<PAGE> 1
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 [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
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):
[X] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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:
<PAGE> 2
AVATAR
HOLDINGS INC.
255 Alhambra Circle
Coral Gables, Florida 33134
(305) 442-7000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 29, 1997
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, 1997, at 10:00 a.m. local time, for the following purposes:
1. To elect nine directors.
2. To approve the Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan.
3. To approve the appointment of Ernst & Young LLP, independent
accountants, to act as auditors for Avatar for the year ending December
31, 1997.
4. To transact such other business as properly may come before the meeting,
or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on March 31, 1997 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.
YOUR ATTENTION IS DIRECTED TO THE PROXY STATEMENT ATTACHED TO THIS NOTICE
OF ANNUAL MEETING OF STOCKHOLDERS FOR INFORMATION WITH RESPECT TO THOSE PERSONS
WHO WILL BE ENTITLED TO VOTE AT THE MEETING AND OTHER RELEVANT MATTERS.
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. IF YOU ATTEND THE ANNUAL
MEETING, YOU MAY REVOKE YOUR PROXY AND VOTE YOUR SHARES IN PERSON IF YOU WISH.
By Order of the Board of Directors,
Juanita I. Kerrigan
Vice President and Secretary
Dated: April 29, 1997.
<PAGE> 3
AVATAR HOLDINGS INC., 255 ALHAMBRA CIRCLE, CORAL GABLES, FLORIDA 33134
(305) 442-7000
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 29, 1997
This Proxy Statement and the enclosed form of proxy are furnished to the
stockholders of Avatar Holdings Inc., a Delaware corporation ("Avatar"), 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.
VOTING RIGHTS AND PROXY INFORMATION
Record Date; Voting Rights
Pursuant to the By-Laws of Avatar, the Board of Directors has fixed the
close of business on March 31, 1997 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, 1997, 9,095,102 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 as of the close of business on March
31, 1997, 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, the proxy will be voted: (1) FOR
the election as directors of Avatar of the nine nominees named therein; (2) FOR
approval of the 1997 Incentive and Capital Accumulation Plan; (3) FOR approval
of the appointment of Ernst & Young LLP, independent accountants, as auditors of
Avatar for the year ending December 31, 1997; and (4) 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.
Except for the election of directors, as to any particular proposal (i)
abstentions will have the same effect as a vote against the proposal because the
shares are considered present at the meeting but are not affirmative votes, and
(ii) broker non-votes are not counted in respect of the proposal.
This proxy statement and the form of proxy enclosed herewith, and the
accompanying Annual Report of Avatar for the fiscal year ended December 31,
1996, including financial statements, were first mailed to stockholders of
record as of the close of business on March 31, on or about April 29, 1997.
1
<PAGE> 4
PRINCIPAL STOCKHOLDERS AND SECURITY
OWNERSHIP OF MANAGEMENT
Principal Stockholders
The following table sets forth, as of March 31, 1997, 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.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER ADDRESS OF BENEFICIAL OWNER OWNERSHIP CLASS
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Odyssey Partners, 31 West 52nd Street 2,107,763 23.2%
L.P.(1)(2) New York, NY 10019
Spears, Benzak, 45 Rockefeller Plaza 1,887,476 20.8%
Salomon & New York, NY 10111
Farrell, Inc.(3)
Ronald Baron(4) 767 Fifth Avenue 912,161 10.0%
24th Floor
New York, NY 10153
- -----------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include shares owned by Leon Levy, who is Chairman of the
Board and a member of the Executive Committee of Avatar and is a general partner
of Odyssey Partners, L.P., a Delaware limited partnership ("Odyssey"). Mr. Levy,
Jack Nash, Stephen Berger, Joshua Nash and Brian Wruble, by virtue of being
general partners of Odyssey, share voting and dispositive power with respect to
the Common Stock owned by Odyssey and, accordingly, may each be deemed to own
beneficially the Common Stock owned by Odyssey. Each of the aforesaid persons
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 general partner of Odyssey.
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
Odyssey. Odyssey is a private partnership engaged in investment, trading and
related activities. Mr. Levy's ownership of Common Stock is indicated in the
table included in "Security Ownership of Management."
(2) By virtue of its present Common Stock ownership, Odyssey 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 the Schedule 13G, dated February
14, 1997, filed by KeyCorp, the parent holding company of Spears, Benzak,
Salomon & Farrell, Inc. (a registered investment adviser), such shares are held
for the benefit of various of its clients; it has revocable shared dispositive
power with such clients; and it has no power to vote or direct the vote of such
shares.
(4) Based upon information set forth in the Schedule 13D, dated January 31,
1997, and amended Form 3, dated February 21, 1997, Ronald Baron personally owns
15,000 shares and 3,690 shares in his capacity as General Partner of Baron
Capital Partners, L.P. (an investment partnership). He also has sole voting and
dispositive power with respect to 37,310 shares owned by Baron Capital
Partnership, L.P. In addition, Mr. Baron may be deemed to share the power to
vote and dispose of 720,000 shares held by Baron Asset Fund and Baron Growth &
Income Fund, which are advised by BAMCO, Inc. (a registered investment adviser
controlled by him); and may be deemed to share the power to vote and dispose of
136,161 shares held by Baron Capital Management, Inc.
