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. __)
|X| Filed by the Registrant
|_| Filed by a party other than the Registrant
Check the appropriate box:
|_| Preliminary proxy statement
|_| Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)
(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
HOVNANIAN ENTERPRISES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of filing fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
|_| Fee paid previously with preliminary materials.
|_| Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing party:
(4) Date filed:
Note: The foregoing changes to the facing page of the proxy statement reflect
revisions to the proxy rules effective as of October 1996. No fee is now
required in connection with the filing of this proxy statement.
<PAGE>
HOVNANIAN ENTERPRISES, INC.
[LOGO] =====================================================================
10 HIGHWAY 35, P.O. BOX 500, RED BANK, NEW JERSEY 07701 [ ]
(732)747-7800
February 27, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
which will be held on Tuesday, April 14, 1998, in the Boardroom of the American
Stock Exchange, 13th Floor, 86 Trinity Place, New York, New York. The meeting
will start promptly at 10:30 a.m.
It is important that your shares be represented and voted at the meeting.
Therefore, we urge you to complete, sign, date and return the enclosed proxy
card in the envelope provided for this purpose. Of course, if you attend the
meeting, you may still choose to vote your shares personally, even though you
have already returned a signed proxy. Important items to be acted upon at the
meeting include the election of directors and ratification of the selection of
independent accountants.
We sincerely hope you will be able to attend and participate in the
Company's 1998 Annual Meeting. We welcome the opportunity to meet with many of
you and give you a firsthand report on the progress of your Company.
Sincerely yours,
/s/ Kevork S. Hovnanian
KEVORK S. HOVNANIAN
Chairman of the Board
<PAGE>
HOVNANIAN ENTERPRISES, INC.
----------------------
Notice of Annual Meeting of Shareholders
February 27, 1998
----------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Hovnanian
Enterprises, Inc. will be held on Tuesday, April 14, 1998, in the Board Room of
the American Stock Exchange, 13th Floor, 86 Trinity Place, New York, New York at
10:30 a.m. for the following purposes:
1. The election of Directors of the Company for the ensuing year, to
serve until the next Annual Meeting of Shareholders of the Company and
until their respective successors may be elected and qualified.
2. The ratification of the selection of Ernst & Young LLP as
independent accountants to examine financial statements for the Company for
the year ended October 31, 1998.
3. The transaction of such other business as may properly come before
the meeting and any adjournment thereof.
Only shareholders of record at the close of business on February 19, 1998
are entitled to notice of and to vote at the meeting.
Accompanying this Notice of Annual Meeting of Shareholders is a proxy
statement, a form of proxy and the Company's Annual Report for the year ended
October 31, 1997.
All shareholders are urged to attend the meeting in person or by proxy.
Shareholders who do not expect to attend the meeting are requested to complete,
sign and date the enclosed proxy and return it promptly in the self-addressed
envelope provided.
By order of the Board of Directors,
PETER S. REINHART
Secretary
February 27, 1998
- --------------------------------------------------------------------------------
PLEASE INDICATE YOUR VOTING INSTRUCTIONS ON THE ENCLOSED PROXY CARD, DATE
AND SIGN IT, AND RETURN IT IN THE ENVELOPE PROVIDED. NO POSTAGE IS NECESSARY IF
MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
HOVNANIAN ENTERPRISES, INC.
10 Highway 35
P.O. Box 500
Red Bank, New Jersey 07701
---------------
PROXY STATEMENT
---------------
General
The accompanying proxy is solicited on behalf of the Board of Directors of
Hovnanian Enterprises, Inc. (the "Company") for use at the Annual Meeting of
Shareholders referred to in the foregoing notice and at any adjournment thereof.
It is expected that this Proxy Statement and the accompanying proxy will be
mailed commencing February 27, 1998 to each shareholder entitled to vote. The
Company's Annual Report for the year ended October 31, 1997 accompanies this
Proxy Statement.
Shares represented by properly executed proxies, if such proxies are
received in time and not revoked, will be voted in accordance with the
specifications thereon. If no specifications are made, the persons named in the
accompanying proxy will vote such proxy for the Board of Directors' slate of
Directors, for the ratification of selected independent accountants, and as
recommended by the Board of Directors unless contrary instructions are given.
Any person executing a proxy may revoke it at any time before it is exercised by
delivering written notice of revocation to the Secretary of the Company or by
voting in person at the meeting.
