at the meeting, unless some other percentage is required by law or by the certificate of incorporation. Please refer to page 1 of this Proxy Statement for voting instructions.

Following is a discussion of the matters to be presented for stockholder approval at the annual meeting:

 

 

Each of the nominees listed below has been nominated as a director for the fiscal year ending September 30, 2008 and until their respective successors have qualified and are elected. Each of the following nominees is presently serving as a director of Beazer Homes. Katie J. Bayne, presently a director of the Company, informed us on June 29, 2008 that she will not stand for re-election at the annual meeting so that she may focus her full attention to the additional responsibilities arising from her recent promotion to Chief Marketing Officer, Coca-Cola North America for The Coca-Cola Company. Mrs. Bayne will continue as a member of the Board of Directors until the annual meeting of stockholders. We wish to express our gratitude to Mrs. Bayne for her valuable service to the Company. As a result of Mrs. Bayne not seeking re-election, the size of the board will be reduced to six members effective August 5, 2008. The Board periodically evaluates the appropriate size of the Board and will set the number of directors in accordance with the Company’s By-laws and based on recommendations of the Nominating/Corporate Governance Committee.

 

In the event any nominee is not available as a candidate for director, votes will be cast pursuant to authority granted by the enclosed proxy for such other candidate or candidates as may be nominated by the Nominating/Corporate Governance Committee of the Board of Directors. The Board of Directors has no reason to believe that any nominee will be unable or unwilling to serve as a director, if elected.

 

Each director will be elected if the votes cast for such director exceed the votes cast against such director.

 

We recommend that you vote your shares to elect the following nominees. Please see the Voting Instructions on page 1 of this Proxy Statement for instructions on how to cast your vote.

 

The information appearing below with respect to each nominee has been furnished to Beazer Homes by the nominee:

 

LAURENT ALPERT.  Mr. Alpert, 61, has served as a director since February 2002. Mr. Alpert is a partner in the international law firm of Cleary, Gottlieb, Steen & Hamilton. He joined Cleary, Gottlieb, Steen & Hamilton in 1972 and became a partner in 1980. He received his undergraduate degree from Harvard College and a law degree from Harvard Law School. Mr. Alpert is also a Director of the International Rescue Committee, a non-profit organization providing relief and resettlement services to refugees.

 

BRIAN C. BEAZER.  Mr. Beazer, 73, is the Non-Executive Chairman of Beazer Homes’ Board of Directors and has served as a director of Beazer Homes since its initial public offering (the “IPO”) in 1994. From 1968 to 1983, Mr. Beazer was Chief Executive Officer of Beazer PLC, a United Kingdom company, and then was Chairman and CEO of that company from 1983 to the date of its acquisition by an indirect, wholly-owned subsidiary of Hanson PLC (effective December 1, 1991). During that time Beazer PLC expanded its activities to include homebuilding, quarrying, contracting and real estate, and became an international group with annual revenue of approximately $3.4 billion. Mr. Beazer was educated at the Cathedral School, Wells, Somerset, England. He is a Director of Beazer Japan, Ltd; Seal Mint, Ltd; United Pacific Industries Limited; and Numerex Corp., and is a private investor.

 

PETER G. LEEMPUTTE.  Mr. Leemputte, 51, has been a director since August 2005. Mr. Leemputte has been Senior Vice President and Chief Financial Officer for Brunswick Corporation, a publicly traded global leader in the leisure products industry, including pleasure boats, marine engines, bowling and billiards products and fitness equipment since 2003, having joined Brunswick in 2001 as Vice President and Controller.

Prior to joining Brunswick Corporation, Mr. Leemputte was Executive Vice President, Chief Financial and Administrative Officer of Chicago Title Corporation, a leading publicly traded national service provider offering residential and commercial title insurance. Before joining Chicago Title Corporation, Mr. Leemputte was a Vice President with Mercer Management Consulting in Chicago where he was a partner in the firm’s global practice covering strategy and operational studies within process industries. His career also includes domestic and international financial assignments with Armco Inc., FMC Corporation and BP Amoco. He also served as a product development engineer with Procter & Gamble Company. Mr. Leemputte holds a Bachelor of Science degree in Chemical Engineering from Washington University, St. Louis and a Master of Business Administration in Finance and Marketing from the University of Chicago Graduate School of Business.

 

IAN J. MCCARTHY.  Mr. McCarthy, 54, is the President and Chief Executive Officer of Beazer Homes and has served as a director of Beazer Homes since the IPO. Mr. McCarthy has served as President of predecessors of Beazer Homes since January 1991 and was responsible for all United States residential homebuilding operations in that capacity. During the period May 1981 to January 1991, Mr. McCarthy was employed in Hong Kong and Thailand, becoming a director of Beazer Far East and from January 1980 to May 1981 was employed by Kier, Ltd., a company engaged in the United Kingdom construction industry which became an indirect, wholly owned subsidiary of Beazer PLC. Mr. McCarthy is a Chartered Civil Engineer with a Bachelor of Science degree from The City University, London. Mr. McCarthy currently serves as a member of the Board of Directors of HomeAid America and of Builder Homesite, Inc. He was inducted into the California Building Industry Hall of Fame in 2004, the first non-California resident to receive this honor.

 

LARRY T. SOLARI.  Mr. Solari, 65, has served as a director of Beazer Homes since the IPO. From 1998 to 2001, Mr. Solari was the Chairman and CEO of BSI Holdings, Inc. in Carmel, California. Mr. Solari was the Chairman and CEO of Sequentia, Inc. from 1996 to 1997 and President of the Building Materials Group of Domtar, Inc. from 1994 to 1996. Mr. Solari was President of the Construction Products Group of Owens-Corning Fiberglas from 1986 to 1994. Mr. Solari held various other positions with Owens-Corning Fiberglas since 1966. Mr. Solari earned a Bachelor of Science degree in Industrial Management and a Master of Business Administration degree from San Jose State University and is a graduate of Stanford University’s Management Program. Mr. Solari is a Director of Pacific Coast Building Products, Inc., Atrium Companies, Inc., TruStile Doors, LLC, and Performance Contracting Group. Mr. Solari is a past director of the Policy Advisory Board of the Harvard Joint Center for Housing Studies and an Advisory Board Member of the National Home Builders Association.

 

STEPHEN P. ZELNAK, JR.  Mr. Zelnak, 63, has served as a director of Beazer Homes since February 2003. He is the Chairman and Chief Executive Officer of Martin Marietta Materials, Inc. Mr. Zelnak joined Martin Marietta Corporation in 1981 and prior to assuming his current position in 1993, had been the President of Martin Marietta Corporation’s Materials Group and of Martin Marietta’s Aggregates Division. Mr. Zelnak received a Bachelors degree from Georgia Institute of Technology and Masters degrees in Administrative Science and Business Administration from the University of Alabama System. He has served as Chairman of the North Carolina Citizens for Business and Industry, and is the past Chairman of the North Carolina Community College Foundation. He serves on the Board of Visitors at North Carolina State University and the Georgia Institute of Technology Foundation Board.

 

For fiscal year 2007, our Board of Directors had four committees: The Audit Committee, the Nominating/Corporate Governance Committee, the Compensation Committee and the Finance Committee. The Audit Committee meets the definition of an audit committee as set forth in Section 3(a)(58)(A) of the Securities Exchange Act of 1934. In fiscal 2007 the Board of Directors had 15 meetings, and each meeting was attended in full with the exception of Mr. Leemputte, who was absent from two meetings. In addition, directors are encouraged to attend the annual meeting of stockholders, but are not required to do so. At the last annual meeting of stockholders, held on February 1, 2007, five members of the Board of Directors were in attendance. The independent directors held one

meeting in fiscal 2007, which was attended in full with the exception of Mr. Leemputte. Current Committee membership is as follows:

 

COMMITTEE MEMBERSHIP

 

 

 

 

Committee composition is subject to review by the Board of Directors from time to time.

 

 

The Board of Directors has adopted a number of measures designed to comply with requirements of the Sarbanes-Oxley Act of 2002 and rules and regulations of the Securities and Exchange Commission (the “SEC”) interpreting and implementing the Sarbanes-Oxley Act, and the listing standards of the NYSE relating to corporate

governance matters, as well as other measures that the Board believes are corporate governance best practices. Among the significant measures implemented by the Board to date are the following:

 

Majority Vote Standard and Director Resignation Policy

 

In December 2006, the Board of Directors adopted amendments to the Company’s by-laws and Corporate Governance Guidelines to provide a majority voting standard for the election of directors in uncontested elections. Under the majority voting standard set forth in the by-laws, director nominees will be elected if the votes cast for such nominee exceed the number of votes cast against such nominee. In the event that (i) a stockholder proposes a nominee to compete with nominees selected by the Board and the stockholder does not withdraw the nomination prior to the Company mailing the notice of the stockholder meeting or (ii) one or more directors are nominated by a stockholder pursuant to a solicitation of written consents, then directors will be elected by a plurality vote.

 

Pursuant to amendments made to the Corporate Governance Guidelines, the Board of Directors will only nominate candidates who prior to an annual meeting, tender their irrevocable resignations, which are effective only upon (i) the candidate not receiving the required vote at the next annual meeting at which they face re-election and (ii) the Board accepting the candidate’s resignation. In the event that a director who has tendered his or her resignation does not receive a majority vote, then the Corporate Governance Guidelines provide that the Nominating/Corporate Governance Committee will act on an expedited basis to determine whether to accept the director’s resignation and will submit its recommendation to the Board of Directors. In deciding whether to accept a director’s resignation, the Board and the Nominating/Corporate Governance Committee may consider any factors that they deem relevant. The Corporate Governance Guidelines also provide that the Board expects that the director whose resignation is under consideration to abstain from the deliberation process. All candidates standing for re-election at this annual meeting have tendered such irrevocable resignations.

 

Director Independence

 

Listing standards relating to corporate governance promulgated by the NYSE require that the Board of Directors be comprised of a majority of independent directors. The Sarbanes-Oxley Act and rules of the SEC require that the Audit Committee be comprised solely of independent directors. The NYSE standards further require that the Compensation and Nominating/Corporate Governance Committees also be comprised solely of independent directors. On the basis of information solicited from each director, and upon the advice and recommendation of the Nominating/Corporate Governance Committee, the Board of Directors has determined that five of its current seven directors have no material relationship with Beazer Homes other than their relationship as members of the Board and are independent within the meaning of the Sarbanes-Oxley Act and the NYSE standards. Those directors serving during fiscal 2007 determined to be independent were Messrs. Alpert, Leemputte, Solari, and Zelnak and Ms. Bayne.