2
<PAGE> 5
(a registered investment adviser controlled by him). Mr. Baron disclaims
beneficial ownership of the 856,161 shares held by BAMCO, Inc. and Baron Capital
Management, Inc.
Security Ownership of Management
The following table sets forth, as of March 31, 1997, information with
respect to the outstanding shares of Common Stock beneficially owned by each
present director, nominee for director, by each of the Named Executive Officers
identified herein under the caption "Summary Compensation Table", and by all
present directors and executive officers of Avatar as a group. Except as
otherwise indicated, all shares are owned directly.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OR GROUP BENEFICIAL OWNERSHIP(1) CLASS
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Leon Levy 2,385,758(2) 26.2%
Milton Dresner 500 *
Edwin Jacobson None
Gerald D. Kelfer None
Leon T. Kendall 200(3) *
Martin Meyerson 2,347(4) *
Kenneth T. Rosen 1,000 *
Fred Stanton Smith None
Henry King Stanford 200 *
Dennis J. Getman None
Charles L. McNairy None
G. Patrick Settles None
All directors and executive officers as a group
(consisting of 14 persons of whom 6 beneficially
own shares of Common Stock) 2,390,005(2)(3)(4) 26.3%
- -----------------------------------------------------------------------------------------------
</TABLE>
* 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 2,107,763 shares owned by Odyssey. Mr. Levy is a general
partner of Odyssey and therefore may be deemed to own beneficially the shares of
Common Stock owned by Odyssey. See Notes (1) and (2) to the preceding table
included in "Principal Stockholders."
(3) Does not include 200 shares owned by Mr. Kendall's wife for her own
account, as to which shares Mr. Kendall disclaims beneficial ownership.
(4) Does not include 847 shares owned by Mr. Meyerson's wife, as to which
shares Mr. Meyerson disclaims beneficial ownership.
1. ELECTION OF DIRECTORS
Nine 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, nine
votes per share). A stockholder may cast all such votes for a single nominee or
distribute them among the nominees, as he wishes, either by so marking his
ballot at the meeting or by specific voting instructions sent to Avatar with a
signed proxy. In connection with the solicitation of proxies, discretionary
authority to cumulate votes is being solicited. Nominees for director will be
elected by a plurality of the 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 properly withheld
authority to vote for such
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<PAGE> 6
nominee (including broker non-votes) will not be counted toward such nominee's
achievement of a plurality. 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 23, 1996 Annual Meeting of
Avatar's Stockholders, except Gerald D. Kelfer who was elected by the Board of
Directors at its meeting held October 2, 1996. The Board of Directors met six
times during 1996, including the annual meeting of directors held immediately
following the 1996 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.
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE OCCUPATIONS AND DIRECTORSHIPS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Leon Levy 71 Chairman of the Board of Avatar since January 22, 1981;
Director since General Partner, Odyssey Partners, L.P., a private
September 1980 partnership engaged in investment, trading and related
activities; Chairman of the Board of Oppenheimer Funds;
former Chairman of the Board (1974-1985) of Oppenheimer
Management Corp.; Director of S. G. Warburg & Co., Ltd.
(Jersey Funds).
- --------------------------------------------------------------------------------------------------
Milton Dresner 71 Founding Partner, The Highland Companies, since 1960, a
Director since diversified real estate development and management organi-
July 1995 zation; Director: Flagship Savings Bank, Hudson General
Corporation, Childtime Childcare, Northern Caring Homes.
- --------------------------------------------------------------------------------------------------
Edwin Jacobson 67 Chief Executive Officer of Avatar since February 27, 1994,
Director since and Chairman of the Executive Committee of Avatar since
June 1992 June 15, 1992; also, formerly President of Avatar from
February 27, 1994 to February 13, 1997; also, President
and Chief Executive Officer, CMC Heartland Partners, an
operating general partnership of a public limited
partnership engaged in the real estate business, since
September 1990, and President and Chief Executive Officer,
since June 1985, of Milwaukee Land Company, a
non-diversified, closed-end management investment company,
publicly trading since July 1993; also formerly President
and Chief Executive Officer, Chicago Milwaukee
Corporation, an investment company, from June 1985 until
its dissolution in September 1996.
- --------------------------------------------------------------------------------------------------
Gerald D. Kelfer 51 Vice Chairman of the Board of Avatar since December 1996
Director since and President of Avatar since February 13, 1997; formerly
October 1996 a principal in Odyssey Partners, L.P., from July 1994 to
February 1997; and Executive Vice President, Senior
General Counsel and Director of Olympia & York Companies,
from 1985 to 1994.