VOTING RIGHTS AND SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The record date for the determination of shareholders entitled to vote at
the meeting is the close of business on February 19, 1998. On February 19, 1998,
the voting securities of the Company outstanding consisted of 14,048,466 shares
of Class A Common Stock, each share entitling the holder thereof to one vote and
7,741,187 shares of Class B Common Stock, each share entitling the holder
thereof to ten votes.
Other than as set forth in the table below, there are no persons known to
the Company to own beneficially shares representing more than 5% of the
Company's Class A Common Stock or Class B Common Stock.
1
<PAGE>
The following table sets forth as of February 19, 1998 the Class A Common
Stock and Class B Common Stock of the Company beneficially owned by each
Director and nominee for Director, by all Directors and officers of the Company
as a group (including the named individuals) and holders of more than 5%:
<TABLE>
<CAPTION>
Class A Common Stock Class B Common Stock
---------------------------- ---------------------------
Amount and Amount and
Nature of Nature of
Directors, Nominees and Beneficial Percent Beneficial Percent
Holders of More Than 5% Ownership(1) of Class(2) Ownership(1) of Class(2)
--------------------------- -------------- ----------- -------------- -----------
<S> <C> <C> <C> <C>
Kevork S. Hovnanian(3)(5) ................. 5,653,737 40.2% 5,843,837 75.5%
Ara K. Hovnanian(4) ....................... 1,467,894 10.2% 1,234,096 15.5%
Paul W. Buchanan .......................... 37,687 .3% 21,480 .3%
Arthur M. Greenbaum ....................... 1,500 -- 1,500 --
Desmond P. McDonald ....................... 3,750 -- 3,750 --
Peter S. Reinhart ......................... 35,568 .2% 16,955 .2%
J. Larry Sorsby ........................... 62,160 .4% 21,840 .3%
Stephen D. Weinroth ....................... 2,250 -- 2,250 --
Tweedy, Browne Company L.P. (6) ........... 763,821 5.4% -- --
All Directors and officers as a group
(10 persons) ........................ 8,154,559 55.7% 7,198,760 89.3%
</TABLE>
- -------
Notes:
(1) The figures in the table in respect of Class A Common Stock do not include
the shares of Class B Common Stock beneficially owned by the specified
persons, which shares of Class B Common Stock are convertible at any time
on a share for share basis to Class A Common Stock. The figures in the
table represent beneficial ownership (including ownership of 554,060 Class
A Common Stock Options and 320,940 Class B Common Stock Options, currently
exercisable or exercisable within 60 days) and sole voting power and sole
investment power except as noted in notes (3), (4) and (5) below.
(2) Based upon the number of shares outstanding plus options for such director,
nominee or holder.
(3) Includes 317,812 shares of Class A Common Stock and 320,012 shares of Class
B Common Stock as to which Kevork S. Hovnanian has shared voting power and
shared investment power. Kevork S. Hovnanian's address is 10 Hwy 35, P.O.
Box 500, Red Bank, New Jersey 07701.
(4) Includes 35,217 shares of Class A Common Stock and 60,417 shares of Class B
Common Stock as to which Ara K. Hovnanian has shared voting power and
shared investment power. Ara K. Hovnanian's address is 10 Hwy 35, P.O. Box
500, Red Bank, New Jersey 07701.
(5) Includes 2,829,413 shares of Class B Common Stock held by the Kevork S.
Hovnanian Family Limited Partnership, a Connecticut limited partnership
(the "Limited Partnership"), beneficial ownership of which is disclaimed by
Kevork S. Hovnanian. Kevork S. Hovnanian's wife, Sirwart Hovnanian, as
trustee of the Sirwart Hovnanian 1994 Marital Trust, is the Managing
General Partner of the Limited Partnership and as such has the sole power
to vote and dispose of the shares of Class B Common Stock held by the
Limited Partnership. Also includes 279,562 shares of Class A Common Stock
and 264,562 shares of Class B Common Stock held in trust for Mr.
Hovnanian's daughter over which Sirwart Hovnanian, as trustee, shares with
her daughter the power to dispose of and vote. In addition, includes 18,250
shares of Class A Common Stock and 55,450 shares of Class B Common Stock
held in trust for Mr. Hovnanian's grandchildren, over which Sirwart
Hovnanian, as trustee, has sole power to dispose of and vote and includes
20,000 shares of Class A Common Stock held in the name of Sirwart Hovnanian
over which she has sole power to dispose of and vote. Mr. Hovnanian
disclaims beneficial ownership of the shares described in the preceding
three sentences.
