SCHEDULE 14A

(Rule 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

 

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.  )

 

Filed by the Registrant x

 

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

 

AVATAR HOLDINGS INC.

(Name of Registrant as Specified In Its Charter)

 

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

 

Payment of Filing Fee (Check the appropriate box):

 

 

o  Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To the Stockholders of Avatar Holdings Inc.:

 

The Annual Meeting of Stockholders of Avatar Holdings Inc. will be held at the Hyatt Regency Coral Gables, 50 Alhambra Plaza, Coral Gables, Florida, on May 29, 2008, at 10:00 a.m. local time, for the following purposes:

 

1. To elect ten directors.

 

 

The Board of Directors has fixed the close of business on March 31, 2008 as the record date for the determination of stockholders entitled to receive notice of, and to vote at, the Annual Meeting or any adjournment or adjournments thereof.

 

Please mark your proxy if you wish to attend the Annual Meeting in order that adequate preparations may be made. A meeting attendance card will be mailed promptly to you to facilitate your attendance.

 

WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY IN THE POSTAGE-PREPAID ENVELOPE PROVIDED FOR YOUR CONVENIENCE. YOU MAY ALSO VOTE VIA INTERNET OR BY TELEPHONE IN ACCORDANCE WITH THE INSTRUCTIONS ON YOUR PROXY CARD.

 

By Order of the Board of Directors,

 

Juanita I. Kerrigan
Vice President and Secretary

 

Dated: April 29, 2008.

 

 

 

TABLE OF CONTENTS

 

AVATAR HOLDINGS INC., 201 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134 (305) 442-7000

 

This proxy statement and the enclosed form of proxy are furnished to the stockholders of Avatar Holdings Inc., a Delaware corporation (“Avatar” or the “Company”), in connection with the solicitation of proxies by and on behalf of the Board of Directors of Avatar for use at the Annual Meeting of Stockholders to be held at the place and time and for the purposes set forth in the annexed Notice of Annual Meeting of Stockholders.

 

Record Date; Voting Rights

 

Pursuant to the By-Laws of Avatar, the Board of Directors has fixed the close of business on March 31, 2008 as the record date for the determination of stockholders entitled to notice of and to vote at the meeting or any adjournment or adjournments thereof.

 

At the close of business on March 31, 2008, 8,538,772 shares of Common Stock, $1.00 par value, of Avatar (“Common Stock”), which constitutes the only class of voting securities of Avatar, were outstanding and entitled to vote. For each share of Common Stock held of record on the close of business on March 31, 2008, stockholders are entitled to one vote, except in regard to the election of directors, for which there will be cumulative voting as described under the heading “Election of Directors.” In accordance with Avatar’s By-Laws, the holders of a majority of the outstanding shares of Common Stock, present in person or represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting.

 

Proxies

 

When a proxy is received, properly executed, in time for the Annual Meeting, the shares represented thereby will be voted at the meeting as directed. If no such direction is specified, such shares will be voted: (1) FOR the election as directors of Avatar the ten nominees named therein; (2) FOR approval of the appointment of Ernst & Young LLP, independent registered public accounting firm, as auditors of Avatar for the year ending December 31, 2008; and (3) in connection with the transaction of such other business as properly may come before the meeting in accordance with the judgment of the person or persons voting the proxy. Any stockholder who executes a proxy may revoke it at any time prior to its exercise by giving written notice of such revocation to the Secretary of Avatar. In addition, a stockholder who attends the meeting may vote in person, thereby cancelling any proxy previously given by such stockholder.

 

Nominees for director will be elected by a plurality of the votes cast (i.e., the highest number of votes cast) at the Annual Meeting by the holders of Common Stock present in person or by proxy and entitled to notice of, and to vote at, the Annual Meeting. Consequently, only shares that are voted in favor of a particular nominee will be counted toward such nominee’s achievement of a plurality. Shares present at the meeting that are not voted for a particular nominee or shares present by proxy where the stockholder withheld authority to vote for such nominee(s) (including broker non-votes) will not be counted toward such nominee’s achievement of a plurality.

 

The affirmative vote of a majority of the shares of Common Stock present in person or by proxy and entitled to notice of, and to vote at, the Annual Meeting is necessary to ratify the appointment of Ernst & Young LLP as auditors for the year ending December 31, 2008. Abstentions will have the same effect as votes against such proposal because the shares are considered present at the meeting but are not affirmative votes, and broker non-votes will not be counted in respect of the proposal.

 

If you are the beneficial owner of shares held for you by a broker, your broker must vote those shares in accordance with your instructions. If you do not give voting instructions to your broker, your broker may

vote your shares for you on any discretionary items of business to be voted upon at the Annual Meeting, such as the election of directors (Item 1) and the appointment of Ernst & Young LLP (Item 2).

 

This proxy statement and the form of proxy enclosed herewith, and the accompanying Annual Report of Avatar for the fiscal year ended December 31, 2007, including financial statements, are first being mailed on or about April 29, 2008, to stockholders of record on the close of business on March 31, 2008.

 

If you plan to attend the meeting, please mark the box provided on your proxy card so that we may send you an attendance card. Stockholders who have beneficial ownership of Common Stock that is held by a bank or broker should bring account statements or letters from their banks or brokers indicating that they owned Common Stock on March 31, 2008. Stockholders also may obtain an attendance card by submitting a written request to the Secretary of Avatar.

 

The following table sets forth, as of March 31, 2008, information with respect to each person or entity known by the Board of Directors to be the beneficial owner of more than 5% of the outstanding Common Stock. Except as otherwise indicated, all shares are owned directly.

 

 

(1) Does not include shares owned by Joshua Nash, who is Chairman of the Board of Directors of Avatar and is sole member of Joshua Nash II LLC, a managing member of Odav LLC, a Delaware limited liability company (“Odav”), formed in September 2003 to hold the Common Stock owned by Odyssey Partners, L.P. Jack Nash, the father of Joshua Nash and the sole member of Jack Nash LLC, has the sole power to vote, direct the voting of, dispose of and direct the disposition of the shares of Common Stock beneficially owned by Odav and, accordingly, may be deemed to own beneficially the Common Stock owned by Odav. Joshua Nash votes the Common Stock owned by Odav under the directions of Jack Nash LLC. Each of Jack Nash and Joshua Nash has expressly disclaimed any such beneficial ownership (within the meaning of Exchange Act Rule 13d-3(d)(1)) which exceeds the proportionate interest in the Common Stock which he may be deemed to own as a member of Odav. Avatar has been advised that no other person exercises (or may be deemed to exercise) any voting or investment control over the Common Stock owned by Odav. Joshua Nash’s ownership of Common Stock is indicated in the table included in “Security Ownership of Directors, Nominees and Management.”

 

(2) By virtue of its present Common Stock ownership, Odav may be deemed to be a “control” person of Avatar within the meaning of that term as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended.

 

(3) Based upon information set forth in Amendment No. 8 to Schedule 13G, filed on April 10, 2008, by Private Capital Management, L.P. (“PCM”) (a registered investment adviser), the aggregate amount beneficially owned is 1,482,736 shares, of which 1,413,436 shares are held for the benefit of various clients; PCM shares voting and dispositive power with respect to shares managed by PCM; and beneficial ownership of such shares is disclaimed.

 

(4) Based upon information set forth in Schedule 13G, filed February 13, 2008, Advisory Research, Inc. (“ARI”) (a registered investment adviser) is deemed to beneficially own 892,205 shares for which ARI has sole voting and dispositive power.

 

(5) Based upon information set forth in Schedule 13G, filed April 26, 2007, Shelby White and Elizabeth Moynihan, trustees of the foundation, may be deemed to beneficially own the shares owned by the foundation for purposes of Rule 13d-3 under the Securities Exchange Act of 1934, as amended; the foundation, Shelby White and Elizabeth Moynihan have shared voting power and shared dispositive power over the shares; beneficial ownership of such shares is disclaimed by Shelby White and Elizabeth Moynihan.

 

(6) Based upon information set forth in Amendment No. 1 to Schedule 13G, filed on February 6, 2008, Dimensional Fund Advisors LP (“DFA”) (a registered investment advisor) is deemed to beneficially own 641,806 shares by virtue of its service as investment advisor to four investment companies and investment manager to certain other commingled group trusts and separate accounts, none of which, to DFA’s knowledge, holds 5% or more of Common Stock. DFA has sole voting and dispositive power and disclaims beneficial ownership of such shares.

 

(7) Based upon information set forth in Schedule 13G, filed on February 12, 2008, State Street Bank and Trust Company (“SSB”) (a bank) is deemed to beneficially own 485,874 shares by virtue of its acting in various fiduciary capacities; SSB has sole voting power and shares dispositive power with respect to the shares; and beneficial ownership is disclaimed.

 

(8) Based upon information set forth in Schedule 13G, filed on February 13, 2008, First Manhattan Co. (“FMC”) (a registered investment adviser) is deemed to beneficially own 427,068 shares, of which FMC has sole voting and dispositive power with respect to 21,849 shares, shared voting power with respect to 373,208 shares, and shared dispositive power with respect to 405,219 shares.

 

The following table sets forth, as of March 31, 2008, information with respect to the outstanding shares of Common Stock owned beneficially by each present director, nominee for director, each of the Named Executive Officers identified herein under the caption “Summary Compensation Table,” and all present directors and executive officers of Avatar as a group. Except as otherwise indicated, all shares are owned directly.

 

* Represents less than one percent.

 

(1) The information as to securities owned by directors, officers and nominees was furnished to Avatar by such directors, officers and nominees.

 

(2) Includes for each incumbent non-management director 180 Restricted Stock Units (“RSUs”) awarded as additional compensation on May 31, 2007, which RSUs become convertible into an equal number of shares of Common Stock upon the

earlier of the first anniversary of the date of the award or the date immediately preceding the 2008 Annual Meeting of Stockholders. Also includes Stock Units representing deferred directors’ fees, which Stock Units become issuable as shares of Common Stock at the earlier of a date designated by the individual director or the date of the individual’s separation from service as a director. (See “Directors’ Compensation.”)

 

(3) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage of shares owned by such person, but are not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. On March 31, 2008, there were 8,538,772 shares of Common Stock outstanding.

 

(4) Does not include 246,779 shares beneficially owned by Sterling Capital Management LLC (“Sterling Capital”), of which Mr. Brea is a Partner and Managing Director. Sterling Capital (a registered investment adviser) disclaims beneficial ownership of such shares which are held for the benefit of various clients. Includes 180 RSUs and 1,116 Stock Units.

 

(5) Includes 2,000 shares owned by his children, over which shares Mr. Kelfer shares voting and dispositive power. Of the 91,682 shares owned directly by Mr. Kelfer 3,113 shares are held in a margin account and may be, or may become, pledged as security for the account.