</TABLE>
4
<PAGE> 7
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR
NAME AGE OCCUPATIONS AND DIRECTORSHIPS
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Leon T. Kendall 68 Professor of Finance and Real Estate, Kellogg School of
Director since Management, Northwestern University, since September 1988;
May 1983 formerly Chairman of the Board, Mortgage Guaranty
Insurance Corporation, and Vice Chairman of the Board,
MGIC Investment Corporation, from December 1981 to
December 1989; Director of: Universal Foods Corporation;
Asset Management Funds; and Chicago Board -- Options
Exchange.
- --------------------------------------------------------------------------------------------------
Martin Meyerson 74 Chairman, University of Pennsylvania Foundation, The
Director since University Professor of Public Policy and Planning, and
May 1981 President Emeritus, University of Pennsylvania, since
February 1981, and President thereof from 1970 to 1981;
President, FISCIT (Switzerland/U.S.); Director, Universal
Health Services, Inc.; First Union North, Board member;
Chairman, Marconi International Foundation.
- --------------------------------------------------------------------------------------------------
Kenneth T. Rosen 48 Professor of Business Administration, since 1979, and
Director since Chairman of the Fisher Center for Real Estate and Urban
September 1994 Economics, since 1981, University of California, Berkeley;
also President, Rosen Consulting Group, a real estate
consulting business, since 1990, and Chief Executive
Officer of ERE Rosen Real Estate Securities, a registered
investment adviser, since February 1995; Director: Golden
West Financial Corporation, The PMI Group, Inc.
- --------------------------------------------------------------------------------------------------
Fred Stanton Smith 69 Vice Chairman of the Board, The Keyes Company, a real
Director since estate brokerage, financing, management, insurance and de-
September 1980 velopment firm, since January 28, 1992; formerly
President, The Keyes Company; Director, Eagle National
Bank.
- --------------------------------------------------------------------------------------------------
Henry King Stanford 81 President Emeritus, The University of Miami since July
Director since 1981, and President Emeritus, University of Georgia since
September 1980 July 1987; formerly President, The University of Miami,
from July 1962 to June 1981; also formerly Interim
President, University of Georgia, from July 1986 to June
1987.
</TABLE>
INFORMATION REGARDING THE BOARD OF DIRECTORS
Certain Committees of the Board
To assist it in carrying out its duties, the Board of Directors has
established an Executive Committee, an Audit Committee and a Community Affairs
Committee, the current members of which are as follows:
<TABLE>
<S> <C> <C>
EXECUTIVE COMMITTEE AUDIT COMMITTEE COMMUNITY AFFAIRS COMMITTEE
- ------------------------------------------------------------------------------------------------------------------
Edwin Jacobson(1)(2) Leon T. Kendall(1) Henry King Stanford(1)
Leon Levy(2) Milton Dresner Martin Meyerson
Gerald D. Kelfer(2) Martin Meyerson William M. Porter
Fred Stanton Smith Fred Stanton Smith Fred Stanton Smith
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Chairman
(2) Officer of Avatar
The Board of Directors has not established a Nominating Committee and, as
more fully described below and under "Executive Compensation and Other
Information -- Executive Committee Report on Executive Compensation," the
Executive Committee performs the functions of a compensation committee.
5
<PAGE> 8
Executive Committee
The Executive Committee of the Board of Directors has authority to exercise
most powers of the full Board of Directors in connection with matters which
arise during the intervals between meetings of the Board of Directors. In
addition to such other functions as are assigned to it from time to time by the
Board of Directors, the Executive Committee also reviews and approves or
recommends to the Board the compensation and terms of employment of all officers
and employees of Avatar and its subsidiaries whose base salaries exceed $70,000
per annum. The Executive Committee met four times during the fiscal year ended
December 31, 1996.
Audit Committee
The Audit Committee of the Board of Directors recommends to the Board of
Directors the appointment of the independent auditors, subject to approval by
the stockholders of Avatar; reviews the independent auditors' report and
management letters and reports to the Board of Directors with respect thereto;
reviews with the internal auditors Avatar's accounting policies and procedures,
including its internal accounting controls and internal auditing procedures;
determines whether there are any conflicts of interest in financial or business
matters between Avatar and any of its officers or employees; and reviews the
recommendations of the independent auditors. The Audit Committee also performs
such other tasks as are assigned to it from time to time by the Board of
Directors. The Audit Committee met four times during the fiscal year ended
December 31, 1996.
Community Affairs Committee
The Community Affairs Committee of the Board of Directors monitors the
reputation and standing in the community of Avatar and its various subsidiaries
and divisions, and oversees the interaction of Avatar with the community. The
Community Affairs Committee also performs such other tasks as are assigned to it
from time to time by the Board of Directors. The Community Affairs Committee met
once during the fiscal year ended December 31, 1996.