(6) Based solely upon information contained in a statement or Schedule 13D
filed with the Securities and Exchange Commission as of May 16, 1997,
Address: 52 Vanderbilt Ave., N.Y.C., N.Y., 10017.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's executive officers, directors, persons who own more than ten
percent of a registered class of the Company's equity securities and certain
entities associated with the foregoing ("Reporting Persons") to file reports of
ownership and changes in ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission (the "SEC") and the
2
<PAGE>
American Stock Exchange (the "ASE"). These Reporting Persons are required by SEC
regulation to furnish the Company with copies of all Forms 3, 4 and 5 they file
with the SEC and the ASE. Based solely on the Company's review of the copies of
such forms it has received, the Company knows of no failure to file.
ELECTION OF DIRECTORS
The Company's By-laws provide that the Board of Directors shall consist of
nine Directors who shall be elected annually by the shareholders. The Company's
Certificate of Incorporation requires that, at any time when any shares of Class
B Common Stock are outstanding, one-third of the Directors shall be independent.
The following persons are proposed as Directors of the Company to hold office
until the next Annual Meeting of Shareholders and until their respective
successors have been duly elected and qualified. In the event that any of the
nominees for Directors should become unavailable, it is intended that the shares
represented by the proxies will be voted for such substitute nominees as may be
nominated by the Board of Directors, unless the number of Directors constituting
a full Board of Directors is reduced. The Company has no reason to believe,
however, that any of the nominees is, or will be, unavailable to serve as a
Director.
<TABLE>
<CAPTION>
Year First
Became a
Name Age Company Affiliation Director
------ ---- --------------------- ----------
<S> <C> <S> <C>
Kevork S. Hovnanian ...... 74 Chairman of the Board, and 1967
Director of the Company.
Ara K. Hovnanian ......... 40 President, Chief Executive 1981
Officer and Director
of the Company.
Paul W. Buchanan ......... 47 Senior Vice President-- 1982
Corporate Controller and
Director of the Company.
Arthur M. Greenbaum ...... 72 Director of the Company. 1992
Desmond P. McDonald ...... 70 Director of the Company. 1982
Peter S. Reinhart ........ 47 Senior Vice President and 1981
General
Counsel/Secretary
and Director of the Company.
J. Larry Sorsby .......... 42 Senior Vice President, 1997
Treasurer and Chief
Financial Officer and Director
of the Company.
Stephen D. Weinroth ...... 59 Director of the Company. 1982
</TABLE>
Mr. K. Hovnanian founded the predecessor of the Company in 1959 and has
served as Chairman of the Board since its initial incorporation in 1967. Mr. K.
Hovnanian was also Chief Executive Officer of the Company from 1967 to July
1997.
3
<PAGE>
Mr. A. Hovnanian was appointed President in April 1988, after serving as
Executive Vice President from March 1983. He has also served as Chief Executive
Officer since July 1997. Mr. A. Hovnanian is the son of Mr. K. Hovnanian.
Mr. Buchanan has been Senior Vice President -- Corporate Controller since
May 1990.
Mr. Greenbaum has been a senior partner of Greenbaum, Rowe, Smith, Ravin &
Davis, a law firm since 1953. Mr. Greenbaum qualifies as an independent Director
as defined in the Company's Certificate of Incorporation.
Mr. McDonald was a Director of Midlantic Bank N.A. from 1976 to December,
1995, Executive Committee Chairman of Midlantic Bank N.A. from August 1992 to
December, 1995 and was President of Midlantic Bank N.A. from 1976 to June 1992.
He was also a Director of Midlantic Corporation to December, 1995 and was Vice
Chairman of Midlantic Corporation from June 1990 to July 1992. Mr. McDonald
qualifies as an independent Director as defined in the Company's Certificate of
Incorporation.
Mr. Reinhart has been Senior Vice President and General Counsel since April
1985. He was elected Secretary of the Company in February 1997.
Mr. Sorsby was appointed Senior Vice President, Treasurer and Chief
Financial Officer of the Company in February, 1996 after serving as Senior Vice
President-Finance/Treasurer of the Company since March 1991.