 

(6) Includes 180 RSUs, 865 Stock Units and 2,107,763 shares owned by Odav. Mr. Nash is the sole member of Joshua Nash II LLC, a managing member of Odav and, therefore, may be deemed to own beneficially the shares of Common Stock owned by Odav. See Notes(1) and (2) to the preceding table included in “Principal Stockholders.”

 

(7) Shares owned directly by Ms. Stewart are held in a margin account and may be, or may become, pledged as security for the account.

 

(8) Includes 76,000 shares issuable upon exercise of options. Shares owned directly by Mr. Fels are held in a margin account and may be, or may become, pledged as security for the account.

 

(9) Includes 50,000 shares issuable upon exercise of options and 1,500 shares owned by his children, over which shares Mr. Levy has sole voting and dispositive power. Does not include 4,750 shares issuable upon conversion of $250,000 principal amount of 4.50% Notes as conversion privileges currently are not exercisable within 60 days. Shares owned directly by Mr. Levy are held in a margin account and may be, or may become, pledged as security for the account.

 

Avatar’s Board of Directors has adopted Corporate Governance Guidelines and Principles as a component of the flexible governance framework within which the Board, assisted by its committees, directs Avatar’s affairs. The Corporate Governance Guidelines and Principles, which define the role of the Board of Directors, are available on Avatar’s website at www.avatarholdings.com.

 

The Board of Directors has determined that all nominees for election or reelection meet the qualification standards set forth in Avatar’s Corporate Governance Guidelines and Principles and meet the independence criteria under the rules and regulations of The Nasdaq Stock Market, Inc. (“Nasdaq”) except for Joshua Nash and Gerald D. Kelfer. In making such determination, the Board considered relevant facts regarding such nominee, in particular that each nominee determined to be independent does not have a material relationship with Avatar, either directly (other than as a nominee and/or stockholder) or as a stockholder, director, officer, partner or affiliate of an organization that has a relationship with Avatar. In determining the independence of Fred Stanton Smith the Board considered the consulting fees paid to him (see “Directors’ Compensation”). The Board has further determined that all current members of the Audit Committee meet the more stringent independence requirements of the U.S. Securities and Exchange Commission (“SEC”) and Nasdaq for Audit Committee membership.

 

The Board of Directors has adopted a Code of Business Conduct and Ethics applicable to all directors, officers and employees of Avatar and a Supplemental Code of Ethics for the CEO, CFO and other Senior Financial Officers. These Codes of Business Conduct and Ethics are available on Avatar’s website at www.avatarholdings.com.

 

To supplement the broader provisions of Avatar’s Code of Business Conduct and Ethics, the Board of Directors has adopted a policy and procedures for review and approval or ratification by the Audit

Committee of transactions in which the Company participates and a “related person” has a material direct or indirect interest. A “related person” means: each director and executive officer of the Company; any director nominee; any greater than five percent stockholder; any immediate family member of any of the foregoing; and any company or another entity that employs or is controlled by any of them, or in which any of them have a material ownership or financial interest.

 

Generally under the policy, any director, executive officer or nominee who intends to enter into a related person transaction, and any employee of the Company who intends to cause the Company to enter into a related person transaction, is required to disclose all material facts regarding the proposed transaction to the Committee.

 

The transaction will be reviewed by the Committee and, in its discretion, approved or ratified. In connection with approving or ratifying a transaction, the committee considers, in light of the relevant facts and circumstances, whether or not the transaction is in, or not inconsistent with, the best interests of the Company. Thus, it may consider many factors, such as the relationship of the related person with the Company, the materiality or significance of the transaction to the Company and the related person, the business purpose and reasonableness of the transaction, whether the transaction is comparable to a transaction that could be available to the Company on an arm’s-length basis, and the impact of the transaction on the Company’s business and operations. The related person transaction policy is available on Avatar’s website at www.avatarholdings.com.

 

 

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Ten directors are to be elected for the ensuing year and until their respective successors are duly elected and qualified. Stockholders have cumulative voting rights with respect to election of directors. Under cumulative voting, each stockholder is entitled to the same number of votes per share as the number of directors to be elected (or, for purposes of this election, ten votes per share). A stockholder may cast all such votes for a single nominee or distribute them among the nominees, as such stockholder wishes, either by so marking his ballot at the meeting, by specific voting instructions sent to Avatar with a signed proxy, or via Internet or by telephone in accordance with instructions on the proxy card. In connection with the solicitation of proxies, discretionary authority to cumulate votes is being solicited. Unless authority to vote for the nominees for director is withheld, it is the intention of the persons named in the accompanying proxy to vote the proxies in such manner as will elect as directors the nominees named below.

 

All of the nominees were elected at the May 31, 2007 Annual Meeting of Stockholders. The Board of Directors met seven times during 2007, including the annual meeting of directors held immediately following the 2007 Annual Meeting of Stockholders.

 

The Board of Directors does not contemplate that any of the persons named below will be unable, or will decline, to serve. However, if any of such persons is unable or declines to serve, the persons named in the accompanying proxy may vote for another person or persons in their discretion.

 

The following table sets forth certain information with respect to each nominee for director. Except as otherwise indicated, each nominee has held his present occupation or occupations for more than the past five years and has not been principally employed by any subsidiary or affiliate of Avatar. There are no family relationships between any nominee, director or executive officer of Avatar.

 

 

To assist it in carrying out its duties, the Board has established various committees. Current committees and current members thereof are as follows:

 

 

The Executive Committee of the Board has authority to exercise most powers of the full Board in connection with matters which arise during the intervals between meetings of the Board. The Executive Committee met once during 2007.

 

The Audit Committee assists the Board in fulfilling its responsibility to oversee management regarding: (i) the conduct and integrity of Avatar’s financial reporting; (ii) Avatar’s systems of internal accounting and financial and disclosure controls; (iii) the qualifications, engagement, compensation, independence and performance of the independent auditors, their conduct of the annual audit and their engagement for any other services; (iv) Avatar’s legal and regulatory compliance; (v) the application of Avatar’s related person transaction policy; (vi) codes of business conduct and ethics as established by management and the Board; and (vii) the preparation of the Audit Committee Report for inclusion in the annual proxy statement. The Committee may also perform such other tasks as are assigned to it from time to time by the Board. The Committee has the authority to obtain advice and assistance from, and receive adequate resources and funding from Avatar for, outside counsel, independent auditors or other advisors. The Committee met eight times during the fiscal year ended December 31, 2007. The Committee is governed by a written charter approved by the Board. The charter is available on Avatar’s website at www.avatarholdings.com.

 

All members of the Committee have been determined to be independent (see “Director Independence”). The Board has also determined that all members of the Committee are financially literate under Nasdaq’s listing standards and Joel M. Simon is the Committee’s “audit committee financial expert,” as defined in the rules of the SEC and for purposes of Nasdaq’s listing standards.

 

The following is the report of Avatar’s Audit Committee with respect to Avatar’s audited financial statements for the fiscal year ended December 31, 2007:

 

The Committee has reviewed and discussed Avatar’s audited financial statements with management.

 

The Committee has discussed with Ernst & Young LLP, Avatar’s independent auditors, the matters required to be discussed by SAS 61 (Communication with Audit Committees) and SAS 90 (Audit Committee Communications), as amended, regarding the auditors’ judgments about the quality of Avatar’s accounting principles as applied in its financial reporting.

The Committee has also received written disclosures in the letter from Ernst & Young required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and has discussed with Ernst & Young their independence.

 

Based on the review and discussions referred to above, the Committee recommended to Avatar’s Board of Directors that its audited financial statements be included in Avatar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007 for filing with the Securities and Exchange Commission.

 

March 6, 2008

AUDIT COMMITTEE

 

Joel M. Simon, Chairman
Eduardo A. Brea
Roger W. Einiger
Kenneth T. Rosen
Beth A. Stewart

 

The Nominating and Corporate Governance Committee assists the Board in: (i) identifying, screening and reviewing individuals to serve as directors and recommending candidates for nomination for election at the annual meeting of stockholders or to fill Board vacancies; (ii) overseeing Avatar’s policies and procedures for receipt of stockholder suggestions regarding composition of the Board and recommendations of candidates for nomination; (iii) overseeing implementation of Avatar’s Corporate Governance Guidelines and Principles; and (iv) reviewing Avatar’s overall corporate governance and recommending changes when necessary or desirable. The Committee may also perform such additional tasks as assigned to it by the Board. The Committee has the authority to obtain advice and assistance from, and receive adequate resources and funding from Avatar for, outside counsel, consultants and other advisors. The Committee met twice during the fiscal year ended December 31, 2007.

 

All members of the Committee have been determined to be independent (see “Director Independence”). The Committee is governed by a written charter approved by the Board. The Charter is available on Avatar’s website at www.avatarholdings.com.

 

The Committee assesses the appropriate size of the Board, evaluates the membership and determines whether any vacancies are anticipated. The Committee considers candidates for Board membership based upon various criteria, including their business and professional skills and experience, personal integrity and judgment, commitment to representing the long-term interests of stockholders and availability to participate in Board activities. The Committee will consider candidates suggested by its members, other Board members, management and stockholders, and may, if necessary or appropriate, utilize the services of a professional search firm. In order to be considered, a recommendation from a stockholder must include the stockholder’s name and contact information, the candidate’s name and contact information, a brief description of the candidate’s background and qualifications and a statement by the candidate that he or she is willing and able to serve on the Board. The Committee may also require candidates to provide such other information as it may request.

 

The Committee reviews periodically and recommends to the Board for approval any changes in the compensation of non-employee directors. The Committee has received advice from the Company’s counsel relative to the structure and terms of director compensation. Any equity compensation awards for non-employee directors are administered by the Committee under Avatar’s Incentive Plan.

 

Avatar’s By-Laws establish advance notice procedures with respect to nominations for election of directors for an annual meeting (see “Stockholders’ Proposals and Nominations of Board Members”).

 

The Compensation Committee assists the Board in overseeing management compensation policies and practices, including the determination and approval of (i) the compensation of the CEO and the Company’s other executive officers and (ii) incentive compensation policies and programs and the exercise of discretion in the administration of such programs. It also reviews and discusses with Avatar’s management proposed Compensation Discussion and Analysis disclosure and determines whether to recommend it to the Board for inclusion in Avatar’s proxy statement and Form 10-K. The recommendation is described in a Compensation Committee Report included in the proxy statement. The Committee may perform such other tasks as assigned to it by the Board. The Committee may delegate any of its responsibilities to a subcommittee comprised solely of one or more of its members so long as such delegation is consistent with law and applicable rules of the SEC and Nasdaq. The Committee has the authority to obtain advice and assistance from the Committee’s outside counsel, compensation consultants and other advisors with funding from the Company. The Committee met nine times during the fiscal year ended December 31, 2007.