Directors' Compensation
Pursuant to resolutions of the Board of Directors, compensation for
directors who are not salaried employees of Avatar is $17,500 per annum. A
member of the Executive Committee who is not a salaried employee of Avatar
receives a fee of $500 for attendance at each meeting. 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 Community Affairs
Committee receive additional compensation of $2,000 per annum plus a fee of $500
for attendance at each meeting.
Directors' Attendance
In fiscal year 1996 all of the incumbent directors attended 75% or more of
the aggregate of their respective Board and Committee meetings.
6
<PAGE> 9
EXECUTIVE COMPENSATION AND OTHER INFORMATION
Summary Compensation Table
The following table sets forth information with respect to compensation of
the Chief Executive Officer and the three other highest paid executive officers
of Avatar whose total salary and bonus was $100,000 or more for the year ended
December 31, 1996 (these four executive officers being hereinafter referred to
as the "Named Executive Officers").
<TABLE>
<CAPTION>
ANNUAL COMPENSATION(1)
----------------------- ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY BONUS COMPENSATION(2)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Edwin Jacobson(3) 1996 $325,000(4) --(4) --
Chief Executive Officer and 1995 325,000 -- --
Chairman of the Executive 1994 311,731 -- --
Committee
- --------------------------------------------------------------------------------------------
Dennis J. Getman 1996 208,000 $15,000(4) $2,250
Executive Vice President and 1995 208,000 12,500 2,250
General Counsel 1994 208,000 17,500 2,249
- --------------------------------------------------------------------------------------------
Charles L. McNairy 1996 175,000 15,000(4) 2,250
Executive Vice President, 1995 169,000 11,500 2,250
Treasurer and 1994 156,065 -- 2,249
Chief Financial Officer
- --------------------------------------------------------------------------------------------
G. Patrick Settles 1996 117,143 -- 1,757
Vice President and Assistant 1995 113,754 -- 1,706
General Counsel 1994 110,452 -- 1,657
- --------------------------------------------------------------------------------------------
</TABLE>
(1) Of the Named Executive Officers, Messrs. Jacobson, Getman and McNairy also
received automobile allowances and/or the use of company-leased
automobiles. Avatar also provides group life, health, hospitalization and
medical reimbursement plans which do not discriminate in scope, terms or
operation in favor of officers and are available to all full-time
employees. The aggregate value of these and any additional perquisite and
other personal benefits cannot be specifically or precisely ascertained but
do not, in any event, exceed 10% of the total annual salary and bonus
reported for each of the Named Executive Officers.
(2) Reflects for each Named Executive Officer Avatar's contribution to the
401(k) Plan.
(3) In addition to his position as Chief Executive Officer and Chairman of the
Executive Committee, Mr. Jacobson served as President from February 27,
1994 to February 13, 1997. See "Employment and Other Agreements" below.
(4) For discussion of Avatar's employment agreement with Mr. Jacobson and its
incentive compensation agreements with Messrs. Getman and McNairy, see
"Employment and Other Agreements" below.
Employment and Other Agreements
Employment Agreements With Edwin Jacobson
Avatar entered into an employment agreement with Mr. Jacobson dated June
15, 1992 (as amended as of March 1, 1994, the "1992 Agreement"), pursuant to
which Mr. Jacobson has been employed as Chairman of the Executive Committee and
President and Chief Executive Officer of Avatar and receives a base salary of
$325,000 per annum until the expiration of such agreement on June 15, 1997
(unless sooner terminated in accordance with the terms of the agreement).
On July 27, 1995, Avatar entered into another employment agreement with Mr.
Jacobson (the "1995 Agreement"), which agreement was approved at the May 23,
1996 Annual Meeting of Stockholders. The 1995 Agreement will commence on June
16, 1997 if Mr. Jacobson is continuously
7
<PAGE> 10
employed by Avatar through June 15, 1997 and is not then in breach of the 1992
Agreement. Pursuant to the 1995 Agreement, Mr. Jacobson is entitled to receive a
base salary of not less than $400,000 per annum (in addition to certain other
payments) until the termination of such agreement on June 16, 2000 (unless
sooner terminated in accordance with the agreement).
On February 13, 1997, the 1992 Agreement and the 1995 Agreement were
amended so that Mr. Jacobson is employed as Chief Executive Officer and Chairman
of the Executive Committee. Mr. Jacobson has the right to change his duties and
responsibilities (including resignation as Chief Executive Officer), in which
event, subject to the approval of the Board of Directors, for the balance of the
contract term Mr. Jacobson would continue as Chairman of the Executive Committee
and perform such other duties as may be reasonably requested by the Board of
Directors.
Pursuant to each of the 1992 Agreement and the 1995 Agreement, Mr. Jacobson
was granted an Award based upon an aggregate of 150,000 shares and 75,000
shares, respectively, of Avatar Common Stock (subject to adjustment in certain
events). Such Awards vest ratably during the term of each agreement and provide
for Mr. Jacobson to receive, within ten days following June 16, 2000 (or the
termination date, if earlier), a cash payment equal to the excess of a formula
amount based upon the closing prices of Avatar Common Stock during a specified
period prior to June 16, 2000 (or the termination date, if earlier), over the
closing price of Avatar Common Stock on the date of grant of each Award,
multiplied by the number of shares which will have become vested. If Mr.