Mr. Weinroth is Chairman of the Board of Core Laboratories N.V., a
publicly-owned worldwide oil field services and manufacturing company. He is
also a senior partner in Andersen, Weinroth & Co., L.P. a merchant banking firm.
He has held such positions since 1994 and the beginning of 1996, respectively.
From November 1993 until December 1995, he was Co-Chairman and Co-Chief
Executive Officer of VETTA Sports, Inc., a supplier of bicycle parts and
accessories. From 1989 to the present, Mr. Weinroth has been Co-Chairman of the
Board of Directors and Chairman of the Investment Committee of First Brittania
N.V., an international buyout firm. Mr. Weinroth qualifies as an independent
Director as defined in the Company's Certificate of Incorporation.
Meetings of Board of Directors
The members of the Audit Committee of the Board of Directors are Messrs.
McDonald and Weinroth. The Audit Committee is chaired by Mr. McDonald and is
responsible for reviewing and approving the scope of the annual audit undertaken
by the Company's independent accountants and meeting with them to review the
results of their work as well as their recommendations. The Audit Committee has
direct access to the Company's independent accountants and also reviews the fees
of independent accountants and recommends to the Board of Directors the
appointment of independent accountants.
The Internal Audit Manager for the Company reports directly to the Audit
Committee on, among other things, the Company's compliance with certain Company
procedures which are designed to enhance management's consideration of all
aspects of major transactions involving the Company. The Audit Committee has
direct control over staffing, including compensation, of the internal audit
department. The Company's Chief Accounting Officer reports directly to the Audit
Committee on significant accounting
4
<PAGE>
issues. During the year ended October 31, 1997 the Audit Committee met twice.
The Compensation Committee consists of Messrs. McDonald and Weinroth. The
Compensation Committee is currently chaired by Mr. Weinroth and is active in
reviewing salaries, bonuses and other forms of compensation for officers and key
employees of the Company, in establishing salaries and in other compensation and
personnel areas as the Board of Directors from time to time may request. For a
discussion of the criteria utilized and factors considered by the Compensation
Committee in reviewing and establishing executive compensation, see "Report of
the Compensation Committee" below. During the year ended October 31, 1997 the
Compensation Committee met once.
The Company has no executive or nominating committees. Procedures for
nominating persons for election to the Board of Directors are contained in the
Company's Bylaws.
During the year ended October 31, 1997 the Board of Directors held three
regularly scheduled meetings. In addition, the directors considered Company
matters and had numerous communications with the Chairman of the Board of
Directors and others wholly apart from the formal meetings.
Director Compensation
Each director who is not an officer of the Company is paid $2,000 per
regularly scheduled meeting, $1,000 for each committee meeting attended, $2,000
for special meetings attended and a bonus. All directors are reimbursed for
expenses related to his attendance at Board of Directors and committee meetings.
During the year ended October 31, 1997, Mr. McDonald received $10,000, Mr.
Greenbaum received $6,000 and Mr. Weinroth received $10,000. No bonus was paid
for the year ended 10/31/97.
RATIFICATION OF THE SELECTION OF AND
RELATIONSHIP WITH INDEPENDENT ACCOUNTANTS
The selection of independent accountants to examine financial statements of
the Company made available or transmitted to shareholders and filed with the
Securities and Exchange Commission for the year ended October 31, 1998 is to be
submitted to the meeting for ratification. Ernst & Young LLP has been selected
by the Board of Directors of the Company to examine such financial statements.
The Company has been advised that a representative of Ernst & Young LLP
will attend the Annual Meeting to respond to appropriate questions and will be
afforded the opportunity to make a statement if the representative so desires.
5
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table summarizes the compensation paid or accrued by the
Company for the chief executive officer and the other four most highly
compensated executives during the years ended October 31, 1997, 1996 and 1995.