 

The Company generally follows the following processes and procedures in connection with the consideration and determination of the compensation of the executive officers. Ultimately, the compensation of the executive officers is determined by the Compensation Committee. The Company’s processes and procedures are not formalized but adapt to the particular arrangement being considered. For example, a routine discretionary annual cash bonus for a relatively small amount is handled differently than a multi-year employment agreement with potentially significant performance target awards. In the case of non-routine arrangements for executive officers, including the CEO, the CEO may discuss the proposed arrangements with the Company’s outside counsel and with one or more directors for their advice and other input, on a preliminary basis. After the arrangements are further refined and term sheets prepared, the Committee meets to discuss them with the CEO. During part of the meeting, the CEO and any other employees, if present, are excused so that the Committee may deliberate among themselves. At the Committee’s request, the Company’s outside counsel is often asked for legal advice and other guidance. The Committee may request financial and other data from the Company and review strategic and business plans with the CEO. The chairman of the Committee or the Company’s outside counsel may negotiate terms with the CEO or other executive officers (and sometimes their respective counsel). This process varies depending on the circumstances, but the Committee meets periodically to be updated on progress, receive revised term sheets and other data, engage in discussion and provide further direction. The Committee may also consult with persons with specialized knowledge, such as the Company’s Chief Financial Officer for accounting matters and the outside counsel’s tax specialists. Ultimately, the Committee meets to make the final determination to approve the arrangements, usually after reviewing the related documentation substantially in final form. During the process and at its conclusion, the Committee also provides periodic reports of its activities to the full board.

 

After discussion with the Company executives, and further to the CEO’s recommendation, the Committee acts to approve routine compensation arrangements, including the award of discretionary cash bonuses.

 

Certain awards to executive officers, such as the Cash Bonus Awards in respect of the Harbor Islands Project and the Earnings Participation Awards, have performance goals based on financial measures, which require the Committee to determine whether such goals have been achieved from time to time, usually quarterly or annually. As part of this process, the Committee has usually received a report of Avatar’s independent auditors to confirm that the calculations prepared by the Company’s management are made in accordance with the terms of the awards.

 

During the past several years, compensation consultants were not involved in determining or recommending the amount or form of executive and director compensation. During 2006, Avatar engaged Frederick W. Cook & Co., Inc., at the request of management on the recommendation of the Company’s outside counsel, to analyze the impact of the “golden parachute” provisions of the Internal Revenue Code (that is, Sections 280G and 4999) on existing arrangements with executives and under several

hypothetical scenarios. Specifically, the consultant performed calculations under hypothetical scenarios and assumptions suggested by management with the advice of the Company’s outside counsel. In 2007, Frederick W. Cook & Co., Inc., on the advice of the Company’s outside counsel, was requested to perform certain analyses with respect to the equity incentive plan.

 

The Committee is governed by a written charter approved by the Board. The charter sets out in greater detail the specific responsibilities of the Committee. A current copy of the charter is available on Avatar’s website at www.avatarholdings.com.

 

The members of the Compensation Committee are Messrs. Dresner, Einiger and Rosen, none of whom are executive officers of Avatar.

 

Compensation of each non-employee director of Avatar is $32,500 per annum. After reviewing recent non-employee director compensation trends, the Board, on recommendation of the Nominating and Corporate Governance Committee, decided to increase this amount to $52,500 per annum commencing July 1, 2008. Each member of the Executive Committee of Avatar receives a retainer of $2,000 per annum. Members and the Chairman of the Audit Committee receive additional compensation of $12,000 and $14,000 per annum, respectively. Members and the Chairman of the Nominating and Corporate Governance Committee receive additional compensation of $4,000 and $7,000 per annum, respectively. Members and the Chairman of the Compensation Committee receive additional compensation of $4,000 and $5,000 per annum, respectively.

 

The Nominating and Corporate Governance Committee adopted a deferral program applicable to non-employee directors. Under the deferral program, non-management directors may elect to defer up to 50% of annual retainer fees, committee fees and/or chairperson fees, for which the director is credited with a number of Stock Units based upon the closing price of the Common Stock on the due date of each payment. The Stock Units become distributable as shares of Common Stock upon the earlier of a date designated by the individual director or the date of the individual’s separation from service as a director.

 

The Nominating and Corporate Governance Committee also determined to grant annual awards of restricted stock units to all non-employee directors. On May 31, 2007, each non-employee director was awarded 180 RSUs for service as a director for the term beginning May 31, 2007. The RSUs will vest and be converted into an equivalent number of shares of Common Stock upon the earlier of the first anniversary of the date of the award and the date immediately preceding the date of Avatar’s 2008 Annual Meeting of Stockholders, provided that the non-employee director is a member of the Board on such vesting date. The RSUs will vest immediately upon the death or disability of the non-employee director or upon a change in control of the Company. If the non-employee director ceases to be a member of the Board for any other reason, the RSUs will be forfeited.

The following table sets forth the retainer, other cash fees and equity compensation received during the fiscal year ended December 31, 2007, by non-management directors.

 

 

 

In fiscal year 2007 all of the incumbent directors attended 75% or more of the aggregate of their respective Board and committee meetings.

 

The Board encourages each member of the Board to attend each annual meeting of stockholders, but recognizes that unavoidable circumstances may prevent attendance. All members of the Board who were standing for election or reelection attended the 2007 Annual Meeting of Stockholders.

 

A stockholder who wishes to communicate with the Board, or specific individual directors, may direct written communication addressed to the Board or such director or directors in care of the Corporate Secretary, Avatar Holdings Inc., 201 Alhambra Circle, Coral Gables, Florida 33134.

 

Overview

 

In this section of our proxy statement we discuss, among other things, the overall objectives of our executive compensation programs and the material elements of compensation awarded to, earned by, or paid to our “Named Executive Officers” (or “NEOs”). We identify the Named Executive Officers in accordance with SEC rules and include each person who in 2007 served as our principal executive officer and our principal financial officer, as well as our three other most highly compensated executive officers in 2007. For 2007, our Named Executive Officers were Gerald D. Kelfer, President and CEO; Charles L. McNairy, Executive Vice President and Treasurer through August 3, 2007 and CFO through July 9, 2007; Randy L. Kotler, Executive Vice President and CFO since July 9, 2007 and Treasurer since August 3, 2007; Jonathan Fels, President of our subsidiary, Avatar Properties Inc.; Michael Levy, Executive Vice President and COO of Avatar Properties Inc.; and Patricia K. Fletcher, Executive Vice President and General Counsel.

 

Following this Compensation Discussion and Analysis (“CD&A”), we present detailed tabular and narrative information concerning the compensation of each of the Named Executive Officers and their employment and other agreements. This detailed information should be read in conjunction with the CD&A.

 

The compensation of our Named Executive Officers should be understood within the context of our business. We are engaged in the business of real estate operations in Florida and Arizona. Our residential community development activities include the development of active adult and primary residential communities. We also engage in a variety of other real estate related activities, such as the operation of amenities, the sale for third-party development of commercial and industrial land and the operation of a title insurance agency. Most of our development projects take many years to conceive, permit, develop and sell. Thus, it may take an extended period of time before a project can be viewed as “profitable” or not. Most of the compensation amounts for 2007 and 2006 in the Summary Compensation Table (which follows the CD&A) relate to arrangements with our NEOs that were established several years ago (with the exception of arrangements with Mr. Kotler and Ms. Fletcher, who joined the Company in 2007). In 2006, Avatar achieved record results for both revenue and net profit, and our stock price reached new highs. However, our industry is highly cyclical and is affected by general economic conditions and other factors beyond our control. Thus, in 2007, our results reflected the continued deterioration of conditions in the credit markets and in the Florida and Arizona housing markets. Although our results significantly declined in 2007, we did continue to operate at a net profit for the year, and until the summer of 2007, our stock continued to trade at prices near or at new highs.

 

The compensation of all of our executive officers, including NEOs, is overseen and determined by the Compensation Committee of our Board of Directors. Each member of the Committee is independent in accordance with applicable rules of The Nasdaq Stock Market. The Committee works with the CEO to establish the Company’s executive compensation philosophy, policies and programs. For more information about the Committee’s responsibilities and processes and the involvement of the CEO, see “Information Regarding the Board of Directors and Its Committees — Compensation Committee” above.

 

Objectives of Our Compensation Program and What They Are Designed To Reward

 

Our compensation programs are intended to attract and retain executives, to motivate and reward them for achieving the Company’s long-term goals, and to align their interests with those of our stockholders.

 

 

 

How The Various Kinds of Compensation Are Determined and Allocated to Form A Complete Package

 

The objectives described above are supported by the three primary elements of our compensation program for NEOs: base salaries, annual cash bonuses and performance-based cash and equity awards. The limited perquisites provided to our NEOs are also available to many of our other employees.

 

While there are several elements to the compensation program, they are evaluated as a whole by our Compensation Committee in making its determinations. We do not have any specific policies or parameters for allocating between cash and non-cash compensation or with respect to the duration of compensation arrangements. In general, the Compensation Committee has a balanced approach, taking into account our business plan and the responsibilities of the particular executive.

 

Salaries and Bonuses

 

Salaries are a necessary part of any compensation program and paying reasonable salaries is an important aspect of attracting and retaining qualified executives. Annual cash bonuses further the objective of rewarding individual contributions and the achievement of corporate and project goals. In setting salaries and bonuses, we have not established any specific target levels based on peer group analyses or benchmarking studies. However, we believe that our market for executive talent is competitive, and we take this into account in the establishment of a total compensation package.

 

Except for Messrs. Kelfer, Fels, Levy and Kotler, bonus amounts are usually discretionary and determined subjectively. Factors used in determining the amounts often vary widely from person to person, since they principally relate to individual performance.

 

The base salary and annual bonus amounts for Messrs. Kelfer, Fels and Levy were established in connection with the negotiation of their respective employment agreements. Each agreement specifies a salary and a minimum annual cash bonus amount. Mr. Kelfer’s salary and bonus have been unchanged since 2000. The salaries of Messrs. Fels and Levy have been unchanged since 2003, and their bonuses have been unchanged since 2005, the last time their compensation arrangements were significantly modified.

 

In 2007, Avatar hired a new CFO, Randy Kotler, and a new General Counsel, Patricia K. Fletcher. The initial salaries and cash bonuses of Mr. Kotler and Ms. Fletcher are specified in their respective employment agreements, the terms of which were negotiated by Avatar’s CEO and approved by the Compensation Committee. Mr. Kotler’s three year employment agreement provides for a minimum base salary of $350,000 per annum and immediate “signing bonus” payment of $100,000. His agreement also establishes annual bonus amounts: $100,000 for the first year of employment, and targets of $200,000 in each of the second and third years ($100,000 being the minimum bonus in each of those two years). Ms. Fletcher’s three year employment agreement provides for a minimum base salary of $700,000 and no guaranteed bonus. The negotiations and terms of the agreements were tailored to the respective individual. Avatar generally considered, among other things, the compensation that such person was then receiving from his or her employer (including compensation that would be foregone if such person left employment), the skills and experience of the individual, and the immediate and future needs of Avatar. We also considered the demands made by the individual during the negotiation and the compensation levels for such talent in Avatar’s competitive market. In this regard, the CEO and other members of our Board made discrete inquiries of third parties to assess the then current marketplace.