 

In making these determinations, at the request of the Board, the Nominating/Corporate Governance Committee, with assistance from the Company’s Acting General Counsel, evaluated responses to an independence and qualification questionnaire completed annually by each director and follow up inquiries made to certain directors. The Nominating/Corporate Governance Committee made a recommendation that five directors be considered independent, which recommendation the Board subsequently discussed and adopted. The Board concluded that four of those five directors, Messrs. Alpert, Leemputte and Zelnak, and Ms. Bayne, had no relationship with Beazer Homes other than their relationship as members of the Board. In the case of Mr. Solari, the responses to the questionnaire and follow up inquiries indicated that within the past three years, Beazer Homes had made payments to two companies of which Mr. Solari is a director. In each case, based upon the most recent information available, the amount paid for goods and services for the past three years represented less than one half of one percent of the providing company’s and Beazer Homes’ annual gross revenues. Accordingly, based upon the amount paid for the goods and services, the Board affirmatively determined that the relationship was not material either to Beazer Homes or to the other companies. Based on the foregoing, the Board of Directors of Beazer Homes had a majority of independent directors and each of the Audit, Nominating/Corporate Governance and Compensation committees of the Board during fiscal 2007 were comprised entirely of independent directors and it is expected that the majority of directors and all committee members in fiscal 2008, other than one member of the Finance Committee, as to which independence is not required for membership, will be independent as well. Accordingly, Beazer Homes was, in

fiscal 2007, and continues to be in compliance with the requirements of the NYSE and the SEC for Board independence.

 

Regularly Scheduled Executive Sessions of Non-management Directors

 

In accordance with the NYSE standards, the Board of Directors has a policy of scheduling an executive session of non-management directors as a part of every regularly scheduled quarterly meeting of the Board of Directors. These non-management director meetings have been chaired by Mr. Beazer as Non-Executive Chairman of the Board. In addition, the Board holds at least one meeting annually at which the independent directors meet in executive session, to be chaired by a lead independent director. The lead independent director is nominated by the Nominating/Corporate Governance Committee for election by the independent directors. These provisions are included in the Corporate Governance Guidelines adopted by the Board, which are posted and available for viewing in the Investor Information section of the Beazer Homes web site at www.beazer.com. The independent directors held a meeting in February 2007 and February 2008, both of which were chaired by Mr. Zelnak, who currently serves as lead independent director. It is the expectation of both the Nominating/Corporate Governance Committee and the independent directors that the position of lead director will rotate regularly among the independent directors.

 

Ethics Hotline

 

We maintain an ethics hotline which interested parties may contact by calling 1-866-457-9346 and reporting their concern to a representative of Global Compliance, a third party company that administers our ethics hotline. Alternatively, interested parties can report any such concern via an on-line form by visiting the following web site: www.integrity-helpline.com/Beazer.jsp. The link provides an on-line form that upon completion will be submitted directly to Global Compliance. Interested parties may report their concern anonymously, should they wish to do so. All concerns, whether reported through the toll-free number or the on-line form, will be forwarded to an officer of Beazer Homes, and will be reviewed and investigated as appropriate. Where warranted after investigation, messages will be summarized and referred to the Audit Committee of the Board of Directors for appropriate action.

 

Communications with Board Members

 

Security holders and interested parties wishing to communicate directly with the Non-Executive Chairman or non-management directors as a group may do so by addressing their communications to the ethics hotline and specifically referencing them as communications for the Non-Executive Chairman or non-management directors.

 

Committee Charters

 

The Board of Directors has adopted written charters for the Audit, Compensation, and Nominating/Corporate Governance Committees designed to comply with the requirements of the NYSE standards and applicable provisions of the Sarbanes-Oxley Act and SEC rules. The current version of each of these charters, as well as the written charter for the Finance Committee, has been posted and is available for public viewing in the Investor Information section of the Beazer Homes web site at www.beazer.com. In addition, committee charters are available in print to any stockholder upon request to Investor Relations, Beazer Homes USA, Inc., 1000 Abernathy Road, Suite 1200, Atlanta, GA 30328.

 

Corporate Governance Guidelines

 

Upon the advice and recommendation of the Nominating/Corporate Governance Committee, the Board of Directors has adopted a set of Corporate Governance Guidelines. Those guidelines address an array of governance issues and principles including director qualifications and responsibilities, access to management personnel and independent advisors, director compensation, director orientation and continuing education, management succession, annual performance evaluations of the Board and meetings of independent directors. The guidelines also require that directors and designated senior officers of the Company achieve and maintain meaningful levels of stock ownership in the Company. The most recent version of Beazer Homes’ Corporate Governance Guidelines are posted and available for public viewing in the Investor Information section of the Beazer Homes web site at

www.beazer.com. In addition, the Corporate Governance Guidelines are available in print to any stockholder upon request to Investor Relations, Beazer Homes USA, Inc., 1000 Abernathy Road, Suite 1200, Atlanta, GA 30328.

 

Code of Business Conduct and Ethics

 

The Company maintains a Code of Business Conduct and Ethics applicable to all directors, officers and employees. This Code of Business Conduct and Ethics has been designed to comply with the requirement for a code of business conduct and ethics under applicable NYSE standards. In addition, the Code of Business Conduct and Ethics constitutes a code of ethics applicable to its senior financial officers, which applies to its principal financial officer and controller, other senior financial officers and the Chief Executive Officer. We revised, adopted, disclosed and distributed an amended Code of Business Conduct and Ethics in March 2008. This current version of this Code of Business Conduct and Ethics is posted and available for public viewing in the Investor Information section of the Beazer Homes web site at www.beazer.com. In addition, the Code of Business Conduct and Ethics is available in print to any stockholder upon request to Investor Relations, Beazer Homes USA, Inc., 1000 Abernathy Road, Suite 1200, Atlanta, GA 30328. Employees of Beazer Homes are also subject to additional specific policies, guidelines and Company rules adopted from time to time governing particular types of conduct or situations. Such additional policies, guidelines or rules are supplemental to the posted Code of Business Conduct and Ethics, and in the case of any inconsistency between the two, employees are expected to comply with the more restrictive standard.

 

The Nominating/Corporate Governance Committee will consider candidates recommended for the Board of Directors by stockholders of the Company if the recommending stockholder or stockholders follows the procedures set forth in Article II, Section 14 of the Company’s Amended and Restated Bylaws. The Bylaws provide that only persons nominated in accordance with the procedures set forth therein will be eligible to serve as directors. In order to recommend a nominee for a director position, a stockholder must be a stockholder of record at the time it gives its notice of recommendation and must be entitled to vote for the election of directors at the meeting at which such nominee will be considered. Stockholder recommendations must be made pursuant to notice delivered to or mailed and received at the principal offices of the Company (i) in the case of a nomination for election at an annual meeting, not less than 120 days nor more than 150 days prior to the first anniversary of the date of the Company’s notice of annual meeting for the preceding year’s annual meeting; and (ii) in the case of a special meeting at which directors are to be elected, not later than the close of business on the tenth day following the earlier of the day on which notice of the date of the meeting was mailed or public disclosure of the date was made. In the event that the date of the annual meeting is changed by more than 30 days from the anniversary date of the preceding year’s annual meeting, the stockholder notice described above will be deemed timely if it is received not later than the close of business on the tenth day following the earlier of the date on which notice of the date of the meeting was mailed or public disclosure was made of the date.

 

The stockholder notice must set forth the following:

 

 

In addition to complying with the foregoing procedures, any stockholder nominating a director must also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder.

 

Pursuant to the Company’s Corporate Governance Guidelines, the Nominating/Corporate Governance Committee is directed to work with the Board as a whole on an annual basis to determine the appropriate characteristics, skills and experience for each Board member and for the Board as a whole. In evaluating these issues, the Committee takes into account many factors, including the individual director’s general understanding of marketing, finance and other elements relevant to the success of a large publicly-traded company in today’s business environment, understanding of the Company’s business on an operational level, education or professional background and willingness to devote time to Board duties. Each individual is evaluated in the context of the Board as a whole, with the objective of recommending a group of nominees that can best perpetuate the success of the business and represent stockholder interests through the exercise of sound judgment based on diversity of experience in the various areas described.

 

To date, the Nominating/Corporate Governance Committee has not adopted a specific formal policy with respect to the consideration of director candidates recommended by stockholders and to date no director candidates have been recommended by stockholders. If a director candidate were to be recommended by a stockholder, the Nominating/Corporate Governance Committee expects that it would evaluate such candidate in the same manner it evaluates director candidates identified by the Committee.

 

Set forth below is information as of June 16, 2008 regarding our executive officers who are not serving or nominated as directors:

 

MICHAEL H. FURLOW.  Mr. Furlow, 57, joined us in October 1997 as the Executive Vice President for Operations and was named Chief Operating Officer in 1998. In this capacity, the Division Presidents report, directly or indirectly, to Mr. Furlow, and he is responsible for the performance of those operating divisions. During the 12 years prior to joining Beazer Homes, Mr. Furlow was with Pulte Home Corporation in various field and corporate roles, most recently as a Regional President. Mr. Furlow received a Bachelor of Arts degree with honors in Accounting from the University of West Florida and initially worked as a Certified Public Accountant for Arthur Young & Company.

 

ALLAN P. MERRILL.  Mr. Merrill, 42, joined us in May 2007 as Executive Vice President and Chief Financial Officer. Mr. Merrill was previously with Move, Inc. where he served as Executive Vice President of Corporate Development and Strategy beginning in October 2001. From April 2000 to October 2001, Mr. Merrill was president of Homebuilder.com, a division of Move, Inc. Mr. Merrill joined Move, Inc. following a 13-year tenure with the investment banking firm UBS (and its predecessor Dillon, Read & Co.), where he was a managing director and served most recently as co-head of the Global Resources Group, overseeing the construction and building materials, chemicals, forest products, mining and energy industry groups. Mr. Merrill is a member of the Policy Advisory Board of the Joint Center for Housing Studies at Harvard University and the Homebuilding Community Foundation. He is a graduate of the University of Pennsylvania, Wharton School with a Bachelor of Science in Economics.

 

The members of our Compensation Committee during fiscal 2007 were Messrs. Solari and Zelnak and Ms. Bayne. None of the members of our Compensation Committee has ever been an officer or employee of Beazer or any of its subsidiaries. None of the members of our Compensation Committee had any relationship requiring disclosure under “Transactions with Related Persons” below. During fiscal 2007, none of our executive officers served as a Director or member of the Compensation Committee (or other Board committee performing equivalent functions) of another entity an executive officer of which served on our Board of Directors.

 

The Audit Committee of the Board of Directors has selected the firm of Deloitte & Touche LLP to serve as our independent registered public accounting firm for the fiscal year ending September 30, 2008. Deloitte & Touche LLP has served as our independent registered public accounting firm for Beazer Homes since our fiscal year ended September 30, 1996. The services provided to the Company by Deloitte & Touche LLP for the last fiscal year are described under the caption “Principal Accountant Fees and Services” below. Stockholder approval of the appointment is not required. The Board believes that obtaining stockholder ratification of the appointment is a sound governance practice.

 

Representatives of Deloitte & Touche LLP will be present at the annual meeting, will have an opportunity to make a statement if they desire to do so and will be available to respond to appropriate questions from stockholders.

 

Recommendation

 

We recommend a vote FOR the ratification of appointment of Deloitte & Touche LLP as independent registered public accounting firm for the fiscal year ending September 30, 2008.

 

 

We award stock options, stock-settled stock appreciation rights (“SSARs”) and restricted stock under our Amended and Restated 1999 Stock Incentive Plan (the “Plan”) in order to attract, retain and motivate key employees. Our stock price has significantly declined over the last two and a half years, which has resulted in a significant weakening of the retention and motivational value of our outstanding stock options and SSARs, which are important components of our total compensation program.