Jacobson's employment is terminated under either employment agreement as a
result of Mr. Jacobson's death, by Avatar on account of his Permanent
Disability, or by him for Good Reason, 50% of his remaining unvested shares will
vest and any remaining unvested shares will be forfeited. If Mr. Jacobson's
employment is terminated by Avatar for Cause, any unvested shares will be
forfeited.
The 1995 Agreement will terminate upon Mr. Jacobson's death; and may be
terminated (i) by Avatar, if Mr. Jacobson becomes Permanently Disabled; (ii) by
Avatar, for Cause; and (iii) by Mr. Jacobson, for Good Reason. If Mr. Jacobson's
employment is terminated by his death or Permanent Disability, by Avatar for
Cause, or by Mr. Jacobson other than for Good Reason, Mr. Jacobson or his estate
will receive his base salary through the date of termination, a final payment of
$120,000 (or a lesser prorated amount in certain circumstances) and any
incentive compensation payable pursuant to the Awards. If Avatar terminates Mr.
Jacobson's employment other than for Cause, or if Mr. Jacobson terminates his
employment for Good Reason, then Mr. Jacobson will be entitled to receive his
full base salary through June 6, 2000, such final payment and any incentive
compensation payable under the Awards.
Following such termination, Mr. Jacobson may be required to mitigate
damages during the period of time he is entitled to receive any payments from
Avatar.
Employment Agreement With Gerald Kelfer
On February 13, 1997 (the "Commencement Date"), Avatar entered into an
employment agreement with Mr. Kelfer, pursuant to which Mr. Kelfer will continue
to be nominated as a director of Avatar and will be employed as President and,
subject to his election by the Board of Directors, Vice Chairman of the Board
until February 13, 2002 (unless sooner terminated in accordance with the
agreement). Avatar has agreed to pay Mr. Kelfer a base salary of $450,000 for
the first year of employment, with an annual increase of $20,000 on each
anniversary of the Commencement Date and a $500,000 bonus per annum, payable no
later than 30 days after each applicable anniversary of the Commencement Date.
Avatar also has agreed to pay all reasonable relocation expenses of Mr. Kelfer
and Mr. Kelfer's family (not to exceed $30,000 in the aggregate) and provide Mr.
Kelfer and his family with temporary living quarters near Avatar's principal
office, as well as his and his family's commutation costs (not to exceed $30,000
in the aggregate).
Mr. Kelfer's employment agreement will terminate upon Mr. Kelfer's death;
and may be terminated (i) by Avatar, if Mr. Kelfer becomes Permanently Disabled;
(ii) by Avatar, for Cause;
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<PAGE> 11
(iii) by Mr. Kelfer, for Good Reason; and (iv) by Avatar, at its election, on
the second anniversary of the Commencement Date so long as Avatar gives Mr.
Kelfer at least 60 days' prior written notice of such termination (except upon a
Change of Control).
In the event of Mr. Kelfer's death, his estate will receive his accrued but
unpaid base salary and a prorated bonus through the date of termination. In the
event of Mr. Kelfer's Permanent Disability, he will continue to receive his base
salary and a prorated bonus until he is terminated by Avatar upon written
notice. If Mr. Kelfer is terminated by Avatar for Cause, or Mr. Kelfer
terminates his employment for other than Good Reason, he is entitled to receive
his base salary (but not his bonus) through the date of termination. If Mr.
Kelfer is terminated by Avatar other than for Permanent Disability or for Cause,
or Mr. Kelfer terminates his employment for Good Reason, Mr. Kelfer is entitled
to receive his base salary and bonus for the balance of the term of his
employment agreement. Following termination, Mr. Kelfer is required to mitigate
damages during the period of time he is entitled to receive any payments from
Avatar. If Avatar elects to terminate Mr. Kelfer's employment effective the
second anniversary of the Commencement Date, Mr. Kelfer will be entitled to
receive $450,000 over the 12-month period following termination.
Nonqualified Stock Option Agreement with Mr. Kelfer
Subject to the approval of the Incentive Plan (see "Approval of 1997
Incentive and Capital Accumulation Plan") by Avatar's stockholders, on February
13, 1997 Avatar entered into a Nonqualified Stock Option Agreement with Mr.
Kelfer pursuant to which Mr. Kelfer has been granted an option (the "Option") to
purchase 225,000 shares of Avatar Common Stock at $34.00 per share (such price
being in the judgment of an appointed committee of the Board not less than 100%
of the Fair Market Value as defined in the Incentive Plan). The Option is not
intended to qualify as an "incentive stock option" under Section 422 of the
Code.
The Option will become exercisable with respect to 45,000 shares on
February 13, 1998 and on each February 13 thereafter through 2002, and any
unexercised portion of the Option will expire on February 13, 2007.