In establishing the NEOs respective aggregate salary and bonus, we considered the potentially adverse effects of Section 162(m) of the Internal Revenue Code. See “Tax and Accounting Considerations” below in this CD&A.

 

Performance-based Cash and Equity Awards

 

A significant component of our compensation program for most NEOs is their opportunity to receive performance-based cash or equity awards. We use these awards to motivate executives toward achieving long-term corporate goals that are consistent with the Company’s business plans. We also use them both to align the executives’ interests to those of our stockholders and to retain our executives. Like salary and bonus, we have not established any specific target levels for incentive compensation based on peer group analyses or benchmarking studies. However, we aim to set reasonable awards within the framework of a total compensation package. The specific types of awards (for example, cash or equity) and performance objectives (for example, stock price or gross profit) and periods (for example, annual or multi-year) are tailored for the recipient. In determining amounts of the awards, consideration may be given to numerous factors, including anticipated future results of operations and the executive’s anticipated contributions toward achieving such results. Amounts may also be based upon the achievement of specified stock prices and the executive’s continued employment through the vesting period. The Compensation Committee has not established a formal policy as to when grants are made. Awards are usually granted at a meeting of the Committee, and the members of the Committee may have material non-public information concerning the Company at that time.

 

Kelfer, Fels and Levy.  In recent years, Messrs. Kelfer, Fels and Levy have been awarded relatively similar performance-based awards, with Mr. Kelfer, our CEO, generally being eligible to receive a larger amount than Messrs Fels and Levy, consistent with his greater overall responsibilities. These awards generally consist of earnings participation awards and restricted stock unit (“RSU”) awards. No new awards were made to Messrs. Kelfer, Fels and Levy in 2006 or 2007.

 

Earnings participation awards relate to the Company’s financial performance over a period of time, generally several years. The award may pay out in cash or shares of stock depending on its specific terms. The awards generally give the executive the opportunity to receive an annual cash payment based on a percentage of the Company’s actual “gross profit” (as defined) each year over preestablished levels. In addition, the executive may also receive an additional amount (in cash or stock, depending on the specific award) based on a percentage of the Company’s actual cumulative gross profit over a preestablished level during the performance period. Messrs. Kelfer, Fels and Levy received an award in 2003 covering (after an amendment in 2005) the period 2003-2007, and another award in 2005 covering the 2008-2010 performance period. In establishing the parameters of these awards, including the threshold gross profit levels, the Compensation Committee considered, among other things, the Company’s long-term business plans. A gross profit measure, essentially the Company’s net income plus taxes and certain other adjustments, was selected because it is a fundamental indication of corporate performance and relates to the entire Company, in which they have a significant role. These awards also include annual and cumulative caps that limit the amount that can be paid to the executives. Further, in the event of a restatement of the Company’s financial statements, the awards give us the right to recover amounts paid to the executives in excess of that to which they were entitled (after giving effect to the restatement). See “Employment and Other Agreements” for a description of these awards to Messrs. Kelfer, Fels and Levy, including the preestablished gross profit levels, and the amounts already paid out to them. With respect to the performance period covering the gross profit over the 2003-2007 period, we issued Messrs. Kelfer, Fels and Levy, 118,634 shares, 94,907 shares and 94,907 shares of Common Stock, respectively, in 2007 representing the first tranche of the stock award and 1,756 shares, 1,405 shares and 1,405 shares, respectively, in March 2008 representing the second and final tranche of the stock award. See “Option Exercises and Stock Vested in 2007” and footnotes to “Outstanding Equity Awards at 2007 Fiscal Year-End” below.

 

An RSU’s value is directly related to the price of our Common Stock. Prior to the executive receiving any shares of stock under an RSU award, generally two conditions must be satisfied. A stock price hurdle

must be attained, and thereafter, the grant must vest on completion of the employment obligations. The hurdle prices are set at significant premiums to the then market price of our Common Stock, and the vesting date is usually several years following the date of award. For example, in the case of the three RSU awards made to Messrs. Kelfer, Fels and Levy in 2005, the hurdle prices — $65.00, $72.50 and $80.00 per share — reflect an increase in Avatar’s stock price of approximately 35%, 52% and 68%, respectively, over the closing price of the Common Stock on the date the Compensation Committee approved the terms of the RSU agreements. The awards generally do not vest until the expiration of the executive’s employment contract (in 2010 for Messrs. Fels and Levy and in 2011 for Mr. Kelfer), provided in each case he is still employed by Avatar on that date (except under certain limited circumstances). As a result of the performance of the Company’s stock in 2006 and early 2007, all remaining hurdle price conditions were satisfied. See “RSUs Outstanding at 2007 Fiscal Year-End” below. In 2007, Messrs. Fels and Levy each had 25,000 RSUs vest. These vested RSUs had been awarded to them in 2003 with a hurdle price of $34 per share and a vesting date in 2007 (coinciding with the expiration of the term of their then existing employment agreement). See “Option Exercises and Stock Vested in 2007” below.

 

Kotler and Fletcher.  Consistent with our compensation objectives described above, upon commencing employment in 2007, Mr. Kotler and Ms. Fletcher were each given an opportunity to receive performance conditioned RSUs. In the case of Mr. Kotler, he received a total of 7,500 RSUs, in three 2,500 unit tranches with the hurdle prices of $80.86, $84.71 and $88.56 per share, respectively — reflecting an increase in Avatar’s stock price of approximately 5%, 10% and 15%, respectively, over the closing price of the Common Stock on the date the Compensation Committee approved the terms of the RSU agreements. Ms. Fletcher received 18,900 RSUs with a hurdle price of $72.50 per share — reflecting an increase in Avatar’s stock price of approximately 14%, over the closing price of the Common Stock on the date the Compensation Committee approved the terms of the RSU agreement. Similar to the RSUs awarded in the past to Messrs. Kelfer, Fels and Levy, the awards generally do not vest until the expiration of the executive’s employment contract (in 2009 for Ms. Fletcher and in 2010 for Mr. Kotler), provided in each case the executive is still employed by Avatar on that date (except under certain limited circumstances). As a result of the performance of the Company’s stock in 2007, the hurdle price condition for Ms. Fletcher’s RSU award was satisfied. See “RSUs Outstanding at 2007 Fiscal Year-End” below.

 

McNairy.  Prior to Mr. McNairy’s August 3, 2007 retirement from the Company for health reasons, we accelerated the vesting on 12,500 RSUs he held, which had been awarded to him in 2004 and had already satisfied the applicable hurdle price. We did this in recognition of his long-term service and contribution to the Company.

 

Tax and Accounting Considerations

 

The Company considers the tax consequences of all elements of its compensation program on both the executives and the Company. In particular, we consider the effects of Sections 162(m) and 280G (and 4999) of the Internal Revenue Code. Section 162(m) of the Internal Revenue Code could potentially limit the federal income tax deductions to be taken by the Company for compensation paid to the Chief Executive Officer and to each of the other three most highly compensated Named Executive Officers (other than the CFO). The general rule is that annual compensation paid to any of these executives will be deductible by Avatar only to the extent that it does not exceed $1,000,000 (per person) or qualifies as “performance-based” compensation. Generally, we intend that compensation paid to executives will comply with requirements of Section 162(m) so that Avatar will receive a full federal tax deduction. For example, we have stockholder-approved incentive plans from which the Compensation Committee grants awards that are intended to qualify as performance-based under Section 162(m). However, we may decide to make non-deductible payments or awards when circumstances warrant.

 

In the event of a change of control of the Company, Section 280G could potentially limit the federal tax deductions to be taken for certain compensation payments to an executive who could be subject to additional taxes (Section 4999). These provisions of the tax code are sometimes referred to as the “golden parachute” provisions. In general, if the total amount of payments to an individual that are contingent upon a change of control of Avatar (within the meaning of Section 280G), including payments under our incentive

plans that vest upon a change in control, equals or exceeds three times the executive’s “base amount” (generally, the individual’s average annual compensation for the five calendar years preceding the change of control), then, subject to certain exceptions, the portion of such payments in excess of the base amount may be treated as “parachute payments” under Section 280G. A portion of such payments would not be deductible by Avatar, and the executive would be subject to a 20% excise tax on such portion of the payments. In 2006 we evaluated the potential effects of the golden parachute provisions and revised our compensation arrangements with Messrs. Kelfer, Fels and Levy in order to reduce the likelihood of lost deductions and the imposition of excise taxes should a change of control transaction occur. However, there can be no assurance that payments actually received by each of the executives in connection with a change in control transaction, if one were to occur, will be deductible by Avatar or will not be subject to an excise tax. The ultimate determination would depend on various factors at the time a change in control transaction occurs, including transaction price, the actual base amount and other variables that cannot presently be predicted.

 

Beginning on January 1, 2006, the Company began accounting for stock-based compensation in accordance with the requirements of FASB Statement No. 123 (revised 2004) (“FAS 123R”), which for example, requires stock options to be expensed. The adoption of FAS 123R has not affected our compensation program for NEOs.

 

The Compensation Committee of the Board of Directors of Avatar has reviewed and discussed the foregoing Compensation Discussion and Analysis with Avatar’s management. Based on such review and discussion, the Committee recommended to the Board that the Compensation Discussion and Analysis be included in this Proxy Statement and Avatar’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007.

 

 

 

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The following table presents 2007 and 2006 compensation information regarding the Company’s Chief Executive Officer, Chief Financial Officer and each of the three other most highly compensated executive officers on December 31, 2007 (the “Named Executive Officers” or “NEOs”).

 

 

 

 

 

 

 

 

The following table provides information about plan-based awards granted to the Named Executive Officers in 2007.

 

 

 

The following table provides information on the equity awards to the Named Executive Officers, which were outstanding at December 31, 2007.

 

 

 

The following tables set forth the award date, number of units awarded, hurdle price per share, date the hurdle price was achieved and vesting date for units awarded to each of the Named Executive Officers.

 

Grants to Mr. Kelfer

 

 

Grant to Mr. Kotler

 

Grants to each of Mr. Fels and Mr. Levy

 

 

Grant to Ms. Fletcher

 

 

 

 

 

 

The following table summarizes information about the options, warrants and rights and other equity compensation under Avatar’s equity plans on December 31, 2007.