 

The Compensation Committee of the Board of Directors, comprised entirely of independent directors, has determined that, to assist in the retention and motivation of key employees, it would be in the best interest of the Company and its stockholders to implement the employee stock option/SSAR exchange program described below (the “Exchange Program”), subject to approval by stockholders. The Exchange Program would apply to stock options and SSARs held by current employees of the Company and its subsidiaries, but it would not apply to stock options or SSARs held by any of the executive officers of the Company or by members of the Board of Directors. (The current employees who are eligible to participate in the Exchange Program are referred to as the “Eligible Employees”). If approved by stockholders, the Exchange Program would permit the Company to offer its Eligible Employees the opportunity to exchange outstanding stock options and SSARs issued under the Plan that have an exercise price greater than $26 per share for new restricted shares of common stock (“Restricted Stock”) intended to be of equivalent fair market value but covering significantly fewer shares. On June 16, 2008, Eligible Employees held stock options and SSARs to purchase 420,424 shares of the Company’s common stock with exercise prices ranging from $26.51 to $62.02 per share, or approximately five to more than eleven times above the closing market price per share on the New York Stock Exchange on that day of $5.40. While the weighted average years remaining until expiration for these stock options and SSARs is approximately 4.3 years, the Compensation Committee and the Board of Directors believes it is critical to implement this Exchange Program at this time in order to be able to continue to retain and motivate key employees, particularly given the challenges and difficult operating conditions which currently persist in the housing industry.

 

In addition to aiding the Company and its subsidiaries in the retention and motivation of their employees, we believe that the Exchange Program would be beneficial to stockholders by resulting in the cancellation of a larger number of outstanding stock options and SSARs and issuance of Restricted Stock awards of significantly fewer shares in their place. In addition, by conducting the Exchange Program rather than the alternative of granting additional new awards to supplement the out-of-the money stock options and SSARs, we are avoiding potential additional dilution to our stockholders’ interests and significant financial expense.

The Exchange Program has been designed to include the following, which we believe will address concerns often expressed by stockholders and reflect best market practices:

 

 

Set forth below are summaries of the Exchange Program and the amendments to the Plan.

 

Description of Exchange Program

 

General.  Under the proposed Exchange Program, Eligible Employees would be given the opportunity to exchange their stock options and SSARs that have an exercise price of $26 or more (the “Eligible Options/SSARs”) for new Restricted Stock intended to be of equivalent fair market value but representing significantly fewer shares.

 

If the Plan amendments permitting the Exchange Program are approved by stockholders, the Compensation Committee will determine whether and when to initiate the Exchange Program or any exchange offer made to implement the Exchange Program. However, the Exchange Program may be implemented by an exchange offer no later than August 5, 2009. In no event may more than one offer to exchange be made for any outstanding stock option or SSAR. Any new Restricted Stock will be granted pursuant to the Plan.

 

Participation in the Exchange Program will be voluntary. Accordingly, the Company cannot predict how many Eligible Employees will participate, how many stock options and SSARs will be tendered or how many new shares of Restricted Stock will be issued.

 

Eligible Employees.  The Exchange Program will only be open to current employees of the Company and its subsidiaries who hold unexercised awards of stock options and/or SSARs. However, none of the executive officers or members of the Board of Directors of the Company will be eligible to participate in the Exchange Program, and the Exchange Program will not be offered to retirees or other former employees. As of June 16, 2008, approximately 48 Eligible Employees would be eligible to participate in the Exchange Program.

 

Eligible Options/SSARs.  Only stock options and SSARs with an exercise price of $26 or more will be covered by the Exchange Program. As of June 16, 2008, the closing price of our common stock on the New York Stock Exchange was $5.40. Thus, the exercise prices of the stock options and SSARs eligible under the Exchange Program, which range from $26.51 to $62.02, are approximately five to more than eleven times above such closing trading price.

 

Exchange Ratio.  Each Eligible Option/SSAR tendered for exchange will be exchanged for a number of new shares of Restricted Stock intended to have a fair market value equal to the fair market value of the tendered stock option or SSAR (determined in accordance with the option valuation method described below), based on the fair market value of the Company’s common stock as of a date immediately prior to commencement of the exchange offer. The fair market value of the tendered stock options and SSARs will be determined using the Black-Scholes option pricing model. Accordingly, actual exchange ratios will vary based on the exercise price and remaining term

of the tendered options or SSARs, as well as the fair market value and volatility of the Company’s common stock used for purposes of the valuation.

 

Vesting of New Restricted Stock.  The new Restricted Stock will become vested as to 50% of the shares granted on the first anniversary of the date of grant and as to the remaining 50% on the second anniversary of the date of grant. Of the 420,424 Eligible Options/SSARs, 173,724 have already fully vested and another 74,411 are scheduled to vest in November 2008. The remaining 172,289 Eligible Options/SSARs are scheduled to vest early in 2010, which would be prior to the time the new Restricted Stock issued under the Exchange Program would become fully vested. All other vesting and forfeiture terms of the new Restricted Stock will be substantially the same as those that apply generally to such awards granted under the Plan.

 

Reduction of Overhang.  The proposed Exchange Program is designed to help reduce the Company’s existing overhang and the potential dilutive effect on stockholders. Accordingly, shares underlying stock options and SSARs tendered for exchange will not be available for future issuance under the Plan.

 

Implementation of the Exchange Program.  If stockholders approve the amendments to the Plan set forth below to allow the Exchange Program, Eligible Employees will be offered the opportunity to participate in the Exchange Program under an offer to exchange filed with the Securities and Exchange Commission and distributed to all Eligible Employees holding Eligible Options/SSARs. Eligible Employees will be given a period of at least 20 business days in which to accept an offer. For those Eligible Employees who accept the offer, their Eligible Options/SSARs will be cancelled immediately upon expiration of the offer period and new Restricted Stock will be granted promptly thereafter. The Exchange Program and any exchange offer thereunder may be commenced at the discretion of the Compensation Committee.

 

U.S. Federal Income Tax Consequences.  The Company expects that each exchange offer pursuant to the Exchange Program will be treated as a non-taxable event for federal income tax purposes. No income should be recognized for Federal income tax purposes by the Company or its option holders upon the cancellation of the existing stock options or SSARs or the grant of new Restricted Stock.

 

Amendments to the Plan

 

In order to permit the Company to implement the Exchange Program in compliance with the terms of the Plan and applicable New York Stock Exchange rules, the Plan has been amended, subject to approval of stockholders, to add the following new section:

 

“Section 14. — Exchange Program

 

Notwithstanding any other provision of the Plan to the contrary, including but not limited to Section 6.1(g) hereof, the Company, by action of the Committee, may effect an Option and stock-settled Stock Appreciation Right (“SSAR”) exchange program on the terms set forth herein (the “Exchange Program”), to be commenced through an exchange offer prior to August 5, 2009, provided that in no event may more than one offer to exchange be made for any outstanding Option or SSAR. Under any exchange offer, Eligible Employees will be offered the opportunity to exchange Eligible Options/SSARs (the “Surrendered Awards”) for new Restricted Stock (the “New Restricted Stock”), as follows: (1) the shares subject to the New Restricted Stock shall have a Fair Market Value equal to the value (determined using the Black-Scholes option pricing model as of a date immediately prior to commencement of any exchange offer) of the Surrendered Awards; and (2) the New Restricted Stock will vest, subject to Section 6.3(c) of the Plan, in two equal annual installments, on the first and second anniversaries of the date of grant. Shares subject to Surrendered Awards will not be available for granting of Awards under the Plan. “Eligible Employees” means employees of the Company or any Affiliate other than executive officers (as defined in Rule 3b-7 under the Securities Exchange Act of 1934, as amended). “Eligible Awards” means any Option or SSAR that has an exercise price in excess of $26. Subject to the foregoing, the Committee shall be permitted to determine additional terms, restrictions or requirements relating to the Exchange Program.”

 

Other material terms of the Plan are discussed in Proposal 4 contained in this Proxy Statement.

New Plan Benefits

 

The benefits that will be received by or allocated to Eligible Employees under the Exchange Program are not currently determinable.

 

Vote Required

 

The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of common stock present or represented at the annual meeting is required to approve this proposal, provided that a majority of the outstanding shares of common stock are voted with respect to this proposal. The approval of this proposal is not dependent on the approval of any other proposal to be considered by stockholders at the annual meeting.

 

Recommendation

 

We recommend a vote FOR the approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to authorize the stock option/SSAR exchange program described above for employees other than executive officers and directors.

 

 

The Company maintains the Beazer Homes USA, Inc. Amended and Restated 1999 Stock Incentive Plan (the “Plan”), for the benefit of eligible employees, officers, and independent contractors of the Company or any affiliate and directors of the Company. Currently, after giving effect to stock splits, the maximum number of shares available for granting of awards under the Plan is 7,200,000, of which not more than 2,820,000 shares may be granted as stock-based awards, other than options. As currently structured, stock-settled stock appreciation rights (“SSARs”) are subject to the lower 2,820,000 limit, but the number of shares counted against the Plan share limits upon exercise of a SSAR are limited to the net number of shares distributed upon exercise, as opposed to the full number of Shares subject to the SSAR.

 

The Company believes that, since SSARs are economically very similar to stock options and they are not similar to full value awards (such as restricted stock), SSARs should be accounted for in the same manner as stock options under the Plan. Accordingly, the Plan has been amended, subject to stockholder approval, to (1) count the full number of shares subject to a SSAR against the Plan share limit upon exercise and (2) to remove SSARs from the lower share limit for awards other than stock options. The maximum number of shares that can be issued under the Plan has not been changed.

 

Subject to approval of the Plan amendment by stockholders, the maximum number of shares available for granting of awards under the Plan will be 7,200,000 of which not more than 2,820,000 shares may be granted as stock-based awards, other than stock options or SSARs. After taking into account awards previously made under the Plan and assuming stockholder approval of the Plan amendment is obtained, 1,067,425 shares would currently be available for awards under the Plan, of which 637,936 could be granted as awards other than stock options and SSARs. In addition, SSARs would be accounted for on a gross basis (i.e., on the basis of all shares subject to the SSAR) for purposes of the Plan share limit.

 

In the event that the requisite stockholder approval of the amendment to the Plan is not obtained, the amendment to the Plan will not take effect, but the Company may continue to grant awards under the Plan in accordance with its terms and the current share reserve under the Plan.

 

Amendment to the Plan

 

The Plan has been amended, subject to approval of stockholders, to amend and restate Section 4.1 in its entirety as follows:

 

“4.1 Shares Available.  Subject to adjustments as provided in Section 9.1, the number of shares available for the granting of Awards under the Plan shall be 7,200,000 of which not more than 2,820,000 Shares shall be granted as stock-based Awards, as described in Section 6, other than Options and stock-settled Stock Appreciation Rights.