Long-Term Compensation
<TABLE>
<CAPTION>
------------------------------
Annual Compensation Awards
-------------------------- ------------------------------
Number of
Other Securities All
Year Annual Restricted Underlying Other
or Compen- Stock Options/ LTIP Compen-
Name and Principal Position Period Salary Bonus(1) sation(2) Awards SARs(3) Payouts sation(4)
------------------------------ ------- -------- --------- --------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Kevork S. Hovnanian ............. 1997 $778,485 $ 0 $0 $0 0 N/A $10,621
Chairman of the Board, 1996 $786,067 $ 200,000 $0 $0 0 N/A $10,115
and Director of the Company 1995 $739,335 $ 200,000 $0 $0 0 N/A $ 9,885
Ara K. Hovnanian ................ 1997 $713,419 $ 0 $0 $0 75,000 N/A $10,992
President, Chief Executive 1996 $678,610 $ 200,000 $0 $0 0 N/A $10,481
Officer and Director 1995 $678,182 $ 200,000 $0 $0 50,000 N/A $10,270
of the Company
John J. Schimpf ................. 1997 $256,991 $ 0 $0 $0 25,000 N/A $24,467
Executive Vice President 1996 $245,360 $ 100,006 $0 $0 0 N/A $17,745
and Director of the 1995 $213,638 $ 74,139 $0 $0 25,000 N/A $19,937
Company
J. Larry Sorsby ................. 1997 $205,655 $ 0 $0 $0 20,000 N/A $14,500
Senior Vice President, 1996 $198,836 $ 69,997 $0 $0 0 N/A $14,349
Treasurer and Chief 1995 $185,202 $ 63,000 $0 $0 20,000 N/A $16,158
Financial Officer and
Director of the Company
Peter S. Reinhart ............... 1997 $159,484 $ 0 $0 $0 10,000 N/A $14,991
Senior Vice President/ 1996 $156,804 $ 46,500 $0 $0 0 N/A $12,822
General Counsel and 1995 $152,481 $ 45,119 $0 $0 15,000 N/A $13,998
Director of the Company
</TABLE>
- ----------
Notes:
(1) Includes awards not paid until after year end.
(2) Includes perquisites and other personal benefits unless the aggregate
amount is lesser than either $50,000 or 10% of the total of annual salary
and bonus reported for the named executive officer.
(3) The Company does not have a stock appreciation right ("SAR") program.
(4) Includes accruals under the Company's savings and investment retirement
plan (the "Retirement Plan"), deferred compensation plan (the "Deferred
Plan") and term life insurance premiums for each of the named executive
officers for the year ended October 31, 1997 as follows:
Retirement Deferred Term
Plan Plan Insurance Total
---------- -------- --------- -------
K. Hovnanian ........... $10,250 $ 0 $ 371 $10,621
A. Hovnanian ........... $10,250 $ 0 $ 742 $10,992
Schimpf ................ $10,250 $13,578 $ 639 $24,467
Sorsby ................. $ 7,125 $ 6,865 $ 510 $14,500
Reinhart ............... $10,250 $ 4,345 $ 396 $14,991
6
<PAGE>
Option Grants in Last Fiscal Year
The following table provides information on option grants in fiscal 1997 to
the named executive officers.
<TABLE>
<CAPTION>
Individual Grants Potential
----------------------------------------------- Realized Value at
% of Total Assumed Annual
Number of Options Exercise Rates of Stock Price
Securities Granted to or Base Appreciation
Underlying Employees Price for Option Term(1)
Options in Fiscal Per Expiration ---------------------------
Name Granted 1997 Share Date 5% 10%
---- ----------- --------- --------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Kevork S. Hovnanian ............... 0 N/A N/A N/A N/A N/A
Ara K. Hovanian ................... 75,000 42.7% $6.50 2/13/07 $306,586 $776,949
John J. Schimpf ................... 25,000 14.3% $6.50 2/13/07 $102,195 $258,983
J. Larry Sorsby ................... 20,000 11.4% $6.50 2/13/07 $ 81,756 $207,187
Peter S. Reinhart ................. 10,000 5.7% $6.50 2/13/07 $ 40,878 $103,593
</TABLE>
- ----------
Note:
(1) The potential realizable value is reported net of the option exercise
price, but before income taxes associated with exercise. These amounts
represent assumed annual compounded rates of appreciation of 5% and 10%
only from the date of grant to the end of the option. Actual gains, if any,
on stock option exercises are dependent on the future performance of the
Company's Class A Common Stock, overall stock market conditions, and the
optionee's continued employment through the vesting period. The amounts
reflected in this table may not necessarily be achieved.
Aggregated Option Exercises During the Year Ended October 31, 1997 and Option
Values at October 31, 1997
The following table provides information on option exercises during the
year ended October 31, 1997 by the named executive officers and the value of
such officers' unexercised options at October 31, 1997.