 

 

Avatar does not maintain a nonqualified deferred compensation plan for its employees, including the Named Executive Officers. However, Avatar permits the Named Executive Officers to defer the receipt of payments under the Incentive Plan. There were no deferrals of compensation by any of the Named Executive Officers during 2007, or in any prior year.

 

Avatar does not sponsor any defined benefit pension for its employees, including the Named Executive Officers.

 

General

 

We employ each of the Named Executive Officers, other than Mr. McNairy, pursuant to written employment agreements. We also have various other compensatory agreements with our NEOs. These agreements are discussed below in greater detail.

 

Agreements with Gerald D. Kelfer

 

Amended and Restated Employment Agreement

 

As of April 15, 2005, Avatar entered into an Amended and Restated Employment Agreement with Mr. Kelfer, President, Chief Executive Officer, Chairman of the Executive Committee and Vice Chairman of the Board, which expires on June 30, 2011. On December 26, 2006, Mr. Kelfer’s employment agreement was amended to provide that the Annual Bonus (as defined therein) will be payable to Mr. Kelfer in accordance with the Company’s policy with respect to the compensation of executives, but no later than the last business day of the calendar year in which such bonus is earned. Prior to the amendment, Mr. Kelfer’s employment agreement provided that the Annual Bonus be paid in accordance with the Company’s policy with respect to the compensation of executives, but no later than 30 days after the end of each calendar year in respect of which such bonus is earned. Pursuant to the agreement, Mr. Kelfer continues to receive an annual base salary of $500,000 and an annual bonus of $500,000.

For information regarding the terms of the agreement relating to potential payments to Mr. Kelfer upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Cash Bonus Award Agreement

 

On October 20, 2000, Avatar entered into a Cash Bonus Award Agreement with Mr. Kelfer pursuant to which Mr. Kelfer was granted an award relating to parcels 1, 8, and 9 of Avatar’s Harbor Islands community development project (the “Harbor Islands Project”). The award entitled Mr. Kelfer to receive quarterly cash bonus payments equal to 8% of the cash flow of the Harbor Islands Project. In determining “cash flow,” there was a deduction for a cost of capital that Avatar charged to the project to the extent the project was funded by Avatar, such charge to be not less than 10% per annum. Prior to the payment of any bonus, Avatar first received cumulative cash flow equal to $17 million (the approximate value of the land that Avatar contributed to the project), plus a 10% return thereon compounded monthly. Mr. Kelfer was paid $1,087,349 and $1,412,651 for 2004 and 2003, respectively, under the award and is no longer entitled to receive any payments under the award.

 

Second Amended and Restated Earnings Participation Award Agreement

 

On March 27, 2003, Avatar entered into an Earnings Participation Award Agreement with Mr. Kelfer, pursuant to which he was granted a cash award and a stock award relating to the achievement of performance goals. This agreement was amended and restated on April 15, 2005 and further amended and restated on December 26, 2006.

 

As amended and restated, the cash award entitled Mr. Kelfer to a cash payment with respect to each fiscal year beginning 2003 and ending 2007 equal to two and one-half percent of Avatar’s gross profit over preestablished levels as determined by the Compensation Committee. For purposes of the Second Amended and Restated Earnings Participation Award Agreement and the Change in Control Award Agreement (see below), gross profit generally means Avatar’s net income, plus taxes, less certain excluded amounts. Under the provisions of the Executive Incentive Compensation Plan, total awards are limited to a maximum of $5,000,000 per individual. Therefore, Mr. Kelfer could receive a maximum amount of $5,000,000 under the cash bonus award relating to the Harbor Islands Project and the Second Amended and Restated Earnings Participation Award Agreement. Mr. Kelfer was paid $186,000, $1,838,000 and $476,000 pursuant to the cash award for 2006, 2005 and 2004. No additional cash is payable to Mr. Kelfer under this agreement.

 

The stock award entitled Mr. Kelfer to receive a number of shares of Common Stock having a fair market value (as defined therein) equal to two and one-half percent of the excess of actual gross profit (as defined therein) from January 1, 2003 through December 31, 2007 over the established target gross profit of approximately $187,000,000. Pursuant to the Second Amended and Restated Earnings Participation Award Agreement, the stock award was issued in two tranches. First, Mr. Kelfer received a number of shares of Common Stock equal to the aggregate stock award accrued as of September 30, 2007 within thirty (30) days following the Company’s filing with the SEC of its quarterly report on Form 10-Q for the fiscal quarter ending September 30, 2007 (the “First Tranche”). In order to ensure compliance with the deductibility requirements of Section 162(m) of the Code, the First Tranche was discounted to reasonably reflect the time value of receiving the First Tranche in the fourth quarter of 2007 instead of the first quarter of 2008. Within thirty (30) days following the filing with the SEC of the Company’s annual report on Form 10-K for the year ended December 31, 2007, to the extent that the stock award taking into account the full 2007 fiscal year exceeded the value of the First Tranche, Mr. Kelfer received a number of shares of Common Stock equal to the value of such excess (the “Second Tranche”). Furthermore, if the stock award taking into account the full 2007 fiscal year had been less than the value of the First Tranche, Mr. Kelfer would have been required to pay the Company in cash an amount equal to the difference of such amounts. The First Tranche of the Stock Award was issued on November 12, 2007 (see footnote (2) to “Option Exercises and Stock Vested in 2007” table above). The Second Tranche was issued on March 27, 2008

(see footnote (6) to “Outstanding Equity Awards at 2007 Fiscal Year- End” table above), and Mr. Kelfer is no longer entitled to awards under this agreement.

 

For information regarding the terms of the agreement relating to potential payments to Mr. Kelfer upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

2008-2010 Earnings Participation Award Agreement

 

On April 15, 2005, Avatar entered into an Earnings Participation Award Agreement with Mr. Kelfer, pursuant to which he was granted an annual and cumulative cash award relating to the achievement of performance goals during the 2008-2010 fiscal years. The annual cash award entitles Mr. Kelfer to a cash payment with respect to each fiscal year beginning 2008 and ending 2010 equal to two and one-quarter percent of Avatar’s gross profit over preestablished levels as determined by the Compensation Committee. For purposes of the 2008-2010 Earnings Participation Award Agreement, gross profit generally means Avatar’s net income, plus taxes and incentive compensation paid to Messrs. Kelfer, Fels and Levy under their respective 2008-2010 Earnings Participation Award Agreements with Avatar and minus certain excluded amounts. The payments to Mr. Kelfer pursuant to the annual cash award may not exceed $1,800,000 for each of the first two fiscal years of the performance period and $2,200,000 for the third fiscal year of the performance period. However, the aggregate payments pursuant to the annual cash award for the three years may not exceed $5,400,000.

 

The cumulative cash award entitles Mr. Kelfer to receive a cash payment equal to one and one-half percent of the excess of actual gross profit (as defined) from January 1, 2008 through December 31, 2010 over the established target gross profit of $390,000,000. The payment pursuant to the cumulative cash award may not exceed $1,200,000.

 

For information regarding the terms of the agreement relating to potential payments to Mr. Kelfer upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Restricted Stock Unit Agreements

 

Mr. Kelfer has been awarded over time the opportunity to receive a total of 365,000 performance-conditioned RSUs, consisting of 100,000 units awarded on December 7, 1998 and 50,000 units awarded on October 20, 2000, which vested and were converted into shares of Common Stock as of December 22, 2005; an aggregate of 125,000 units awarded on March 27, 2003; and an aggregate of 90,000 units awarded on April 15, 2005.

 

Each of the RSUs awards to Mr. Kelfer is conditioned upon (i) the closing price of the Common Stock being at least equal to a specified hurdle price for 20 trading days out of 30 consecutive trading days during the period beginning on the award date and ending on the vesting date and (ii) the continued employment of Mr. Kelfer at the time the foregoing condition is satisfied. The hurdle price performance condition for all units was satisfied. The units awarded on March 27, 2003 generally vest in full on December 31, 2008, and are converted into shares of Common Stock provided that he is then employed by the Company. The units awarded on April 15, 2005 generally vest in full on June 30, 2011, and are converted into shares of Common Stock provided that he is then employed by the Company.

 

For information regarding the terms of the agreement relating to potential payments to Mr. Kelfer upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

Agreements with Jonathan Fels and Michael Levy

 

Amended and Restated Employment Agreement

 

As of January 1, 2003, Avatar entered into Amended and Restated Employment Agreements with Jonathan Fels, as President of Avatar Properties Inc. (“Properties”), and Michael Levy, as Executive Vice President and Chief Operating Officer of Properties, which were amended and restated as of April 15, 2005. Pursuant to their respective employment agreements, as amended, the terms of employment for each of Mr. Fels and Mr. Levy have been extended to December 31, 2010. Each of Mr. Fels and Mr. Levy receives an annual base salary of $500,000, subject to review and increase by the Board, and effective on January 1, 2005, a calendar year annual cash bonus of $400,000 (in 2003 and 2004 the bonus had been $250,000).

 

On December 26, 2006, the employment agreements with each of Mr. Fels and Mr. Levy were amended to provide that the Annual Bonus (as defined therein) will be payable in accordance with the Company’s policy with respect to the compensation of executives, but no later than the last business day of the calendar year in which such bonus is earned. Prior to the amendments, Mr. Fels’ and Mr. Levy’s employment agreements provided that the Annual Bonus be paid in accordance with the Company’s policy with respect to the compensation of executives, but no later than 30 days after the end of each calendar year in respect of which such bonus is earned.

 

For information regarding the terms of the agreements relating to potential payments to Messrs. Fels and Levy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Cash Bonus Award Agreements

 

On October 20, 2000, Avatar entered into Cash Bonus Award Agreements with Mr. Fels and Mr. Levy, pursuant to which each was granted an award relating to the Harbor Islands Project. The awards entitled each of Mr. Fels and Mr. Levy to receive quarterly cash bonus payments equal to 6% of the cash flow of the Harbor Islands Project. In determining “cash flow,” there was a deduction for a cost of capital that Avatar charged to the project to the extent the project was funded by Avatar, such charge to be not less than 10% per annum. Prior to the payment of any bonus, Avatar first received the Minimum Return. Messrs. Fels and Levy were each paid $665,688, $1,477,667 and $1,059,488 for 2005, 2004 and 2003, respectively, pursuant to the awards.