Shares to be issued under the Plan may be either Shares which have been reacquired and are held in treasury or Shares which are authorized but unissued. If any Shares covered by an Award (or to which an Award relates) are not purchased or are forfeited, or if an Award otherwise terminates without delivery of any Shares, then the number of Shares counted against the aggregate number of Shares available under the Plan with respect to such Award, to the extent of any such forfeiture or termination, shall again be available for granting of Awards under the Plan. Notwithstanding the foregoing, the full number of Shares subject to exercised stock-settled Stock Appreciation Rights shall count against the aggregate Plan Share limitation set forth in this Section 4.1 and shall not again be available for granting of Awards under the Plan. In addition, Shares withheld to satisfy taxes required to be withheld for any Award shall count against the Plan Share limitations set forth in this Section 4.1 and shall not again be available for granting of Awards under the Plan and Shares not issued because the holder of any Tandem Option exercises the accompanying Stock Appreciation Right shall not be subject to future Award by the Committee.

 

Notwithstanding the foregoing, the number of Shares available for granting Incentive Stock Options under the Plan shall not exceed 4,200,000, subject to adjustment as provided in Section 9.1 of the Plan and Section 422 or 424 of the Code or any successor provisions.”

 

Summary of the Plan

 

The following description of the Plan, which takes into account the effect of the amendment, is a summary of its principal provisions and is qualified in its entirety by reference to the Plan. A copy of the Plan, reflecting this amendment and the amendment proposed above as proposal 3, is appended hereto as Appendix A.

 

The Plan provides for the award of:

 

 

Under the Plan 7,200,000 shares of the common stock have been reserved for issuance subject to adjustment for future events such as stock splits, stock dividends or corporate reorganizations. As of June 16, 2008, 6,132,575 of such shares, net of forfeited awards, have been used for the grant of or reserve for stock options, SSARs, restricted stock and restricted stock units to employees and directors. As amended, the Plan would limit the number of shares issuable in the form of a stock-based award other than a stock options and SSARs to 2,820,000 shares. Given that 2,182,064 restricted stock units and shares of restricted stock have been granted or reserved for as of the record date, 637,936 of these 2,820,000 shares would be available for future other stock-based awards under the Plan, as amended. With certain exceptions, if any shares covered by an award (or to which an award relates) under the Plan are not purchased or are forfeited, or if an award otherwise terminates without delivery of any shares, then the number of shares counted against the aggregate number of shares available under the Plan with respect to such award, to the extent of any such forfeiture or termination, shall again be available for granting of awards under the Plan.

 

The Plan is administered by the Compensation Committee. Each Committee member is a “non-employee director” within the meaning of Rule 16b-3(b)(3) of the Securities Exchange Act of 1934, an “outside director” within the meaning of Treasury Regulation § 1.162-27(e)(3) and associated regulations and an “independent director” as defined by the continued listing requirements of the NYSE.

All awards granted under the Plan will be granted for no cash consideration or for such minimal cash consideration as may be required by applicable law. Awards granted under the Plan may not be voluntarily or involuntarily sold, assigned, transferred, pledged or encumbered prior to vesting (except by will or intestacy). However, the Committee may authorize holders of non-qualified stock options to transfer options to family members (as defined by the Plan) through a gift or a domestic relations order.

 

Participation in the Plan is limited to employees, officers, consultants or independent contractors providing services to Beazer Homes or any of Beazer Homes’ affiliates or any of Beazer Homes’ directors, as the Committee may determine from time to time. The maximum number of shares with respect to which options and SARs may be issued under the Plan to a single participant in one calendar year is 450,000. In addition, the maximum number of shares of common stock that may be issued as a performance award to a single participant in any calendar year is 225,000.

 

Options awarded under the Plan will be designated as (1) incentive stock options (as defined under the Internal Revenue Code), (2) non-qualified stock options, or (3) any combination of incentive stock options and non-qualified stock options. In the event that a portion of an option designated as an incentive stock option cannot be exercised as an incentive stock option by reason of the limitations contained in the Internal Revenue Code, that portion will be treated as a non-qualified stock option.

 

The term and exercise price of each option granted under the Plan will be fixed by the Committee; provided, however, that the exercise price per share of common stock purchasable pursuant to any option may not be less than the fair market value of a share of common stock on the date of grant. For purposes of the Plan, the fair market value of a share of common stock on any date on which shares are traded is the closing price per share of the common stock as reported by the NYSE (or such other exchange or quotation system on which the common stock is then traded) on that date. The Committee will determine the time or times at which an option may be exercised, in whole or in part; provided that, with respect to options granted after February 20, 2002, each option must have a vesting schedule of a minimum of three years in length, subject to appropriate adjustment upon death, retirement and other special circumstances in accordance with the provisions of the Plan. The Committee will also determine the forms of consideration in which payment of the exercise price may be made, which will include cash, securities, or such other consideration as the Committee permits.

 

The Committee has authority to grant restoration options, either separately or together with other options under the Plan. A restoration option is an option to purchase at 100% of the fair market value, as of the date of exercise of a previously granted option (the “Original Option”), of a number of shares not exceeding the sum of (1) the number of shares provided to Beazer Homes in payment of the exercise price of the Original Option and (2) the number of shares tendered or withheld as payment of any applicable taxes in connection with such exercise. A restoration option cannot be exercised until the shares acquired upon exercise of the Original Option are held for a period of at least one year. The term of the restoration option may not extend beyond the term of the Original Option.

 

The Plan prohibits the repricing of outstanding stock options unless prior approval for such repricing is received from Beazer Homes’ stockholders. If proposal 3 above is adopted at the annual meeting, a stock option/SSAR exchange program (as more fully described above under proposal 3) will be permitted for employees other than executive officers and directors.

 

The terms upon which an option granted under the Plan would expire upon a participant’s disability, death, termination of employment or ceasing to be a director will be provided in the applicable award agreement relating to such option in the discretion of the Committee. Further, an optionee’s right to exercise options in the event of a change of control will be addressed in each participant’s award agreement in the discretion of the Committee.

 

The Committee has authority to grant SARs to participants. A SAR granted under the Plan will confer upon the holder a right to receive, upon exercise of a SAR related to one share, an amount in cash or shares of common stock with a fair market value equal to the excess of the fair market value of one share of common stock on the date of exercise over the fair market value of one share of common stock on the date of grant of the SAR. The grant price, term, method of exercise, method of settlement and any other terms and conditions of SARs will be determined by the Committee.

The Committee is also authorized to grant awards of restricted stock and restricted stock units to participants. Shares of restricted stock and restricted stock units will be subject to such restrictions as the Committee imposes, which restrictions will lapse upon the terms established by the Committee. In addition, the Committee may specify performance criteria, the attainment of which would accelerate the lapse of any applicable restriction. In the event restrictions do not lapse with respect to shares of restricted stock or restricted stock units held by a participant, the restricted stock or restricted stock units may be forfeited back to Beazer. The consequences upon shares of restricted stock or restricted stock units still subject to restriction of a participant’s termination of employment, including as a result of death, disability, retirement, resignation, ceasing to be a director or change of control will be provided in the applicable award agreement relating to such Restricted Stock in the discretion of the Committee. Recipients of restricted stock, unlike recipients of options or restricted stock units, have voting rights and receive dividends, if any, if and when declared on their shares prior to the time the restrictions lapse.

 

The Committee is also authorized to grant participants awards of dividend equivalents. A recipient of dividend equivalents will be entitled to receive payments in an amount equal to the amount of cash dividends paid by Beazer Homes to a holder of shares of common stock with respect to the number of shares of common stock determined by the Committee. Such amounts may be paid in cash, shares, other securities, other awards or other property, as determined by the Committee.

 

Beazer Homes may, from time to time, grant performance awards to participants under the Plan. Performance goals for performance awards may be comprised of one or more of the following performance measures:

 

 

At the end of any established measurement period for performance awards, the Committee will determine the percentage, if any, of the performance awards that are earned by a participant. The percentage determined shall be based on the degree to which the performance goals for that measurement period are satisfied. Performance awards may be issued in the form of common stock, options, SARs, restricted stock, restricted stock units or any other right, the value of which is determined by reference to the common stock. Under the Plan, the maximum number of shares which may be granted as performance awards to a single participant in any calendar year is 225,000. All payments under performance awards will be designed to satisfy the exception provided by Section 162(m) of the Internal Revenue Code, and related regulations for performance-based compensation. All performance awards under the Plan shall be subject to the limitations of Section 162(m).

 

All of the stock-based awards described above, other than stock options and, if the amendment to the Plan is approved, SSARs, will be subject to an aggregate limit of 2,820,000 shares, subject to adjustment for future events such as stock splits, stock dividends or corporate reorganizations, during the life of the Plan.

 

In order to comply with federal and state income tax requirements, the Committee may take any action it deems appropriate to ensure that all taxes which are the sole and absolute responsibility of the participant are withheld or collected from the participant. To assist participants in paying taxes to be withheld or collected upon the exercise or receipt of (or lapse of restrictions relating to) an award under the Plan, the Committee, in its discretion may permit participants to satisfy tax obligations by:

 

 

Shares issuable under the Plan as well as outstanding awards will be subject to adjustment to prevent dilution or enlargement of benefits or potential benefits upon any dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split up, spin off, combination, repurchase or exchange of shares or other securities of ours or any other similar corporate transaction or event effecting shares of common stock.

 

The Board of Directors has authority to amend, alter, suspend, discontinue or terminate the Plan. However, without the approval of Beazer Homes’ stockholders, no modification can be made that, absent such approval:

 

 

The Plan will terminate on November 2, 2009. No awards will be granted after the termination of the Plan. Awards granted prior to termination of the Plan, however, may extend beyond the termination of the Plan.

 

Certain Federal Income Tax Consequences

 

The following is a summary of the principal federal income tax consequences generally applicable to awards under the Plan. The grant of an option or SAR is not expected to result in any taxable income for the recipient. The holder of an incentive stock option generally will have no taxable income upon exercising the incentive stock option (except that a liability may arise pursuant to the alternative minimum tax), and Beazer Homes will not be entitled to a tax deduction when an incentive stock option is exercised. Upon exercising a non-qualified stock option, the optionee must recognize ordinary income equal to the excess of the fair market value of the shares of common stock acquired on the date of exercise over the exercise price, and Beazer Homes will generally be entitled at that time to a tax deduction for the same amount. Upon exercising an SAR, the amount of any cash received and the fair market value on the exercise date of any shares of common stock received are taxable to the recipient as ordinary income and generally deductible by Beazer Homes. The tax consequence to an optionee upon a disposition of shares acquired through the exercise of an option will depend on how long the shares have been held and upon whether such shares were acquired by exercising an incentive stock option or by exercising a non-qualified stock option or SAR. Generally, there will be no tax consequence to Beazer Homes in connection with the disposition of shares acquired under an option, except that Beazer Homes may be entitled to a tax deduction upon a disposition of shares acquired under an incentive stock option before the applicable incentive stock option holding periods set forth in the Code have been satisfied.