Mr. Kelfer may pay the exercise price in cash or by executing a
non-recourse promissory note (bearing interest at the then applicable federal
rate per annum, payable semiannually, secured by shares of common stock being
purchased), so long as the amount of the note does not exceed 66 2/3% (or such
lesser percentage as would be permitted by applicable margin regulations) of the
aggregate exercise price of the Avatar Common Stock then being purchased
pursuant to exercise of the Option. Such note is payable five years from the
exercise date or, if earlier, (i) termination of employment by Avatar for Cause
or by Mr. Kelfer other than for Good Reason or (ii) sale by Mr. Kelfer of
underlying shares.
Upon Mr. Kelfer's death or Permanent Disability, the Option is exercisable
for one year from the date of termination. If Avatar exercises its right to
terminate Mr. Kelfer's employment (other than for Cause) prior to the second
anniversary of his employment, the Option to the extent not already exercised,
will remain exercisable until August 13, 1999, only to the extent that it would
have been exercisable on or prior to February 13, 1999. If Mr. Kelfer's
employment is terminated by Mr. Kelfer for Good Reason or terminated by Avatar
(other than for Cause) following the second anniversary of the Commencement
Date, the Option remains exercisable in full. If Mr. Kelfer's employment is
terminated by Avatar for Cause or by Mr. Kelfer for other than Good Reason, the
Option, to the extent not theretofore exercised, will become null and void.
Incentive Awards For Dennis Getman and Charles McNairy
On January 18, 1993 and September 9, 1993, respectively, Avatar entered
into incentive compensation agreements with Mr. Getman and Mr. McNairy, whereby
each of Mr. Getman and Mr. McNairy was granted a stock-based long-term incentive
Award (an "Award") based upon an aggregate of 15,000 shares of Avatar Common
Stock (subject to adjustment in certain events),
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<PAGE> 12
respectively, which vests with respect to 3,000 shares per year on each of the
first five anniversary dates of each agreement. Such Awards provide for each of
Mr. Getman and Mr. McNairy to receive, within ten days following the respective
fifth anniversary date (or the respective termination date, if earlier) of their
agreements, a cash payment equal to the excess of a formula amount based upon
the closing prices of Avatar Common Stock during a specified period prior to the
respective fifth anniversary date (or the respective termination date, if
earlier) over the closing price of Avatar Common Stock on the respective date of
grant of each Award, multiplied by the number of shares which will have become
vested.
Notwithstanding any statement incorporating future filings in whole or in
part, including this Proxy Statement, in any of Avatar's previous filings under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, the following report and the Performance Graph below shall not be
incorporated by reference into any such filing.
Executive Committee Report on Executive Compensation
The Executive Committee of Avatar's Board of Directors traditionally
performs the functions of a compensation committee, including the review and
approval of compensation and terms of employment for all officers and those
employees of Avatar and its subsidiaries whose base salaries exceed $70,000 per
annum. However, the compensation arrangements regarding any executive officer
who is also a member of the Executive Committee has been acted on and approved
by the Board of Directors (with such member not participating) or a committee
thereof composed of outside directors.
Avatar's executive compensation is intended to reward, retain and motivate
management. The primary component of compensation has been base salary. However,
for certain of the most senior executives, compensation packages now include
stock-based long-term incentive awards (the "Awards"). The grant of these Awards
is intended to align the interests of Avatar's most senior executives with those
of the stockholders over the term of the Awards, and to motivate these
executives to improve Avatar's long-term business position and performance. No
awards were made to the Chief Executive Officer and the other executive officers
of Avatar in 1996. The Executive Committee believes that Avatar's executive
compensation arrangements are reasonable in light of the needs of Avatar,
competitive compensation levels and the goals of retention and motivation of
management.
In determining salary levels for the executive officers, primary
consideration is given to each executive's level of responsibility and
individual performance, as well as compensation generally received by executives
in the real estate business.
<TABLE>
<S> <C>
January 31, 1996 EXECUTIVE COMMITTEE
Edwin Jacobson, Chairman
Leon Levy
Fred Stanton Smith
</TABLE>
Compensation Committee Interlocks and Insider Participation
The members of the Executive Committee in 1996 were Messrs. Jacobson, Levy
and Smith; on February 13, 1997, Mr. Kelfer was elected a member of the
Executive Committee. Mr. Jacobson serves as Chairman of the Executive Committee
and Chief Executive Officer; Mr. Levy serves as Chairman of the Board of
Directors; and Mr. Kelfer serves as Vice Chairman of the Board of Directors and
President.