 

Second Amended and Restated Earnings Participation Award Agreements

 

On March 6, 2003, Avatar entered into Earnings Participation Award Agreements with Mr. Fels and Mr. Levy, pursuant to which each was granted a cash award and a stock award relating to the achievement of performance goals under Avatar’s business plan. These agreements were amended and restated on April 15, 2005 and further amended and restated on December 26, 2006. As amended, the cash awards entitled each of Mr. Fels and Mr. Levy to a cash payment with respect to each fiscal year beginning 2003 and ending 2007 equal to two percent of Avatar’s gross profit over preestablished levels as determined by the Compensation Committee. For purposes of the Second Amended and Restated Earnings Participation Award Agreements and the Change in Control Award Agreements (see below), gross profit generally means Avatar’s net income, plus taxes and minus certain excluded amounts. Under the provisions of the Executive Incentive Compensation Plan, total cash awards are limited to a maximum of $5,000,000 per individual. Therefore, each of Mr. Fels and Mr. Levy may receive a maximum of $5,000,000 under the cash bonus award relating to the Harbor Islands Project and the Second Amended and Restated Earnings Participation Award Agreement. Each of Messrs. Fels and Levy have been paid $1,416,157 and $381,000 pursuant to the cash award for 2005 and 2004. No additional cash is payable to either Mr. Fels or Mr. Levy under these agreements.

 

Each of Mr. Fels and Mr. Levy has received the maximum cash awards payable under the Executive Incentive Compensation Plan.

The stock awards entitled each of Mr. Fels and Mr. Levy to receive a number of shares of Common Stock having a fair market value (as defined therein) equal to two percent of the excess of actual gross profit (as defined therein) from January 1, 2003 through December 31, 2007 over the established target gross profit of approximately $187,000,000. Pursuant to the Second Amended and Restated Earnings Participation Award Agreements, the stock award was issued in two tranches. First, each of Mr. Fels and Mr. Levy received a number of shares of Common Stock equal to the aggregate stock award accrued as of September 30, 2007 within thirty days following the Company’s filing with the SEC of its quarterly report on Form 10-Q for the fiscal quarter ending September 30, 2007 (the “First Tranche”). In order to ensure compliance with the deductibility requirements of Section 162(m) of the Code, the First Tranche was discounted to reasonably reflect the time value of receiving the First Tranche in the fourth quarter of 2007 instead of the first quarter of 2008. Within thirty days following the filing with the SEC of the Company’s annual report on Form 10-K for the year ended December 31, 2007, to the extent that the stock award taking into account the full 2007 fiscal year exceeded the value of the First Tranche, Mr. Fels and Mr. Levy received a number of shares of Common Stock equal to the value of such excess (the “Second Tranche”). Furthermore, if the stock award taking into account the full 2007 fiscal year had been less than the value of the First Tranche, Mr. Fels and Mr. Levy would have been required to pay the Company in cash an amount equal to the difference of such amounts. The First Tranche of the Stock Award was issued on November 12, 2007 (see footnote (2) to “Option Exercises and Stock Vested in 2007” table above). The Second Tranche was issued on March 27, 2008 (see footnote (6) to “Outstanding Equity Awards at 2007 Fiscal Year-End” table above), and Mr. Fels and Mr. Levy are no longer entitled to awards under these agreements.

 

For information regarding the terms of the agreements relating to potential payments to Messrs. Fels and Levy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

2008-2010 Earnings Participation Award Agreement

 

On April 15, 2005, Avatar entered into an Earnings Participation Award Agreement with each of Messrs. Fels and Levy, pursuant to which each was granted an annual and cumulative cash award relating to the achievement of performance goals. The annual cash award entitles the executive to a cash payment with respect to each fiscal year beginning 2008 and ending 2010 equal to two percent of Avatar’s gross profit over preestablished levels as determined by the Compensation Committee. For purposes of the 2008-2010 Earnings Participation Award Agreements, gross profit generally means Avatar’s net income, plus taxes and incentive compensation paid to Messrs. Kelfer, Fels and Levy pursuant to their respective 2008-2010 Earnings Participation Award Agreements with Avatar and minus certain excluded amounts. The payments to each of Messrs. Fels and Levy pursuant to the annual cash award may not exceed $1,600,000 for each of the first two fiscal years of the performance period and $2,000,000 for the third fiscal year of the performance period. However, the aggregate payments pursuant to the annual cash award may not exceed $4,800,000.

 

The cumulative cash award entitles each of Messrs. Fels and Levy to receive a cash payment equal to one and one-quarter percent of the excess of actual gross profit (as defined) from January 1, 2008 through December 31, 2010 over the established target gross profit of $390,000,000. The payment pursuant to the cumulative cash award may not exceed $900,000.

 

For information regarding the terms of the agreements relating to potential payments to Messrs. Fels and Levy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Nonqualified Stock Option Agreements

 

On February 19, 1999, Messrs. Fels and Levy were each granted options to purchase 50,000 shares of Common Stock under the Incentive Plan, at an exercise price of $25.00 per share. The options granted to each of Messrs. Fels and Levy were fully vested as of February 19, 2002 and remain exercisable until February 19, 2009.

On March 13, 2003, Messrs. Fels and Levy were each granted additional options to purchase 60,000 shares of Common Stock under the Incentive Plan, at an exercise price of $25.00 per share. The options vested and became exercisable on December 31, 2007 and will remain exercisable until March 13, 2013. See “Option Exercises and Stock Vested in 2007” and “Outstanding Equity Awards at 2007 Fiscal Year-End” tables above with respect to options remaining unexercised at December 31, 2007.

 

For information regarding the terms of the agreements relating to potential payments to Messrs. Fels and Levy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Restricted Stock Unit Agreements

 

On March 27, 2003, Avatar entered into Restricted Stock Unit Agreements with each of Messrs. Fels and Levy, pursuant to which each has been awarded an opportunity to receive 25,000 performance-conditioned restricted stock units representing 25,000 shares of Common Stock. On April 15, 2005, Avatar entered into Restricted Stock Unit Agreements with each of Messrs. Fels and Levy, pursuant to which each has been awarded an opportunity to receive 75,000 performance-conditioned restricted stock units representing 75,000 shares of Common Stock.

 

Each of the restricted stock unit awards to Messrs. Fels and Levy is conditioned upon (i) the closing price of the Common Stock being at least a specified hurdle price per share for 20 trading days out of 30 consecutive trading days during the period beginning on the award date and ending on the vesting date, and (ii) the continued employment of Mr. Fels or Mr. Levy, as the case may be, at the time the foregoing condition is satisfied. The hurdle price performance condition for all units was satisfied. The units awarded on March 27, 2003 were to vest in full on December 31, 2007, and be converted into shares; however, vesting was accelerated to December 20, 2007, and the RSUs were converted into shares (see “Option Exercises and Stock Vested in 2007” table above). The units awarded on April 15, 2005 generally vest in full on June 30, 2010, and are converted into shares of Common Stock provided that Mr. Fels or Mr. Levy is then employed by the Company.

 

For information regarding the terms of the agreements relating to potential payments to Messrs. Fels and Levy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Agreements with Charles L. McNairy

 

Restricted Stock Unit Agreement

 

On July 22 2004, Avatar entered into a Restricted Stock Unit Agreement with Mr. McNairy pursuant to which Mr. McNairy was awarded an opportunity to receive 12,500 performance-conditioned restricted stock units representing 12,500 shares of Common Stock. The actual grant of the units was conditioned upon (i) the closing price of the Common Stock being at least $45.00 per share for 20 trading days out of 30 consecutive trading days during the period beginning July 22, 2004 and ending December 31, 2008, and (ii) the continued employment of Mr. McNairy at the time the foregoing condition was satisfied. This hurdle price performance condition was satisfied on December 1, 2004. The units were to vest in full on December 31, 2008, and be converted into shares of Common Stock, provided that he was then employed by the Company.

 

Because of his long-term service and contribution to the Company, prior to Mr. McNairy’s retirement at the close of business on August 3, 2007 for health reasons, Avatar entered into an Amendment (the “Amendment”), dated July 26, 2007, to the Restricted Stock Unit Agreement. The Amendment provided that on August 3, 2007, the 12,500 RSUs vested in full and were converted into 12,500 shares of Common Stock.

 

For information regarding the terms of the agreements relating to potential payments to Mr. McNairy upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

Agreements with Randy L. Kotler

 

Employment Agreement

 

On June 26, 2007, Avatar entered into an Employment Agreement with Mr. Kotler, pursuant to which he was employed as Executive Vice President and Chief Financial Officer on July 9, 2007 through July 8, 2010, at a base salary of $350,000 per annum, a signing bonus of $100,000 and an annual bonus of no less than $100,000.

 

For information regarding the terms of the agreement relating to potential payments to Mr. Kotler upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Restricted Stock Unit Agreements

 

On June 26, 2007, Avatar entered into Restricted Stock Unit Agreements with Mr. Kotler, pursuant to which he was awarded on July 9, 2007 an opportunity to receive, in increments of 2,500 units, an aggregate of up to 7,500 performance-conditioned restricted stock units representing 7,500 shares of Avatar’s Common Stock. Each of the restricted stock unit awards is conditioned upon (i) the closing price of the Common Stock being at least at a specified hurdle price for 20 trading days out of 30 consecutive trading days during the period beginning on July 9, 2007 and ending on the vesting date of July 8, 2010, and (ii) the continued employment of Mr. Kotler at the time the foregoing condition is satisfied.

 

Agreements with Patricia K. Fletcher

 

Employment Agreement

 

On November 8, 2006, Avatar entered into an Employment Agreement with Ms. Fletcher pursuant to which she was employed as Executive Vice President and General Counsel on January 1, 2007 through December 31, 2009, at a base salary of $700,000 per annum.

 

For information regarding the terms of the agreement relating to potential payments to Ms. Fletcher upon termination of employment or a change in control of the Company, see “Potential Payments Upon Termination or Change-in-Control” below.

 

Restricted Stock Unit Agreement

 

On November 8, 2006, Avatar entered into a Restricted Stock Unit Agreement with Ms. Fletcher, pursuant to which she was awarded an opportunity to receive 18,900 performance-conditioned restricted stock units representing 18,900 shares of Avatar’s Common Stock. The actual grant of the units is conditioned upon (i) the closing price of the Common Stock being at least $72.50 per share for 20 trading days out of 30 consecutive trading days beginning January 1, 2007 and ending December 31, 2009, and (ii) the continued employment of Ms. Fletcher at the time the foregoing condition is satisfied. This hurdle price performance condition was satisfied on January 31, 2007. The units generally vest in full on December 31, 2009, and are converted into shares of Common Stock, provided that Ms. Fletcher is then employed by the Company.

 

Under the Company’s various agreements with Messrs. Kelfer, McNairy, Kotler, Fels, Levy and Ms. Fletcher, each of them is entitled to certain payments and benefits upon his or her termination of employment for specified reasons and in the event of a change in control of the Company. The first section below describes the arrangements that each named executive officer has with respect to termination and/or change in control and the definitions that apply to such arrangements. The second section quantifies certain compensation and benefits that would be payable to these individuals under the various arrangements if their employment had terminated on December 31, 2007, and/or a change in control of the Company had occurred on that date, given the individual’s compensation on that date and, if applicable,

based on the closing market price of the Company’s Common Stock on the last trading day of 2007 ($41.82). For a general description of the agreements see “Employment and Other Agreements” above.