 

With respect to other awards granted under the Plan that are payable either in cash or shares of common stock and are not subject to substantial risk of forfeiture, the holder must recognize ordinary income equal to the excess of (1) the cash or the fair market value of the shares of common stock received (determined as of the date of such receipt) over (2) the amount (if any) paid for such shares of common stock by the holder of the award, and Beazer Homes will generally be entitled to a deduction for the same amount for the taxable year in which the employee includes the amount in income. With respect to an award that is payable in shares of common stock that are restricted as to transferability and subject to substantial risk of forfeiture, such as shares of Restricted Stock, unless a special election is made pursuant to Section 83(b) of the Code, the holder of the award must recognize ordinary income equal to the excess of (1) the fair market value of the shares of common stock received (determined as of the first time the shares become transferable or not subject to substantial risk of forfeiture, whichever occurs earlier) over (2) the amount (if any) paid for such shares of common stock by the holder, and Beazer Homes will generally be entitled at that time to a tax deduction for the same amount. If an election under Section 83(b) of the Code is made, the holder of the award must recognize ordinary income equal to the excess of (1) fair market value on the

date of grant over (2) the amount paid, and Beazer Homes will generally be entitled to a tax deduction for the taxable year of the grant.

 

As stated above, the Committee may grant, subject to its discretion and such rules as it may adopt, a bonus to a participant in order to provide funds to pay all or a portion of federal and state taxes due as a result of the receipt or exercise of (or lapse of restrictions relating to) an award. The amount of any such bonus will be taxable to the participant as ordinary income, and Beazer Homes will generally have a corresponding deduction equal to such amount.

 

Section 162(m) of the Code generally limits the deductible amount of annual compensation paid (including, unless an exception applies, compensation otherwise deductible in connection with Awards granted under the Plan) by a public company to each “covered employee” to no more than $1 million. The “covered employees” are the chief executive officer and the three executive officers (other than the chief executive officer and the principal financial officer) whose compensation for the taxable year is required to be reported in the summary compensation table of the Company’s proxy statement. The Company currently intends to structure stock options and SARs granted under the Plan to comply with an exception to non-deductibility under Section 162(m) of the Code.

 

New Plan Benefits

 

The benefits or amounts that will be received by or allocated to any executive officers, other employees or directors under the Plan, as amended, are not currently determinable.

 

Vote Required

 

The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of common stock present or represented at the annual meeting and entitled to vote on the matter is required to approve this proposal, provided that a majority of the outstanding shares of common stock are voted with respect to this proposal.

 

Recommendation

 

We recommend a vote FOR the approval of amendments to the Amended and Restated 1999 Stock Incentive Plan to treat awards of SSARs under the Plan in the same manner as stock options.

 

The following table provides information as of September 30, 2007 with respect to our shares of common stock that may be issued under our existing equity compensation plans, all of which have been approved by our stockholders:

 

 

For fiscal 2007, the Audit Committee operated under a written charter adopted by the Board of Directors. Each member of the Audit Committee is independent and financially literate in the judgment of our Board of Directors and as required by the Sarbanes-Oxley Act and applicable SEC and NYSE rules. The Board has also determined that Mr. Leemputte is an “audit committee financial expert,” as defined under SEC regulations. In addition, the written charter of the Audit Committee prohibits membership by any director who serves on the audit committee of three or more companies whose stock is publicly traded.

 

Management is responsible for our internal controls and the financial reporting process. The independent auditors are responsible for performing an independent audit of our consolidated financial statements in accordance with standards of the Public Company Accounting Oversight Board (United States) and for issuing a report thereon. The Audit Committee’s responsibility is generally to monitor and oversee these processes, as described in the Audit Committee Charter.

 

The Audit Committee reviewed and discussed with Company management the audited financial statements of Beazer Homes as of and for the fiscal year ended September 30, 2007. The Audit Committee has discussed with the Company’s independent auditors, Deloitte & Touche LLP, the matters required to be discussed by Statement of Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T.

 

The Audit Committee has also received the written disclosures and the letter from Deloitte & Touche LLP required by Independence Standards Board Statement No. 1 (Independence Standards Board Standards No. 1, Independence Discussions with Audit Committees), as adopted by the Public Company Accounting Oversight Board in Rule 3600T, and discussed with Deloitte & Touche LLP their independence.

 

Based on the review and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2007 for filing with the Securities and Exchange Commission.

 

The Audit Committee has considered whether the provision of the non-audit services described below by Deloitte & Touche LLP is compatible with maintaining the independent auditor’s independence and has concluded that the provision of these services does not compromise such independence.

 

Peter G. Leemputte
Laurent Alpert
Larry T. Solari

 

The Members of the Committee

 

For the fiscal years ended September 30, 2007 and 2006, professional services were performed by Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”).

 

Audit Fees:  The aggregate fees billed for the audit of our annual financial statements for the fiscal years ended September 30, 2007 and 2006 and for reviews of the financial statements included in our Quarterly Reports on Form 10-Q were $3,098,351 and $1,110,310, respectively, and include fees for Sarbanes-Oxley Section 404 attestation procedures.

 

Audit-Related Fees:  The aggregate fees billed for audit-related services for the fiscal years ended September 30, 2007 and 2006 were $84,800 and $130,300, respectively. These fees relate to assurance and related services performed by Deloitte & Touche that are reasonably related to the performance of the audit or review of our financial statements. These services include: employee benefit and compensation plan audits, attestations by Deloitte that are not required by statute or regulation, and consulting on financial accounting/reporting standards.

Tax Fees:  The aggregate fees billed for tax services for the fiscal years ended September 30, 2007 and 2006 were $448,492 and $352,400, respectively. These fees relate to professional services performed by Deloitte & Touche with respect to tax compliance, tax advice and tax planning. These services include preparation of original and amended tax returns for the Company and its consolidated subsidiaries, refund claims, payment planning, tax audit assistance, and tax work stemming from “Audit-Related” items. The aggregate fees billed for tax compliance and advice services for fiscal years ended September 30, 2007 and 2006 were $259,600 and $352,400, respectively. The aggregate fees billed for tax planning services for fiscal years ended September 30, 2007 and 2006 were $188,892 and $0, respectively.

 

All Other Fees:  No other fees were paid to Deloitte & Touche in either fiscal year 2007 or fiscal year 2006.

 

The Audit Committee annually approves each year’s engagement for audit services in advance.

 

The Audit Committee has also established complementary procedures to require pre-approval of all permitted non-audit services provided by the Company’s independent auditors. All non-audit services described above were pre-approved by the Audit Committee.

 

The following table sets forth information as of June 16, 2008 with respect to the beneficial ownership of our common stock by each Director, each Named Executive Officer, and all directors and executive officers as a group. Except as otherwise indicated, each beneficial owner possesses sole voting and investment power with respect to all shares.

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors and persons who own more than ten percent of our stock, as well as certain affiliates of such persons, to file initial reports of ownership and changes of ownership with the SEC and the NYSE. These parties are required to furnish us with copies of forms they file. Based solely on a review of the copies of the Section 16(a) forms and amendments thereto received by us and on written representations that no other reports were required, we believe that all reports required pursuant to Section 16(a) for fiscal year 2007 were timely filed by all persons known by us to be required to file such reports with respect to our securities, with the following exceptions. A Form 4 for Michael T. Rand, former Senior Vice President, Chief Accounting Officer, has not been filed by Mr. Rand to report forfeitures of options and restricted shares pursuant to his termination of employment for cause. A Form 4 for each of Ian J. McCarthy, Brian C. Beazer, and Katie J. Bayne to report vesting of restricted stock units was inadvertently filed one day late.

 

 

This Compensation Discussion and Analysis addresses the following:

 

 

Compensation Governance.  The Compensation Committee of the Board of Directors is comprised of Messrs. Solari and Zelnak and Ms. Bayne, each of whom the Board has determined to be independent in accordance with the NYSE listing standards. Mr. Solari has chaired the Committee since October 2002.

 

Role of the Committee

 

The Compensation Committee operates under a written charter adopted by the Board of Directors. A copy of the charter is available in the Investor Relations section of our website, www.beazer.com, under “Corporate Governance.” In general, the Compensation Committee carries out the Board’s responsibilities relating to the

compensation of our executives and directors. The fundamental responsibilities of the Compensation Committee include the following:

 

 

The Committee has the sole authority on behalf of the Company to retain and terminate any outside compensation consultant as well as the authority to approve the fees charged by such consultant and other retention terms. In fiscal 2007, the Committee retained Tatum Partners regarding executive compensation matters, and Berkowitz, Trager & Trager and PriceWaterhouseCoopers regarding executive employment agreements. In fiscal 2008, the Committee retained PriceWaterhouseCoopers regarding executive compensation matters. In prior years, the Committee has also retained Watson Wyatt on executive compensation matters and Sullivan and Cromwell as independent legal counsel to the Committee.

 

Annually, the Committee reviews and examines comparative cash and equity compensation data, including that extracted from the proxy statements, for a peer group of publicly-held homebuilders (the “Peer Group”). The Peer Group currently consists of Centex Corporation, D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, Lennar Corporation, M.D.C Holdings, Inc., NVR, Inc., Pulte Homes, Inc., Ryland Group, Inc., and Toll Brothers, Inc. These companies were chosen due to their similarity to us in principal business activities. This comparative compensation data is used to gauge the appropriateness and competitiveness of our executive compensation plans and programs. The Committee believes information regarding pay practices at other publicly-held homebuilders is useful to establish that our executive compensation practices are generally competitive, although the Committee does not establish compensation levels based on industry practice alone.

 

Role of Executives

 

The Chief Executive Officer annually reviews the performance of each of his direct reports, which in fiscal 2007 included all other Named Executive Officers (except for Mrs. Boydston), and makes recommendations to the Committee based on this review. The Chief Financial Officer reviewed the performance of Mrs. Boydston. The Non-Executive Chairman of the Board prepares and presents an annual assessment of the performance of the Chief Executive Officer to the Committee. In its annual evaluation of executive performance, the Committee considers the reports of the Chief Executive Officer, the Chief Financial Officer and the Non-Executive Chairman of the Board; however it has total discretion in adopting any recommendations of the Chief Executive Officer, the Chief Financial Officer and the Non-Executive Chairman of the Board. The Chief Executive Officer is present for Committee deliberations related to his direct reports, but not for himself. The Chief Executive Officer, along with the Chairman of the Compensation Committee and the Non-Executive Chairman of the Board, are charged by the Compensation Committee with recommending performance guidelines, reviewing executive performance against such performance guidelines approved by the Committee, and recommending bonus awards to the Committee, including those for Named Executive Officers (other than the CEO for himself), under the Discretionary Bonus Plan which was established in September 2006 and is described below.

 

At various times during the year at the request of the Committee, the Chief Financial Officer and the Senior Vice President, Human Resources may attend Committee meetings, or portions thereof, to provide the Committee with information requested by the Committee.

Compensation Philosophy.  The Company’s executive compensation program is designed to attract and retain highly qualified executive leadership and fully align the executives’ interests with those of stockholders by a) rewarding through cash incentive compensation both annual and long-term financial success and by b) rewarding through equity incentive compensation for both relative and absolute performance of the Company’s stock and total return to stockholders.