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Performance Graph
The following graph provides a comparison of the cumulative total returns
based on an investment of $100 after the close of the market on December 31,
1991 in Avatar's Common Stock, the NASDAQ Market Index and a composite peer
group index (the "Peer Index") for the periods indicated, in each case assuming
reinvestment of any dividends. The cumulative total returns for the NASDAQ
Market Index were prepared by Media General Financial Services, Inc. ("Media
General"). The Peer Index is a combination of the Real Estate Subdividers and
Developers Index and the Water Utilities Index, each of which is published by
Media General. The cumulative total returns for each index were prepared by
Media General and were combined by Avatar to form the Peer Index based on the
relative percentage of Avatar's assets applicable to each of Avatar's lines of
business (i.e., real estate and water utilities) at the end of each year
depicted in the graph.
<TABLE>
<CAPTION>
Measurement Period Avatar Hold-
(Fiscal Year Covered) ings Inc. NASDAQ Peer Index
<S> <C> <C> <C>
1991 100.00 100.00 100.00
1992 156.18 100.98 109.75
1993 151.12 121.13 128.52
1994 170.79 127.17 122.91
1995 157.30 164.96 145.79
1996 143.82 204.98 172.89
</TABLE>
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<PAGE> 14
2. APPROVAL OF THE 1997 INCENTIVE AND
CAPITAL ACCUMULATION PLAN
Background
The Board of Directors is proposing for stockholder approval the 1997
Incentive and Capital Accumulation Plan (the "Incentive Plan"). The Incentive
Plan is intended to provide incentives which will attract and retain highly
competent persons as key employees of Avatar and its subsidiaries, by providing
them with opportunities to acquire shares of stock or to receive monetary
payments based on the value of such shares pursuant to the Benefits described
herein. In addition, the Incentive Plan is intended to assist in aligning the
interests of Avatar's key employees with those of its stockholders. On February
13, 1997, the Committee (as defined below) adopted, and the Board of Directors
ratified, subject to stockholder approval, the Incentive Plan.
In structuring the Incentive Plan, the Committee sought to provide for a
variety of awards that could be flexibly administered to carry out the purposes
of the Incentive Plan. This authority will permit Avatar to keep pace with
changing developments in management compensation and make Avatar competitive
with those companies that offer creative incentives to attract and retain key
employees. The flexibility of the Incentive Plan will allow Avatar to respond to
changing circumstances such as changes in tax laws, accounting rules, securities
regulations and other rules regarding benefit plans. Many other companies have
addressed these same issues in recent years and adopted an "omnibus" type of
plan. The Incentive Plan grants the Committee discretion in establishing the
terms and restrictions deemed appropriate for particular awards as circumstances
warrant.
The following summary of the Incentive Plan is not intended to be complete
and is qualified in its entirety by reference to the copy of the Incentive Plan
annexed to this Proxy Statement.
Shares Available
The Incentive Plan makes available for Benefits (as defined below) an
aggregate of 425,000 shares of Avatar Common Stock, subject to certain
adjustments. During the term of the Plan, the maximum number of shares of Avatar
Common Stock with respect to which Benefits may be granted (or measured) to any
individual participant may not exceed 225,000. Any shares of Common Stock
subject to a stock option or stock appreciation right which for any reason is
cancelled or terminated without having been exercised and, subject to limited
exceptions, any shares subject to stock awards, performance awards or stock
units which are forfeited, any shares subject to performance awards settled in
cash or any shares delivered to Avatar as part or full payment for the exercise
of a stock option or stock appreciation right, shall again be available for
Benefits under the Incentive Plan.
Administration
The Incentive Plan provides for administration by a committee of the Board
of Directors or a subcommittee of a committee of a Board appointed by the Board
of Directors from among its members (the "Committee"), which shall be comprised
solely of not less than two members who shall be (i) "Non-Employee Directors"
within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under
the Securities Exchange Act of 1934, as amended, and (ii) unless otherwise
determined by the Board of Directors, "outside directors" within the meaning of
Treasury Regulation sec. 1.162-27(e)(3) under Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Committee is authorized,
subject to the provisions of the Incentive Plan, to establish such rules and
regulations as it deems necessary for the proper administration of the Incentive
Plan and to make such determinations and interpretations and to take such action
in connection with the Incentive Plan and any Benefits granted as it deems
necessary or advisable. Thus, among the Committee's powers are the authority to
select officers and other key employees
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<PAGE> 15
of Avatar and its subsidiaries to receive Benefits, and to determine the form,
amount and other terms and conditions of Benefits. The Committee also has the
power to modify or waive restrictions on Benefits, to amend Benefits and to
grant extensions and accelerations of Benefits. On February 13, 1997, the Board
of Directors appointed Mr. Kendall, Mr. Dresner and Mr. Rosen as members of the
Committee.
Eligibility for Participation
Key employees of Avatar or any of its subsidiaries are eligible to
participate in the Incentive Plan. The selection of participants from eligible
key employees is within the discretion of the Committee. Currently, 16 key
employees are eligible to participate in the Incentive Plan.