<TABLE>
<CAPTION>
Securities Underlying
Number of Unexercised Value of Unexercised
Shares Options at In-the-Money Options at
Acquired October 31, 1997(1) October 31, 1997(1)
On Value ------------------- -------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------- --------- --------------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Kevork S. Hovnanian ........... 0 $0 None None N/A N/A
Ara K. Hovnanian .............. 0 $0 553,333 91,667 $440,807 $17,904
John J. Schimpf ............... 0 $0 76,667 33,333 $165,834 $13,541
J. Larry Sorsby ............... 0 $0 69,333 26,667 $ 70,229 $10,834
Peter S. Reinhart ............. 0 $0 49,000 15,000 $ 71,750 $ 8,125
</TABLE>
- ----------
Note:
(1) The closing price of the Class A Common Stock on the last trading day of
October, 1997 on the American Stock Exchange was $7.4375.
Ten-Year Option Repricings
For the year ended October 31, 1997, there was no adjustment or amendment
to the exercise price of the stock options previously awarded.
Report of the Compensation Committee
The Compensation Committee is charged with the responsibility of
determining the cash and other incentive compensation, if any, to be paid to the
Company's executive officers and key employees. The amount and nature of the
compensation received by the
7
<PAGE>
Company's executives during the year ended October 31, 1997 was determined in
accordance with the compensation program and policies described below.
The executive compensation program is designed to attract, retain and
reward highly qualified executives while maintaining a strong and direct link
between executive pay, the Company's financial performance and total shareholder
return. The executive compensation program contains three major components: base
salaries, annual bonuses and stock options.
Base Salary
The Compensation Committee believes that, due to the Company's success in
its principal markets, other companies seeking proven executives may view
members of the Company's highly experienced executive team as potential targets.
The base salaries paid to the Company's executive officers during the year ended
October 31, 1997 generally were believed to be necessary to retain their
services.
Base salaries, including that of Mr. K. Hovnanian, the Company's Chairman
of the Board, are reviewed annually and are adjusted based on the performance of
the executive, any increased responsibilities assumed by the executive, average
salary increases or decreases in the industry and the going rate for similar
positions at comparable companies. Mr. K. Hovnanian set the year ended October
31, 1997 base salaries of the Company's executive officers. Each executive
officer's base salary, including the base salary of Mr. K. Hovnanian, was
reviewed in accordance with the above criteria by the members of the
Compensation Committee and thereafter approved.
Annual Bonus Program
The Company maintains an annual bonus program under which executive
officers and other key management employees have the opportunity to earn cash
bonuses. The annual bonus program is intended to motivate and reward executives
for the achievement of individual performance objectives and for the attainment
by the Company of strategic and financial performance goals, including levels of
return on equity.
The bonus program for Mr. K. Hovnanian, Chairman of the Board and Mr. A.
Hovnanian, President and Chief Executive Officer pays a fixed amount bonus based
on the Company's Return on Equity ("ROE"). All other executive officers
participate in a plan based on ROE but instead of receiving a fixed amount, they
receive a percentage of their base salary. As the Company's ROE reaches higher
targeted levels, the bonus percentage of salary increases. For the year ended
October 31, 1997, the Company's executives did not receive a bonus based on the
Company's overall ROE being negative.
The Company's annual bonus program is designed to be cost and tax
effective. Accordingly, in light of recent federal tax law changes under the
Omnibus Budget Reconciliation Act of 1993, the bonus plan for executives
receiving compensation in excess of $1,000,000 was approved by shareholders at
the April 15, 1996 Annual Meeting of Shareholders and reflects the Compensation
Committee's policies of maximizing corporate tax deductions, wherever feasible.
8
<PAGE>
Stock Option Plan
The Option Plan established by the Board of Directors is intended to align
the interests of the Company's executives and shareholders in the enhancement of
shareholder value. The ultimate value received by option holders is directly
tied to increases in the Company's stock price and, therefore, stock options
serve to closely link the interests of management and shareholders and motivate
executives to make decisions that will serve to increase the long-term total
return to shareholders. Additionally, grants under the Option Plan include
vesting and termination provisions which the Compensation Committee believes
will encourage option holders to remain employees of the Company.