 

The key principles of our executive compensation program that support this philosophy include:

 

1. Base salaries should generally be comparable to the median for similar positions at companies in the Peer Group;

 

2. Annual incentive opportunities should represent a significant portion of total cash compensation for executives, and provide both meaningful upside opportunity for current and future positive financial performance and downside risk for current and future shortfalls of the same; and

 

3. Equity incentives should include executive ownership of our equity as well as stock options and stock-settled stock appreciation rights in order to align executives’ risks and rewards directly with those of our stockholders. A portion of equity incentives should also be tied to the relative performance of the Company’s total stockholder return as compared to a defined industry peer group (“the Performance Stock Peer Group”).

 

This philosophy aims to strike an appropriate balance between annual compensation and long-term compensation so that our executives are appropriately focused on the achievement of both near-term and longer-term financial performance and total return to stockholders. We further aim to ensure management’s interests are directly aligned with those of stockholders through an appropriate balance between cash and equity compensation. Such a balance further ensures that our executives are appropriately incentivized and at the same time both conserves the Company’s working capital and prevents undue dilution of our stockholders’ holdings.

 

Elements of Executive Compensation.  Each element of executive compensation is described further below.

 

Base Salary

 

We pay base salaries to our executives in order to recruit and retain executives and to provide a base level of compensation in light of the executive’s qualifications, responsibilities and contributions. Base salaries are generally determined by the Compensation Committee based on comparisons of Peer Group base salary practices for positions of similar responsibilities and size, the roles and responsibilities of the executives, and on individual performance as presented to the Compensation Committee as described above. The Compensation Committee does not engage in a formulaic benchmarking process and does not assign a particular weight to any of these factors in its review. For 2007, the Compensation Committee decided not to increase the base salaries of the Named Executive Officers and has made a similar determination for 2008, with the exception of Mr. Douglas, for whom the Committee approved an increased base salary of $50,000 or 14.3% to $400,000 in accordance with the terms of his employment letter effective May 1, 2007, and Mrs. Boydston, whose base salary was increased by $7,410 or 3% to $254,410. Mr. Douglas resigned his position as executive vice president effective April 25, 2008 and ceased to be an employee effective May 19, 2008. Mrs. Boydston resigned effective March 14, 2008.

 

Annual Incentive Compensation

 

The Executive Value Created Incentive Plan

 

Except as described below, we have paid annual incentive compensation to our Named Executive Officers under the Amended and Restated 2005 Executive Value Created Incentive Plan or Executive VCIP. The most recent plan was approved by stockholders in 2005, although the Company has administered earlier versions of this plan since 1997. Participation in the Executive VCIP is at the discretion of the Compensation Committee and is generally available only to officers who are full time employees at the level of corporate senior vice president and above. Named Executive Officers who were participants in the plan in fiscal 2007 were Messrs. McCarthy and Furlow and Mrs. Boydston. Mr. O’Leary was also a participant in this plan until his resignation in March 2007. Mr. Merrill, who joined the Company in May 2007 was not a participant in fiscal 2007, but is a participant in fiscal 2008.

Mr. Douglas, who also joined the Company in May 2007 and resigned effective May 19, 2008, was not a participant in this plan; elements of his 2007 annual incentive compensation are further described below.

 

The awards under this Plan are made based upon the extent to which Beazer Homes realizes EBIT, defined as earnings before interest and taxes, in excess of our cost of capital. The amount of EBIT in excess of cost of capital is referred to as Value Created. Plan awards are also based on the increase in Value Created over the prior year, referred to as Incremental Value Created. The Compensation Committee believes paying annual incentive compensation based on generating returns in excess of the cost of capital encourages executives to make investment and operating decisions with a view toward both current year and long-term financial performance, particularly given the longer investment time horizons inherent in the homebuilding industry. In addition, the Committee believes an incentive plan based on return on capital further aligns the interests of executives with those of stockholders. However, in light of the current industry downturn, the Committee has recently determined that the Executive VCIP plan does not properly incentivize management nor does it reward specifically for desired management actions during periods of negative earnings performance. As discussed more fully below, the Committee has determined to place greater emphasis on the Discretionary Bonus Plan for fiscal 2008 in order to better incentivize management, including with respect to taking desired actions viewed to be appropriate during challenging operating conditions such as those currently facing the Company and the homebuilding industry.

 

In determining award levels under Executive VCIP, each participating executive is assigned a range of percentages (in the case of Value Created) and a specific percentage (in the case of Incremental Value Created) by the Compensation Committee. The Compensation Committee also sets a maximum award amount under the Executive VCIP for each executive by reference to a multiple of salary. The ranges, percentages and multiples are determined based on the executive’s position and with a view of providing cash incentive compensation that is competitive with those awarded to similar positions at companies in the Peer Group, if such information is available. The ranges, percentages and multiples set by the Compensation Committee for fiscal 2007 and fiscal 2008 are set forth below under “Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table”.

 

The cost of capital component of these formulae consists of a capital charge for the use of capital employed in the business. The Compensation Committee sets the capital charge for the participating Named Executive Officers as a percentage of the capital employed. The capital charge, which ranged from 11% to 14% in fiscal 2007 was determined based both on the Company’s estimated cost of capital and on the executive’s position, with a view of providing cash incentive compensation that is competitive with those awarded to similar positions at companies in the Peer Group, if such information is available. In fiscal 2007, for corporate executive vice presidents and above, including Messrs. McCarthy, Furlow and O’Leary, the capital charge was 11% and for corporate senior vice presidents, including Mrs. Boydston, was 14%. For fiscal 2008, the capital charge remains the same for the current participants and is 11% for Mr. Merrill.

 

Payments under the Executive VCIP are made subject to the sole discretion of the Committee and the Committee may reduce or disallow any payment or award under the Executive VCIP on a case by case basis in appropriate circumstances.

 

Based upon our fiscal 2007 financial performance, resulting in negative EBIT, compared to positive EBIT in fiscal 2006, both Value Created and Incremental Value Created for the Company were negative for fiscal 2007 and no incentive amounts were earned by or paid to the Named Executive Officers under the Executive VCIP. Based upon our year-to-date fiscal 2008 financial performance, we do not expect incentive amounts to be earned by or paid to the Named Executive Officers under the Executive VCIP for fiscal 2008.

 

Each year, the Committee has the right to review and revise the formula used to calculate incentive compensation payments under the Executive VCIP. Any changes approved by the Committee before the beginning of any fiscal year are applied to awards under the Executive VCIP for that fiscal year. Payments made under this Executive VCIP are intended to qualify as “performance-based compensation” under Internal Revenue Code Section 162(m).

 

A description of additional terms of the Executive VCIP may be found in the “Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table”.

Discretionary Bonus Awards and Retention Payments

 

On September 27, 2006, the Compensation Committee approved the establishment of a Discretionary Bonus Plan for certain of the Company’s employees, including the Named Executive Officers. Awards under this Plan may be granted to participants based in whole or in part by the achievement of performance guidelines established from time to time at the discretion of the Committee, but awards may also be made by the Compensation Committee under this Plan without reference to any specific performance guidelines. The Committee determined that establishing a separate discretionary plan alongside the Executive VCIP was appropriate in order to reward exceptional performance that supports overall Company objectives. Furthermore, the plan was designed to provide flexibility, particularly in light of current market conditions, to retain top performing executives, and to motivate executives by tying compensation to individual performance against criteria supporting specific Company objectives appropriate to the current downturn in housing. The Chairman of the Compensation Committee, the Non-Executive Chairman of the Board of Directors and our Chief Executive Officer are charged with recommending performance guidelines, reviewing executive performance for purposes of the Plan and recommending bonus awards to the Committee (other than the CEO for himself). Payments under the discretionary bonus plan do not qualify as performance-based compensation under Internal Revenue Code Section 162(m).

 

In fiscal 2007, the Committee evaluated the possibility of implementing performance guidelines for the purposes of granting awards under this Plan, but ultimately decided not to. No awards under the discretionary plan were made to Named Executive Officers for fiscal 2007 with the exception of Mr. Merrill, who was awarded $200,000. The award was made in recognition of his contributions since joining the Company in May 2007, including those leading to the successful conclusion of an amended revolving credit facility agreement and consent solicitation of the Company’s senior note holders, both of which were important achievements for the Company in navigating the current downturn in the housing market.

 

In accordance with the terms of his offer letter dated April 13, 2007, Mr. Merrill also received a guaranteed bonus of $250,000 for fiscal 2007. In accordance with the terms of his employment letter effective May 2007, Mr. Douglas received a guaranteed bonus of $145,833, representing 100% of salary, prorated for months worked in fiscal 2007.

 

The Compensation Committee also determined that is was appropriate to award retention payments to certain key members of senior management for fiscal 2007. One Named Executive Officer, Mrs. Boydston, received a retention payment of $50,000 for fiscal 2007.

 

For fiscal 2008, the Committee has adopted performance targets for the purposes of granting awards under the Discretionary Bonus Plan for our members of management, including the Named Executive Officers, who are currently Messrs. McCarthy, Furlow and Merrill. The objectives of these performance targets include providing retention incentives to key managers and improving the probability of achieving company-wide financial and operational objectives during the current downturn in the housing industry. Awards under the Plan for fiscal 2008 for the Named Executive Officers will be determined based on achievement levels of four performance targets. Three of the performance targets are numeric performance targets based on the aggregate operating performance of our ongoing operating divisions. The three numeric performance targets which have been established for each ongoing operating division are annual unit home closings, annual EBIT (defined as earnings before interest and taxes before inventory impairment and land option abandonment charges), and annual cash flow (defined as operating division profit or loss plus or minus changes in operating division capital employed). Bonus award amounts for the Named Executive Officers are based on the percentage of actual performance achieved versus the aggregate of each numeric target for all of our ongoing operating divisions. The minimum achievement required to qualify for the numeric components of the bonus award is 75% of the target and the maximum achievement that will be used in the calculations is 100% of the target for annual unit home closings and 133% of the target for annual EBIT and annual cash flow. The fourth performance target for the Named Executive Officers is in the process of being formulated and will be based on individual objectives derived from our internal strategic operating plan. Bonus award amounts for individual objectives will reflect a percentage achievement from 0% to 100%. For fiscal 2008, the maximum bonus award amount for which each of the Named Executive Officers is eligible is 1.875 times their current annual base salary. The degree of difficulty in achieving the aggregate of the performance targets is viewed by the Compensation

Committee to be very challenging, but not unobtainable, in light of the difficult current operating conditions in the homebuilding industry.

 

The Corporate Management Stock Purchase Program

 

In order to promote ownership of our stock by key executives, we maintain the Corporate Management Stock Purchase Program or CMSPP. Under the CMSPP, certain key executives, including the Named Executive Officers, may, at their election, have a portion of their annual cash awards under the Executive VCIP and Discretionary Bonus Plan deposited into an account as Restricted Stock Units (“RSUs”) representing shares of our common stock. These elections are made during September preceding the fiscal year for which the elections apply. The number of RSUs deposited is determined based on a per share price calculated at a 20% discount from the closing stock price of our common stock on the date of award. Shares represented by RSUs are issuable three years from the date of award, subject to an election for further deferral by the participant. Until issued, the shares cannot be sold, assigned, pledged or encumbered, receive no dividends, have no voting rights, and may appreciate or depreciate in value from the time they are purchased to when they vest and are subsequently issued. No RSUs were issued under the CMSPP to Named Executive Officers for fiscal 2007 incentive compensation.