 

Gerald D. Kelfer

 

The following definitions apply to all of Mr. Kelfer’s agreements described below:

 

“Disability” generally means any disability or incapacity that makes Mr. Kelfer incapable of fully performing the services required of him for a period of 120 consecutive days or for shorter periods aggregating 120 days during any period of twelve consecutive months.

 

“Cause” generally means Mr. Kelfer’s:

 

 

“Good Reason” generally means:

 

 

“Change in Control” generally means any of the following events:

 

 

Amended and Restated Employment Agreement

 

Death: If Mr. Kelfer’s employment is terminated due to his death, he would be entitled to receive any accrued but unpaid base salary and prorated annual bonus through his date of termination, as well as the Severance Payments (as defined below). In addition, his estate would be entitled to any payments under any pension or employee benefit plans maintained by the Company.

 

Disability: If Mr. Kelfer’s employment is terminated due to his Disability, he would be entitled to receive the Severance Payments (as defined below).

Generally, “Severance Payments” means an annual payment following the date of termination for four years equal to a prorated portion of $250,000 based on the number of months of employment that elapsed between November 30, 2000 and December 31, 2008.

 

For Cause or other than for Good Reason: If Mr. Kelfer resigns other than for Good Reason or is terminated for Cause, he would be entitled to receive his full base salary and prorated annual bonus through the date of termination.

 

Without Cause or for Good Reason: If Mr. Kelfer resigns for Good Reason or is terminated not for Cause, he would be entitled to:

 

 

Termination on June 30, 2011: If Mr. Kelfer’s employment terminates on June 30, 2011, he would be entitled beginning in the calendar year following the date of termination to an annual payment of $250,000 for four years.

 

Change in Control: If Mr. Kelfer were to terminate his employment in the one year following a Change in Control, he would be entitled to:

 

 

Duty to seek other employment: Generally, Mr. Kelfer agreed that if his employment were to be terminated for Cause, Good Reason or due to Disability, during the entire period of time that he is entitled to receive any of the benefits described above, he would seek employment involving services similar to those he performed for the Company. In the event that he secures employment, the Company would be entitled to deduct from the amounts stated above any salary, bonuses or other compensation paid to him in connection with his new employment. The Company would also be entitled to terminate his participation (or the equivalent payment made in lieu of such participation) in any employee benefit plans and programs that are substantially similar to those he is receiving in his new employment. Mr. Kelfer also agreed to repay to the Company any of the amounts paid to him that the Company was entitled to deduct.

 

Non-Competition: Generally, Mr. Kelfer agreed that during the term of his employment with the Company and through the first anniversary of the date of termination he would not compete with the Company in the following manners:

 

 

Protection of Confidential Information: Generally, Mr. Kelfer agreed that during the term of his employment and for all time following the date of termination, he would not disclose to any other person or entity any confidential knowledge or information pertaining to the Company’s business.

 

Violation or threatened violation of any of his obligations with respect to non-competition and confidential information entitles the Company to various remedies, including injunctive relief and damages.

Excise Tax: If Mr. Kelfer becomes entitled to any payment, benefit or distribution by the Company, which is subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, or any interest or penalties are incurred by the Company, such payments would be reduced by the Company by no more than $250,000 until no portion of such payments would be subject to excise tax. Mr. Kelfer can choose to reduce the payment by more than $250,000 in order to avoid the excise tax, but if he does not choose to do so he would be responsible for the payment of the excise tax.

 

Second Amended and Restated Earnings Participation Award Agreement

 

Death or Disability: If Mr. Kelfer’s employment were to be terminated due to his death or Disability, he or his estate would receive prorated cash payments or Common Stock issuances based upon the number of months he was actually employed during the performance period (though for the cash portion, he would only be eligible to receive payment for the fiscal year in which his employment was terminated).

 

For Cause or not for Good Reason: If Mr. Kelfer’s employment were to be terminated for Cause or upon resignation for other than Good Reason, rights to future cash payments or Common Stock issuances accruing on or after the date of termination would be forfeited. In addition, he would forfeit, if such termination occurs on or before December 31, 2007, any shares of Common Stock received by him (or pay back to the Company the equivalent in cash) under the agreement.

 

Without Cause or for Good Reason: If Mr. Kelfer’s employment were to be terminated other than for Cause or upon resignation for Good Reason, he would continue to receive future cash payments and Common Stock issuances.

 

Change in Control: Upon the occurrence of a Change in Control, Mr. Kelfer would receive a prorated cash payment for the fiscal year in which the Change in Control occurs and would no longer be entitled to receive any issuance of shares of Common Stock under the agreement.

 

Forfeiture upon breach of certain obligations: Generally, if Mr. Kelfer were to breach the non-compete, confidentiality and similar provisions in his employment agreement or any other agreement with the Company, he would forfeit any right to any cash payments or Common Stock issuances that would otherwise accrue under this agreement on or after the date of such breach.

 

Change in Control Award Agreement

 

Had the terms and conditions of the agreement been met, Mr. Kelfer would have been entitled upon a Change in Control to a cash payment equal to two and one half percent of the excess of actual gross profit from April 1, 2005 through the Change in Control date (on or before December 31, 2007) over the established target gross profit amount of $141,995,000. The payment may not exceed $3,750,000.

 

Death or Disability: If Mr. Kelfer’s employment had been terminated due to his death or Disability, he would have been entitled to receive a prorated portion of any cash payments that would have been payable if he would have remained an employee through the Change in Control date.

 

For Cause or not for Good Reason: If Mr. Kelfer’s employment had been terminated for Cause or not for Good Reason, he would have forfeited any right to cash payments that would otherwise have accrued pursuant to this agreement on or after the date of termination.

 

Not for Cause or for Good Reason: If Mr. Kelfer’s employment had been terminated not for Cause or for Good Reason, he would have been entitled to receive the cash payments under the agreement.

 

Forfeiture upon breach of certain obligations: Generally, if Mr. Kelfer had breached the non-compete, confidentiality and similar provisions in his employment agreement or any other agreement with the Company, he would have forfeited any right to any cash payments under this agreement.

2008-2010 Earnings Participation Award Agreement

 

Death or Disability: If Mr. Kelfer’s employment were to be terminated due to his death or Disability, Mr. Kelfer or his estate would receive a prorated annual cash award for the fiscal year in which his employment was terminated and a prorated cumulative cash award.

 

For Cause or not for Good Reason: If Mr. Kelfer’s employment were to be terminated for Cause or upon resignation for other than Good Reason, rights to future cash payments accruing on or after the date of termination would be forfeited.

 

Not for Cause or for Good Reason: If Mr. Kelfer’s employment were to be terminated other than for Cause or upon resignation for Good Reason, he would continue to receive such cash payments as would otherwise be made under the agreement.

 

Change in Control: Generally, upon the occurrence of a Change in Control between January 1, 2008 and December 31, 2010, Mr. Kelfer would receive a prorated annual cash award for the fiscal year in which the Change in Control occurs and any cash payment pursuant to the cumulative cash award.

 

Forfeiture upon breach of certain obligations: Generally, if Mr. Kelfer were to breach the non-compete, confidentiality and similar provisions in his employment agreement or any other agreement with the Company, he would forfeit any right to any cash payments under this agreement.

 

Restricted Stock Unit Agreements

 

Death or Disability: If Mr. Kelfer’s employment were to be terminated due to his Disability or death after a hurdle price condition is met, the greater of the following number of units would vest and be converted into shares of Common Stock:

 

 

For Cause or not for Good Reason: If Mr. Kelfer were to resign without Good Reason or be terminated for Cause, all of the units would be forfeited.

 

Not for Cause or for Good Reason: If Mr. Kelfer’s employment were to be terminated other than for Cause or upon resignation for Good Reason:

 

 

Change in Control: In the event of a Change in Control, all of Mr. Kelfer’s units that have satisfied the hurdle price by the Change in Control date would be converted into shares of Common Stock immediately prior to the consummation of the Change in Control, thereafter be converted into the consideration received by the Company in connection with the Change in Control and then distributed to Mr. Kelfer following the Change in Control, so long as the Change in Control occurred prior to his termination.

 

Jonathan Fels and Michael Levy

 

The following definitions apply to all of Messrs. Fels’ and Levy’s agreements described below:

 

“Disability” generally means inability to perform one or more material functions under the agreement and which entitles the executive to receive benefits under a disability plan or other benefits plans.

“Cause” generally means the executive’s:

 

 

“Without Cause” generally means for any reason whatsoever, or for no reason, in the sole discretion of the Company, other than for death, Disability, for Cause, Change in Control or the end of the term of the executive’s employment (December 31, 2010).

 

“Good Reason” generally means:

 

 

“Without Good Reason” generally means any reason other than Good Reason.

 

“Change in Control” generally means:

 

 

2005 Amended and Restated Employment Agreement

 

Death or Disability: If the employment of Mr. Fels or Mr. Levy were to be terminated due to death or Disability then he or his estate would receive:

 

 

If a Change in Control were to occur prior to such termination due to death or Disability, then the executive or his estate would receive his prorated portion of $1,800,000 (the “Retention Amount”) as of the date of termination. The remaining balance of the Retention Amount would be donated to one or more charitable not-for-profit organizations designated by the Board.

For Cause or Without Good Reason: If the employment of Mr. Fels or Mr. Levy were to be terminated for Cause or either of them were to resign Without Good Reason, he would receive (subject, generally, to any set-off, counterclaim or cause of action the Company may have against him):

 

 

If a Change in Control were to occur prior to such termination, Mr. Fels or Mr. Levy would not be entitled to receive any portion of the Retention Amount and the Retention Amount would be donated to one or more charitable not-for-profit organizations designated by the Board.

 

Without Cause or for Good Reason: If Mr. Fels or Mr. Levy were to resign for Good Reason or be terminated Without Cause, he would be entitled to receive through the earlier of December 31, 2010 and the second anniversary of the date of termination:

 

 

If, however, a Change in Control were to occur prior to such termination, the executive would be entitled to receive:

 

 

Duty to seek other employment: Generally, each of Messrs. Fels and Levy agrees that if his employment were to be terminated by the Company Without Cause or he were to resign for Good Reason, he would have a duty to seek employment similar to that of Mr. Kelfer as described above, with the exception that he would only be obligated to accept such employment if the principal office where he would be employed is located within a 50-mile radius of Coral Gables, Florida.