The Option Plan is administered by the Compensation Committee. See "Option
Grants in Last Fiscal Year" above. No member of the Compensation Committee,
while a member, is eligible to participate in the Option Plan.
COMPENSATION COMMITTEE
Stephen D. Weinroth
Desmond P. McDonald
Compensation Committee Interlocks and Insider Participation
Mr. Weinroth is Chairman of the Compensation Committee which also includes
Mr. McDonald. Both Messrs. McDonald and Weinroth are non-employee directors and
were never officers or employees of the Company. See "CERTAIN TRANSACTIONS" for
information concerning Mr. Greenbaum's business relationship with the Company.
Performance Graph
The following graph compares on a cumulative basis the yearly percentage
change over the five year period ending October 31, 1997 in (i) the total
shareholder return on the Class A Common Stock of the Company with (ii) the
total return on the Standard & Poor's 500 Composite Stock Price Index and with
(iii) the total shareholder return on the common stocks of a peer group of nine
companies. Such yearly percentage change has been measured by dividing (i) the
sum of (a) the amount of dividends for the measurement period, assuming dividend
reinvestment, and (b) the price per share at the end of the measurement period
less the price per share at the beginning of the measurement period, by (ii) the
price per share at the beginning of the measurement period. The price of each
unit has been set at $100 on October 31, 1992 for the preparation of the graph.
The peer group index is composed of the following peer companies: Hovnanian
Enterprises, Inc., Centex Corporation, PHM Corporation, Standard Pacific Corp.,
The Ryland Group, Inc., MDC Holdings, Inc., Toll Brothers, Inc., Kaufman and
Broad Home Corporation, and Lennar Corporation.
9
<PAGE>
Note: The stock price performance shown on the following graph is not
necessarily indicative of future price performance.
Comparison of Five-Year Cumulative Total Return of Hovnanian Enterprises, Inc.,
the S&P 500 Index and a Peer Group Index
(October 31)
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE CHART IN THE PRINTED MATERIAL.]
Date Hovnanian Enterprises, Inc. S&P 500 Peer Group
- ---- --------------------------- ------- ----------
Oct. 92 $100.00 $100.00 $100.00
Oct. 93 $186.84 $111.74 $138.57
Oct. 94 $ 63.16 $112.82 $ 82.30
Oct. 95 $ 75.00 $138.89 $106.69
Oct. 96 $ 63.16 $168.43 $ 97.06
Oct. 97 $ 78.29 $218.44 $156.08
CERTAIN TRANSACTIONS
The Company's Board of Directors has adopted a general policy providing
that it will not make loans to officers or directors of the Company or their
relatives at an interest rate less than the interest rate at the date of the
loan on six month U.S. Treasury Bills, that the aggregate of such loans will not
exceed $2,000,000 at any one time, and that such loans will be made only with
the approval of the members of the Company's Board of Directors who have no
interest in the transaction. At October 31, 1997, loans under this policy
amounted to $1,889,000. Notwithstanding the policy stated above, the Board of
Directors of the Company concluded that the following transactions were in the
best interests of the Company.
The Company provides property management services to various limited
partnerships including one partnership in which Mr. A. Hovnanian, President,
Chief Executive Officer and a Director of the Company, is general partner, and
members of his family and certain officers and directors of the Company are
limited partners. At October 31, 1997, no amounts were due the Company by these
partnerships.
Mr. Arthur Greenbaum is a senior partner of Greenbaum, Rowe, Smith, Ravin &
Davis, a law firm retained by the Company during the year ended October 31,
1997.
10
<PAGE>
GENERAL
The expense of this solicitation is to be borne by the Company. The Company
may also reimburse persons holding shares in their names or in the names of
their nominees for their expenses in sending proxies and proxy material to their
principals.
Unless otherwise directed, the persons named in the accompanying form of
proxy intend to vote all proxies received by them in favor of the election of
nominees to the Board of Directors of the Company named herein and in favor of
the ratification of selected independent accountants. All proxies will be voted
as specified.
Each share of Class A Common Stock entitles the holder thereof to one vote
and each share of Class B Common Stock entitles the holder thereof to ten votes.