 

Due to low availability of shares at the beginning of fiscal 2008 under the Amended and Restated 1999 Stock Incentive Plan, from which shares under CMSPP are issued, the Compensation Committee suspended this program for fiscal 2008 and, at this time, has not yet made any further determination for its use for fiscal 2009.

 

Long-term Incentive Compensation

 

Equity-based Long-term Incentives

 

We utilize four equity-based, long-term incentives: stock options, stock-settled stock appreciation rights (“SSARs”), time-based restricted stock, and performance-based restricted stock pursuant to the Amended and Restated 1999 Stock Incentive Plan. Grants of some combination of stock options, SSARs, restricted stock and performance-based stock are generally made annually. Interim grants are made from time to time for new executive appointments and promotions. Beginning in February 2006, the Committee adopted a practice of awarding to Named Executive Officers 50% of equity incentives in the form of stock options or SSARs and 50% in the form of restricted stock, generally half of which is in the form of time-based restricted stock and half in the form of performance-based restricted stock. Although the Compensation Committee has not yet approved any equity grants for fiscal 2008, it currently expects that the mix of equity incentives will be modified slightly such that 60% of equity incentives would be in the form of stock options or SSARs and 40% in the form of restricted stock. The Committee believes that awarding a mix of equity incentives in these proportions appropriately balances rewarding absolute and relative performance of the Company’s stock to ensure an alignment of the interests of management with those of stockholders in order to maximize stockholder return.

 

Stock options and SSARs are granted with exercise prices equal to 100% of fair market value of the common stock on the date of grant. Commencing in fiscal 2007, the Company began granting SSARs in lieu of stock options. The Committee viewed this to be beneficial as SSARs are less dilutive to other stockholders than stock options since only the amount of appreciation, rather than the entire grant, is awarded in shares. At the same time, they are cost neutral to stock options for the Company since they are treated the same under FAS 123(R). The allocation of future awards of SSARs and stock options will also depend on availability of each under the Amended and Restated 1999 Stock Incentive Plan, as the plan has different sublimits for these awards. If proposal #4 above is approved by stockholders at this meeting, SSARs will be treated in the same manner as stock options under the Amended and Restated 1999 Stock Incentive Plan and there will be no specific sublimit for SSARs.

 

The Amended and Restated 1999 Stock Incentive Plan contains a prohibition on re-pricing options without stockholder approval. As more fully described above, the Company is seeking approval from stockholders at this meeting to amend the Amended and Restated 1999 Stock Incentive Plan to authorize a stock option/SSAR exchange program for employees other than executive officers and directors.

 

Grants of time-based restricted stock are restricted from sale and subject to forfeiture prior to vesting. Performance-based restricted stock vests contingent upon the ranking of the compound annual growth rate

(“CAGR”) of total return to stockholders of Beazer Homes’ stock as compared to the compound annual growth rate of total stockholder return of the stock of the Performance Stock Peer Group over a defined time period (the “performance period”). The Performance Stock Peer Group consists of the following nine companies: Centex Corporation, D.R. Horton, Inc., Hovnanian Enterprises, Inc., KB Home, Lennar Corporation, M.D.C Holdings, Inc., Pulte Homes, Inc., Ryland Group, Inc., and Toll Brothers, Inc. NVR, Inc., which is included in the Peer Group used for comparative compensation analysis, was excluded from the Performance Stock Peer Group by the Compensation Committee due to a lack of comparability in terms of capital structure and stock valuation metrics. Further information on the vesting of performance-based restricted stock and other equity incentives are included in the “Narrative Disclosure to the Summary Compensation Table and Grants of Plan-Based Awards Table.”

 

The Compensation Committee generally reviews and approves proposed grants of all awards under the equity incentive plans in connection with the February Board of Directors meeting and Annual Meeting of Stockholders. This was done to establish consistent measurement dates across participants for the purposes of determining vesting of performance-based restricted stock. However, as a result of the pending U.S. Attorney and SEC investigations, litigation and related matters, including the restatement of the prior years’ financial statements recently conducted, the Company delayed its Annual Meeting until August 5, 2008 and the Compensation Committee has not approved any grants for fiscal 2008 at this time.

 

In determining the amount of equity compensation to be granted to Named Executive Officers annually, the Compensation Committee has historically employed a defined multiple of base salary, although this is subject to the discretion of the Committee, which may alter the amount based on additional factors such as past award histories and assessment of competitive practice. The multiples of base salary are determined based on the executive’s position and with a view of providing levels of equity compensation that are competitive with those awarded to similar positions at companies in the Peer Group, if such information is available. The resulting dollar amount is converted to a unit equivalent based on the closing stock price on the grant date, and, in the case of stock options or SSARs, this closing stock price on the grant date is discounted by 60% solely for the purpose of converting the multiple of salary to a unit equivalent; as noted above the exercise price is equal to 100% of fair market value of the common stock on the date of grant. As noted above, for fiscal 2007, 50% of the award was granted in the form of stock options or SSARs, 25% in the form of time-based restricted stock and 25% in the form of performance-based restricted stock. Although not all Named Executive Officers received equity grants in fiscal 2007 (as discussed further below) and no grants or award allocations for fiscal 2008 have been approved at this time, salary multiples that have been in place for the Named Executive Officers are as follows:

 

 

In February 2006, the Committee approved long-term stock incentive grants for Messrs. McCarthy, Furlow, and O’Leary. These long-term stock incentive grants were approved to ensure the retention of these executives and to more fully align their interests with those of stockholders by rewarding them for relative and absolute performance of the Company’s stock from 2006 onward. Pursuant to his voluntary resignation in March 2007, Mr. O’Leary’s unvested grants were forfeited. The grants were comprised 50% in the form of stock options and 50% in the form of restricted stock, half of which was in the form of time-based restricted stock and half in the form of performance-based restricted stock. These grants were intended to be in lieu of the typical annual grants for the subsequent three years, and as such, the multiple of salary was applied to three years’ base salary at the then current level. As such, no stock incentive grants were made to these executives in fiscal 2007. Mr. Merrill received a similar grant in May 2007, at the time he joined the Company. Salary multiples used for these grants were 6.0 times for Mr. McCarthy and 4.0 times for Messrs. Furlow, O’Leary and Merrill.

 

In accordance with the terms of Mr. Douglas’ employment letter effective May 1, 2007, he was awarded ‘phantom’ stock options and ‘phantom’ restricted stock on his employment date. Each phantom stock option and each share of phantom restricted stock is the economic equivalent to an option to purchase one share of Beazer stock

and one share of Beazer stock, respectively. The form and vesting schedule (which is accelerated as compared to the vesting schedule of equity grants to other Named Executive Officers) of Mr. Douglas’ phantom equity compensation was designed differently from the other Named Executive Officers given his role as Special Counsel, where his duties included handling all litigation stemming from the recent investigation into the Company’s mortgage origination practices and accounting restatement, securities litigation and related issues. Mr. Douglas resigned effective May 19, 2008 and all unvested ‘phantom’ stock options and ‘phantom’ restricted stock were forfeited.

 

Executives who resign from Beazer, or are terminated for cause before equity-based grants are vested, forfeit such grants.

 

Stock Ownership Guidelines

 

In order to more closely align the interests of directors and senior corporate management with those of stockholders, the Board has adopted guidelines requiring that directors and certain senior corporate officers, including the Named Executive Officers, acquire and maintain ownership, directly or beneficially, of a meaningful amount of Company stock (“Executive and Director Stock Ownership Program”). As currently structured, within four years of appointment to covered positions, each covered individual must acquire and continue to own a minimum level of Company stock equivalent in value to a specified multiple of the executive’s annual base salary or director’s annual retainer. The required multiples vary according to the covered position and are summarized below:

 

 

The Board has delegated to the Compensation Committee the primary responsibility for overseeing and implementing the Executive and Director Stock Ownership Program, including interpreting, monitoring compliance with and enforcing Executive and Director Stock Ownership Program as adopted or amended by the Board from time to time. As a result of the pending U.S. Attorney and SEC investigations, litigation and related matters, including the restatement of the prior years’ financial statements recently conducted, the Company’s directors and the Named Executive Officers have been subject to ongoing closed period restrictions which prohibited them from buying or selling Beazer stock through much of fiscal 2007 and to date in fiscal 2008. As such, the Compensation Committee and Board of Directors suspended the Executive and Director Stock Ownership Program for fiscal 2008 and fiscal 2009 and will revisit the program, including possible modifications of required multiples, prior to fiscal 2010.

 

Deferred Compensation Plan

 

Effective January 1, 2002, we adopted the Beazer Homes USA, Inc. Deferred Compensation Plan to provide eligible employees the opportunity to defer receipt of current compensation. The amount of compensation deferred by participants is determined based on elections by the plan participants and paid in accordance with the terms of the Deferred Compensation Plan. Prior to the beginning of each year, Plan participants for that year may elect to defer up to 50% of their base salary and up to 75% of their annual bonus. The election is irrevocable for the year, and Plan participants must make a new election each year in which they wish to participate. At the same time deferral elections are made, Plan participants also elect when they wish to receive distributions in the future of their deferrals and any discretionary Company contributions. Plan participants may schedule a fixed payment date or dates for payment of the deferred amounts while employed or elect to have such amounts paid upon termination of employment, either in lump sum or installments. Early non-scheduled distributions (permitted only for funds deferred in plan years 2002 through 2004, under Section 409A of the Internal Revenue Code) can be made and incur a penalty. Distributions which qualify as ’hardship’ distributions from any plan year incur no penalty. For fiscal 2007, we provided matching cash contributions equal to the lesser of 50% of compensation deferred under the Plan

or 3% of eligible compensation, reduced by the matching contributions credited to the participant under our 401(k) Plan. In the case of the Chief Executive Officer, the Chief Operating Officer and the Chief Financial Officer, the Compensation Committee has historically, in lieu of matching contributions, made discretionary lump sum deferred compensation payments on behalf of these executives in annual amounts of $200,000, $100,000, $50,000, respectively, with a view of providing an attractive and competitive element of deferred, post-employment or supplemental retirement benefit. These amounts are paid on a pro-rata basis each pay period. As such, in the case of Messrs. McCarthy, Furlow, Merrill and O’Leary, in fiscal 2007, the Compensation Committee made discretionary lump sum deferred compensation payments on behalf of these Named Executive Officers of $200,000, $100,000, $20,833 and $24,013, respectively.

 

Other Benefits

 

Our Named Executive Officers participate in employee benefit plans generally available to all employees on the same terms, including a 401(k) Plan that provides for a Company match on contributions. We do not have a defined benefit pension plan or supplemental executive retirement plan. Our Named Executive Officers are eligible, as are other senior managers, to use a company car or to receive a car allowance. In addition, they are granted vacation at the beginning of the year (as opposed to accruing it during the course of the fiscal year as is generally the case with other employees), and may elect to participate in the Executive Long-Term Disability Plan.