 

Change in Control: In the event of a Change in Control prior to December 31, 2010, each of Messrs. Fels and Levy would receive:

 

 

In the event of a Change in Control prior to December 31, 2010, the term of employment for each of Messrs. Fels and Levy would be reduced or extended, as applicable, depending on the date of the Change in Control, to expire upon the earlier of June 30, 2011 and the first anniversary of the Change in Control (the “Retention Date”). If the Change in Control date were to be after December 31, 2010, the term of employment would be extended through the Retention Date, unless otherwise terminated under the agreement.

Conditions to payments upon termination: Generally, all payments and benefits under each of the scenarios described above are subject to the executive’s compliance with his non-compete and confidentiality obligations as stated below.

 

Non-Competition: Generally, Messrs. Fels and Levy are subject to the same non-compete provisions as described for Mr. Kelfer above.

 

Protection of Confidential Information: Generally, Messrs. Fels and Levy are subject to the same confidentiality provisions as described for Mr. Kelfer above.

 

Excise Tax: Generally, Messrs. Fels and Levy are subject to the same excise tax provisions as described for Mr. Kelfer above.

 

Second Amended and Restated Earnings Participation Award Agreement

 

The termination and Change in Control terms of Messrs. Fels’ and Levy’s Second Amended and Restated Earnings Participation Award Agreements are generally identical to those of Mr. Kelfer’s Second Amended and Restated Earnings Participation Award Agreement as described above.

 

Change in Control Award Agreement

 

The termination and Change in Control terms of Messrs. Fels’ and Levy’s Change in Control Award Agreements are generally identical to those of Mr. Kelfer’s Change in Control Award Agreement, except for the maximum payment, which may not exceed $3,000,000.

 

2008-2010 Earnings Participation Award Agreement

 

Death or Disability: If either Mr. Fels’ or Mr. Levy’s termination is due to his death or Disability, he or his estate would receive a prorated annual cash award for the fiscal year in which his employment was terminated and a prorated cumulative cash award. If such termination occurs after a Change in Control has happened between January 1, 2008 and December 31, 2010 and before the Retention Date, the executive would receive a prorated portion of the Retention Amount, and the remaining balance of the Retention Amount would be donated to not-for-profit organizations designated by the Board.

 

For Cause or Without Good Reason: If either Mr. Fels’ or Mr. Levy’s employment were to be terminated for Cause or upon resignation Without Good Reason, rights to future cash payments accruing on or after the date of termination would be forfeited.

 

Without Cause or for Good Reason: If either Mr. Fels’ or Mr. Levy’s employment were to be terminated Without Cause or upon resignation for Good Reason, he would continue to receive such cash payments as would otherwise be made under the agreements. If such termination occurs after a Change in Control has happened between January 1, 2008 and December 31, 2010 and before the Retention Date, the executive would receive a prorated portion of the Retention Amount, and the remaining balance of the Retention Amount would be donated to not-for-profit organizations designated by the Board.

 

Change in Control: Upon the occurrence of a Change in Control between January 1, 2008 and December 31, 2010, each of Mr. Fels and Mr. Levy would receive a prorated annual cash award for the fiscal year in which the Change in Control occurs. In addition, on the Change in Control date the Company would deposit into a retention account any cash payment pursuant to the cumulative cash award which would be added to the Retention Amount and distributed to the executive on or promptly after the Retention Date if the executive’s employment has not been otherwise terminated by the Company for Cause or by the executive Without Good Reason and the executive is continuously employed by the Company through the Retention Date.

 

Forfeiture upon breach of certain obligations: Generally, if Mr. Fels or Mr. Levy were to breach the non-compete, confidentiality and similar provisions in his employment agreement or any other agreement with the Company, he would forfeit any right to any cash payments under this agreement.

Restricted Stock Unit Agreements

 

The terms of Messrs. Fels’ and Levy’s Restricted Stock Unit Agreements are generally identical to those of Mr. Kelfer’s Restricted Stock Unit Agreements as described above.

 

Nonqualified Stock Option Agreements

 

Death and Disability: If either Mr. Fels’ or Mr. Levy’s employment were to be terminated due to death or Disability, his options, to the extent they have not previously vested, would vest pro rata and such options would become immediately exercisable and expire one year following the date of termination.

 

For Cause or Without Good Reason: If either Mr. Fels or Mr. Levy were to resign Without Good Reason or is terminated for Cause, any unexercised options would become null and void upon such termination.

 

Without Cause or for Good Reason: If either Mr. Fels’ or Mr. Levy’s employment were to be terminated Without Cause or for Good Reason, his previously unexercised options would remain exercisable under the terms of each agreement.

 

Charles L. McNairy

 

The following definitions apply to all of Mr. McNairy’s agreements described below:

 

“Permanent Disability” generally has the same meaning as the term “Disability” in the agreements of Messrs. Fels and Levy as described above.

 

“Cause” generally means:

 

 

“Good Reason” generally means a reduction in the rate of compensation or a material reduction in fringe benefits available to Mr. McNairy. “Change in Control” has the same meaning as that term in Mr. Kelfer’s agreements as described above.

 

Severance

 

Had Mr. McNairy been terminated by the Company without cause he would have been entitled to one year of his then current base salary and employee benefit plans and programs.

 

Restricted Stock Unit Agreement

 

The terms of Mr. McNairy’s Restricted Stock Unit Agreement are generally identical to those in the Restricted Stock Unit Agreements of Messrs. Kelfer, Fels and Levy as described above, with the following changes:

 

 

Randy L. Kotler

 

The definitions used in Mr. Kotler’s agreements are generally the same as those used in Messrs. Fels’ and Levy’s agreements, except for “Change in Control” which generally means:

 

 

Employment Agreement

 

Death or Disability: If Mr. Kotler’s employment were to be terminated due to his death or Disability, he (or his representatives) would receive:

 

 

For Cause or resignation: If Mr. Kotler’s employment were to be terminated for Cause or he resigns he would receive only:

 

 

Without Cause: If Mr. Kotler’s employment were to be terminated without Cause he would:

 

 

Restricted Stock Unit Agreements

 

The terms of Mr. Kotler’s Restricted Stock Unit Agreements are generally identical to those in the Restricted Stock Unit Agreements of Messrs. Kelfer, Fels and Levy as described above, with the following change:

 

 

Protection of Confidential Information: Generally, Mr. Kotler agreed that during the term of his employment and for all time thereafter, he would not disclose or make accessible to any other person or entity any:

 

 

 

Violation or threatened violation of any of his obligations with respect to confidential information entitles the Company to various remedies, including injunctive relief and damages.

 

Patricia K. Fletcher

 

The definitions used in Ms. Fletcher’s agreements are generally the same as those used in Messrs. Fels’ and Levy’s agreements, except for “Change in Control” which are generally the same as the definition used in Mr. Kotler’s agreements.

 

Employment Agreement

 

Death or Disability: The death or Disability terms used in Ms. Fletcher’s agreements are generally the same as those used in Mr. Kotler’s agreements.

 

For Cause or resignation: The for Cause termination or without good reason resignation terms used in Ms. Fletcher’s agreements are generally the same as those used in Mr. Kotler’s agreements.

 

Without Cause: The without Cause termination terms in Ms. Fletcher’s agreements are generally the same as those used in Mr. Kotler’s agreements, except that Ms. Fletcher would receive her full base salary in accordance with normal payroll practices and without interest through December 31, 2009.

 

Restricted Stock Unit Agreement

 

The terms of Ms. Fletcher’s Restricted Stock Unit Agreement is generally identical to those in the Restricted Stock Unit Agreements of Mr. Kotler.

 

Protection of Confidential Information: Generally, Ms. Fletcher agreed to terms regarding her confidentiality obligations to the Company that are generally the same as those agreed to by Mr. Kotler.

 

 

 

 

The following tables show the estimated potential amount of compensation payable to each Named Executive Officer under existing contracts, plans or arrangements for various scenarios involving a change in control of the Company, death or disability of the executive, for cause termination, voluntary termination, involuntary not-for-cause termination and termination for good reason, effective on December 31, 2007 and using the closing price of the Common Stock on the last business day of 2007 ($41.82). In determining the benefits payable, the Company has assumed in all cases that the executive has complied and continues to comply with all of the restrictive and other covenants included in his or her employment agreement (if he or she has one) and has not become employed by a new employer in those cases where the employment agreement requires mitigation by the executive. The tables reflect incremental payments and benefits that would be owed by the Company to the executive beyond what the Named Executive Officer had earned as of December 31, 2007. The tables do not reflect benefits that are provided pursuant to plans or arrangements that do not discriminate in favor of executive officers and are available generally to all full-time employees such as amounts paid under the Company’s 401(k) Plan and accrued vacation pay.

 

The following calculations contain statements and assumptions regarding future individual and Company performance. These performance statements and assumptions are disclosed in the limited context of the Company’s compensation programs and should not be understood to be statements of management’s expectations or estimates of results or other guidance. The Company specifically cautions investors not to apply these statements to other contexts. The actual amounts to be paid out can only be determined at the time of the executive’s separation from the Company or upon the occurrence of a change in control and will be made subject to any applicable requirements of Section 409A of the Internal Revenue Code.

Change in Control

 

The following table shows amounts that would be payable under existing change in control arrangements. Equity payouts illustrated below are for unvested awards; vested equity is disclosed in the “Outstanding Equity Awards at 2007 Fiscal Year End” table.

 

 

(1) Assuming no election by the executives to reduce payments to avoid excise tax imposed by Section 4999 of the Internal Revenue Code.

 

(2) The Company’s financial results as of 12/31/07 entitle Messrs. Kelfer, Fels and Levy to the maximum payment under their respective Change in Control Award Agreements.

 

(3) Assuming termination by Mr. Kelfer during the one year following a Change in Control; includes (i) one year of base salary and annual bonus and (ii) Severance Payments (as defined above) in four annual installments totaling $876,289.

 

(4) Reflecting 125,000 RSUs awarded on 3/27/03, and 30,000 RSUs awarded on 4/15/05 with a hurdle price of $65.00, 30,000 RSUs awarded on 4/15/05 with a hurdle price of $72.50 and 30,000 RSUs awarded on 4/15/05 with a hurdle price of $80.00.

 

(5) Not applicable. For health reasons, Mr. McNairy retired at the close of business on August 3, 2007.

 

(6) Not entitled to payment under RSU Agreements since hurdle prices were not met as of December 31, 2007.

 

(7) Full Retention Amount under the 2005 Amended and Restated Employment Agreement.

 

(8) Reflecting 25,000 RSUs awarded on 4/15/05 with a hurdle price of $65.00, 25,000 RSUs awarded on 4/15/05 with a hurdle price of $72.50 and 25,000 RSUs awarded on 4/15/05 with a hurdle price of $80.00.

 

(9) Reflecting 18,900 RSUs awarded on 1/1/07 with a hurdle price of $72.50.

 

Death and Disability

 

The following table shows amounts that would be payable in case of the executive’s death or his or her termination due to disability.