Votes of Class A Common Stock and Class B Common Stock will be counted together
without regard to class and will be certified by the Inspectors of Election, who
are employees of the Company. Notwithstanding the foregoing, the Company's
Certificate of Incorporation provides that each share of Class B Common Stock
held, to the extent of the Company's knowledge, in nominee name by a
stockbroker, bank or otherwise will be entitled to only one vote per share
unless the Company is satisfied that such shares have been held, since the date
of issuance, for the benefit or account of the same beneficial owner of such
shares or any permitted transferee. Beneficial owners of shares of Class B
Common Stock held in nominee name wishing to cast ten votes for each share of
such stock must (i) obtain from their nominee a proxy card designed for
beneficial owners of Class B Common Stock, (ii) complete the certification on
such card and (iii) execute the card and return it to their nominee. The Company
has also supplied nominee holders of Class B Common Stock with specially
designed proxy cards to accommodate the voting of the Class B Common Stock. In
accordance with the Company's Certificate of Incorporation, shares of Class B
Common Stock held in nominee name will be entitled to ten votes per share only
if the beneficial owner proxy card or the nominee proxy card relating to such
shares is properly completed and received by Boston EquiServe, the Company's
transfer agent, not less than 3 nor more than 20 business days prior to April
14, 1998. Completed proxy cards should be sent to P.O. Box 9381, Boston,
Massachusetts 02266-9381, Attention: Proxy Department.
All items to be acted upon at this Annual Meeting of Shareholders will be
determined by a majority of the votes cast. Mr. K. Hovnanian and certain members
of his family have informed the Company that they intend to vote in favor of all
proposals submitted on behalf of the Company. Because of the voting power of Mr.
K. Hovnanian and such members of his family, all of the foregoing proposals are
assured passage.
Management does not intend to present any business at the meeting other
than that set forth in the accompanying Notice of Annual Meeting of
Shareholders, and it has no information that others will do so. If other matters
requiring the vote of the shareholders properly come before the meeting and any
adjournments thereof, it is the intention of the persons named in the
accompanying form of proxy to vote the proxies held by them in accordance with
their judgment on such matters.
11
<PAGE>
SHAREHOLDER PROPOSALS FOR THE
1999 ANNUAL MEETING
Shareholder proposals for inclusion in the proxy materials related to the
1999 Annual Meeting of Shareholders must be received by the Company no later
than November 30, 1998.
By Order of the Board of Directors
HOVNANIAN ENTERPRISES, INC.
Red Bank, New Jersey
February 27, 1998
12
<PAGE>
DETACH HERE
PROXY
HOVNANIAN ENTERPRISES, INC.
Class B Common Stock
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby constitutes and appoints Kevork S. Hovnanian, Ara K.
Hovnanian and Desmond P. McDonald, and each of them, his true and lawful agents
and proxies with full power of substitution in each, to represent the
undersigned at the Annual Meeting of Shareholders of HOVNANIAN ENTERPRISES, INC.
to be held in the Boardroom of the American Stock Exchange, 13th Floor, 86
Trinity Place, New York, New York, at 10:30 A.M. on April 14, 1998, and at any
adjournments thereof, upon the matters set forth in the notice of meeting and
Proxy Statement dated February 27, 1998 and upon all other matters properly
coming before said meeting.
-----------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-----------
DETACH HERE
- --------------------------------------------------------------------------------
|X| Please mark
votes as in
this example.
This proxy when properly executed will be voted (1) for the election of the
nominees of the Board of Directors; (2) for the ratification of the
selection of Ernst & Young LLP as independent accountants; and (3) on any
other matters in accordance with the discretion of the named attorneys and
agents, if no instructions to the contrary are indicated in items (1), (2),
and (3).
1. Election of Directors
Nominees: K. Hovnanian, A. Hovnanian, P. Buchanan, A. Greenbaum, D.
McDonald, P. Reinhart, J. Sorsby, S. Weinroth
FOR WITHHELD
|_| |_|
|_| ______________________________________
For all nominees except as noted above
2. Ratification of the selection of Ernst & Young LLP as independent
accountants for the year ended October 31, 1998
FOR AGAINST ABSTAIN
|_| |_| |_|
3. In their discretion, upon other matters as may properly come before
the meeting.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT |_|
Please mark, sign, date and return the proxy card promplty using the
enclosed envelope. This Proxy must be signed exactly as name appears
hereon. Executors, administrators, trustees, etc., should give full title
as such. If the signee is a corporation, please sign full corporate name by
duly authorized officer.