 

Employment and Change of Control Agreements.  On September 1, 2004, Beazer Homes entered into amended and restated employment agreements (the “Employment Agreements”) with each of the following Named Executive Officers: Ian J. McCarthy, Michael H. Furlow, and James O’Leary. These agreements were subsequently amended on February 3, 2006. Effective May 1, 2007, Beazer Homes entered into an employment agreement with Allan P. Merrill. The Employment Agreements set forth the basic terms of employment for each executive, including base salary, bonus and benefits, including benefits to which each executive is entitled if employment is terminated for various reasons. The basic terms of employment for Mr. Douglas, including base salary, bonus and benefits are outlined in his employment letter effective May 1, 2007, when he joined the Company. Mr. Douglas resigned effective May 19, 2008.

 

The Board of Directors of the Company, at the recommendation of the Compensation Committee, has determined that it is in the best interests of the Company and its stockholders to assure that the Company will have the continued dedication of the Named Executive Officers, notwithstanding the possibility, threat or occurrence of a Change of Control of the Company. The Board believes it is imperative to diminish the inevitable distraction of an executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the executive’s full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the executive will be satisfied and which are competitive. As such, the Compensation Committee has approved Supplemental Employment (Change of Control) Agreements for the Named Executive Officers. These Supplemental Employment Agreements provide for continued employment of the Named Executive Officer for two years following a Change of Control or stated benefits if the Named Executive Officer’s employment is terminated without cause, or he or she leaves with Good Reason, within two years of a Change of Control (a “double-trigger”). The Change of Control provisions in these agreements supersede any similar provisions in the Named Executive Officer’s Employment Agreement.

 

A description of additional terms of the employment and change of control agreements may be found in the “Narrative Disclosure to the Post-Employment Compensation Table.”

 

Tax Deductibility of Compensation.  It is the Committee’s general policy to consider whether particular payments and awards are deductible to Beazer Homes for Federal income tax purposes, along with other factors, which may be relevant in setting executive compensation practices. The Internal Revenue Service limits the deductibility for Federal income tax purposes of compensation payments to certain executive officers in excess of $1 million subject to certain exemptions and exceptions.

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402 (b) of Regulation S-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in our Annual Report on Form 10-K and this Proxy Statement.

 

Larry T. Solari
Katie J. Bayne
Stephen P. Zelnak, Jr.

 

The Members of the Committee

 

Set forth below is summary compensation information for each person who was (1) at any time during fiscal 2007 our Chief Executive Officer or Chief Financial Officer and (2) at September 30, 2007, one of our three most highly compensated executive officers, other than the Chief Executive Officer and the Chief Financial Officer (collectively, the “Named Executive Officers”).

 

 

 

 

 

The following table shows information about eligible or granted plan-based awards for fiscal 2007 to the Named Executive Officers.

 

 

 

 

The Executive Value Created Incentive Plan

 

Grants of awards under our Executive Value Created Incentive Plan are disclosed in the Grants of Plan-Based Awards Table in the year they are granted. The value of the award is disclosed in the Summary Compensation Table in the year when the performance criteria under the plan are satisfied and the compensation earned.

 

The awards under this Plan are made based upon the extent to which Beazer Homes realizes EBIT in excess of our cost of capital. This amount of EBIT in excess of cost of capital is referred to as Value Created. Executives participating in the Executive VCIP each year are paid a set percentage of Value Created (if positive) and a set percentage of the increase in Value Created over the prior year (if positive), referred to as Incremental Value Created. Elements for determining Value Created and Incremental Value Created are defined as follows:

 

EBIT — Earnings Before Interest and Taxes.

 

Value Created (VC) — EBIT less a Capital Charge.

 

Incremental Value Created (IVC) — Increase or decrease in Value Created compared to the prior year.

 

Capital Employed — Total Assets, excluding cash, less Total Liabilities (other than debt). Also equal to total debt plus total equity, less cash on hand. This represents the total book value of the investment in the business. Capital Employed is determined daily.

 

Capital Charge — A charge for the use of capital employed in the business. The Capital Charge for the participating Named Executive Officers is currently in the range of 11% to 14% of the Capital Employed. In fiscal 2007, the Capital Charge was 11% for corporate executive vice presidents and above, including Messrs. McCarthy, Furlow and O’Leary and 14% for corporate senior vice presidents, including Mrs. Boydston. For fiscal 2008, the Capital Charge remains the same for current participants and is 11% for Mr. Merrill. The Capital Charge for purposes of this Plan is determined from time to time by, and may be adjusted individually or for the participants as a whole, at the discretion of the Compensation Committee in connection with its review of the Executive VCIP. The Compensation Committee, at its sole discretion, may approve objectively measurable adjustments to the Capital Charge, and therefore to VC and IVC, in recognition of special circumstances or to provide special incentives in the long-term interests of value creation. As an example, credit to the Capital Charge may be granted for purchases of land in advance of the immediate need for development, thereby encouraging commitments for future land development.

 

The percentage of Value Created paid is determined on a graduated scale which decreases as Value Created increases. The percentage of Incremental Value Created is fixed regardless of the level of Value Created. Each participating executive is assigned a range of percentages (in the case of Value Created) and a specific percentage (in the case of Incremental Value Created) by the Compensation Committee.

 

In addition, each year, pursuant to the Executive VCIP, the same percentages of Value Created and Incremental Value Created (whether positive or negative) are deemed to be put into a bank, which represents future bonus potential based upon a combination of both past and future performance, further encouraging a long-term view to decision-making. The bank is always at risk, and can be reduced by future negative performance.

 

Each year, after adding or subtracting the current year’s amounts to the bank, one third of the bank is paid out. The maximum balance of the bank, after current year additions and payments, is equal to one times the current year’s maximum cash payment, defined below. Twenty-five percent of any amount over this limit will be awarded in a combination of restricted stock and/or deferred compensation, at the discretion of the Compensation Committee. The remaining 75% of the excess is forfeited. At the end of each fiscal year, 10% of any positive ending bank, after

current year adjustments, cash payments and any reduction for excess over the maximum limit specified in the Plan will be awarded as deferred compensation. This deferred compensation or restricted stock vests three years after the grant date and is forfeited upon termination for any reason other than a Change in Control. Upon a Change in Control, all such deferred compensation or restricted stock vests immediately.

 

In September 2006, the Committee established a minimum of one-half of an employee’s salary for purposes of annual opening bank balances under the Executive VCIP for fiscal year 2007 and future years. The maximum total amount which may be awarded to any participant in any one year under the Executive VCIP is $10.0 million excluding any performance factor adjustment (described below) and $11.0 million including any performance factor adjustment, subject to a maximum bonus salary multiple which is determined by the participant’s position.

 

For fiscal 2007 and 2008, the percentages and maximum bonus salary multiples for the participating Named Executive Officers were and are as follows:

 

 

Percentages and Maximum Bonus Salary Multiples for Value Created less than $0 are for the purposes of calculating reductions in the bank and maximum payments from the bank, if positive.

 

Actual incentive payments funded may be adjusted by additional performance factors and percentages, subject to the determination by the Compensation Committee prior to the beginning of any fiscal year that such additional adjustments shall not apply. The Compensation Committee adopts from time to time a schedule showing the

percentage adjustments based on scores or other elements achieved with respect to the additional performance factors. For fiscal 2007, the following performance factor adjustments were in place:

 

 

As such, actual incentive payments adjustments for fiscal 2007 could vary from -10% to +10% of the amount that would have been payable under the Executive VCIP before application of the performance factor adjustments.

 

As discussed above, based upon our fiscal 2007 financial performance both Value Created and Incremental Value Created for the Company were negative and no incentive amounts were earned by or paid to the Named Executive Officers under the Executive VCIP. Based upon our year-to-date fiscal 2008 financial performance, we do not expect incentive amounts to be earned by or paid to the Named Executive Officers under the Executive VCIP for fiscal 2008.

 

Equity-based Incentives

 

Grants of equity incentive plan awards and the full grant date fair value (determined in accordance with FAS 123(R)) of such awards are disclosed in the “Grants of Plan-Based Awards Table” in the year they are granted. The amount recorded as compensation expense in our income statement in accordance with FAS 123(R) relating to any such awards is disclosed in the “Summary Compensation Table” in the year when the compensation expense is recorded.

 

We utilize four equity-based, longer-term incentives: stock options, stock-settled stock appreciation rights (“SSARs”), time-based restricted stock, and performance-based restricted stock pursuant to the Amended and Restated 1999 Stock Incentive Plan.

 

Except in the case of the grants made to Messrs. McCarthy, Furlow, and O’Leary in February 2006 and to Mr. Merrill in May 2007, outstanding equity incentives vest as follows:

 

 

In order to compete more effectively with industry peers in terms of equity vesting and to strengthen the retention impact of equity awards, in June 2008, the Compensation Committee determined that future grants of stock options or SSARs will vest ratably over a three year period and that future grants of time-based restricted stock will vest three years from the date of grant.

 

The performance criteria and corresponding vesting percentages for achieving such for performance-based restricted stock are defined as follows:

 

Total stockholder return is defined as ending stock price plus dividends paid, divided by beginning stock price. Beginning stock price is defined as the average of the closing stock prices for the 20 trading days ending on the last trading day prior to the first trading day of the applicable performance period. Ending stock price is defined as the average of the closing stock prices for the 20 trading days ending on the last trading day of the performance period.

 

In February 2006, the Committee approved long-term stock incentive grants for Messrs. McCarthy, Furlow, and O’Leary. Mr. Merrill received a similar grant in May 2007, at the time he joined the Company. The vesting schedule for these grants differed from those described above as follows:

 

Performance-based restricted stock:  One-third each of the aggregate number of performance-based restricted shares is eligible to vest depending on performance three, four and five years respectively after the beginning of the performance period, as defined in the award agreement. Depending on the level of performance achieved, as measured by the performance criteria described above, between 0% and 150% of shares then eligible for vesting on the performance date will vest. Upon termination of employment other than for cause or voluntary resignation, a portion of the performance-based restricted stock will vest, depending on length of service since the grant date.

 

Time-based restricted stock:  Beginning five years after the date of grant, the restrictions on one-third of the time-based restricted stock will lapse each year for three years subject to continued employment. Upon termination of employment other than for cause or voluntary resignation, a portion of the restricted stock will vest, depending on length of service since the grant date.

 

Stock options or SSARs:  Beginning three years after the date of grant, the stock options or SSARs vest one third each year for three years and will expire seven years after the date of grant. Upon termination of employment other than for cause or voluntary resignation, a portion of the stock options or SSARs will vest, depending on length of service since the grant date.

 

In accordance with the terms of Mr. Douglas’ employment letter effective May 2007, he was awarded ‘phantom’ stock options and ’phantom’ restricted stock on his employment date. These phantom stock options were scheduled to vest over three years with one third vesting on the first anniversary of employment. The remaining two thirds were scheduled to vest in ratable increments each quarter over the following eight quarters. The phantom shares of restricted stock were scheduled to vest over five years, with 20% vesting on the first anniversary of employment with the remaining 80% vesting in ratable increments each quarter over the following 16 quarters. As a result of his termination of employment, which was effective May 19, 2008, all of the unvested ‘phantom’ stock options and restricted stock were forfeited on the date of termination.

 

The following table provides information with respect to the common stock that may be issued upon the exercise of options and other awards under our existing equity incentive plans as of September 30, 2007.