Types of Benefits
The Incentive Plan provides for the grant of any or all of the following
types of benefits: (1) stock options, including incentive stock options and
non-qualified stock options; (2) stock appreciation rights; (3) stock awards;
(4) performance awards; and (5) stock units (collectively, "Benefits"). Benefits
may be granted singly, in combination, or in tandem as determined by the
Committee. Stock awards, performance awards and stock units may, as determined
by the Committee in its discretion, constitute Performance-Based Awards, as
described below.
Stock Options
Under the Incentive Plan, the Committee may grant awards in the form of
options to purchase shares of Avatar Common Stock. Options may either be
incentive stock options, qualifying for special tax treatment, or non-qualified
options; however, no incentive stock option shall be issued to a participant in
tandem with a nonqualified stock option. The Committee will, with regard to each
stock option, determine the number of shares subject to the option, the manner
and time of the option's exercise (but in no event later than ten years after
the date of grant) and vesting, and the exercise price per share of stock
subject to the option; however, the exercise price shall not be less than 100%
of the fair market value of the Avatar Common Stock on the date the stock option
is granted (the "Fair Market Value"). The exercise price may be paid in cash or,
in the discretion of the Committee, by the delivery of shares of Avatar Common
Stock then owned by the participant, by the withholding of shares of Avatar
Common Stock for which a stock option is exercisable, by delivering to the
Company a promissory note (or other form of indebtedness) on such terms and
conditions as the Committee shall determine in its sole discretion at the date
of grant, or by a combination of these methods. In the discretion of the
Committee, payment may also be made by delivering a properly executed exercise
notice to Avatar together with a copy of irrevocable instructions to a broker to
deliver promptly to Avatar the amount of sale or loan proceeds to pay the
exercise price. The Committee may prescribe any other method of paying the
exercise price that it determines to be consistent with applicable law and the
purpose of the Incentive Plan. In determining which methods a participant may
utilize to pay the exercise price, the Committee may consider such factors as it
determines are appropriate.
Stock Appreciation Rights (SARs)
The Incentive Plan authorizes the Committee to grant an SAR either in
tandem with a stock option or independent of a stock option. An SAR is a right
to receive a payment, in cash, Avatar Common Stock, or a combination thereof,
equal to the excess of (x) the Fair Market Value, or other specified valuation
(which shall not be greater than the Fair Market Value), of a specified number
of shares of Avatar Common Stock on the date the right is exercised over (y) the
fair market value, or other specified valuation (which shall not be less than
Fair Market Value), of such shares of Avatar Common Stock on the date the right
is granted, all as determined by the Committee. Each SAR shall be subject to
such terms and conditions as the Committee shall impose from time to time.
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<PAGE> 16
Stock Awards
The Committee may, in its discretion, grant Stock Awards (which may include
mandatory payment of bonus incentive compensation in stock) consisting of Avatar
Common Stock issued or transferred to participants with or without other
payments therefor as additional compensation for services to the Company. Stock
Awards may be subject to such terms and conditions as the Committee determines
appropriate, including, without limitation, restrictions on the sale or other
disposition of such shares, the right of the Company to reacquire such shares
for no consideration upon termination of the participant's employment within
specified periods, and may constitute Performance-Based Awards, as described
below. The Stock Award shall specify whether the participant shall have, with
respect to the shares of Avatar Common Stock subject to a Stock Award, all of
the rights of a holder of shares of Avatar Common Stock, including the right to
receive dividends and to vote the shares.
Performance Awards
The Incentive Plan allows for the grant of performance awards which may
take the form of shares of Avatar Common Stock or stock units, or any
combination thereof and which may constitute Performance-Based Awards. Such
awards will be contingent upon the attainment over a period to be determined by
the Committee of certain performance goals. The length of the performance
period, the performance goals to be achieved and the measure of whether and to
what degree such goals have been achieved will be determined by the Committee.
Payment of earned performance awards will be made in accordance with terms and
conditions prescribed or authorized by the Committee. The participant may elect
to defer, or the Committee may require the deferral of, the receipt of
performance awards upon such terms as the Committee deems appropriate.
Stock Units
The Committee may, in its discretion, grant Stock Units to participants,
which may constitute Performance-Based Awards. A "Stock Unit" means a notational
account representing one share of Avatar Common Stock. The Committee determines
the criteria for the vesting of Stock Units and whether a participant granted a
Stock Unit shall be entitled to Dividend Equivalent Rights (as defined in the
Incentive Plan). Upon vesting of a Stock Unit, unless the Committee has
determined to defer payment with respect to such unit or a participant has
elected to defer payment, shares of Avatar Common Stock representing the Stock
Units will be distributed to the participant (unless the Committee, with the
consent of the participant, provides for the payment of the Stock Units in cash,
or partly in cash and partly in shares of Avatar Common Stock, equal to the
value of the shares of Avatar Common Stock which would otherwise be distributed
to the participant).
Performance-Based Awards
Certain Benefits granted under the Incentive Plan may be granted in a
manner such that the Benefit qualifies for the performance-based compensation
exemption to Section 162(m) of the Code ("Performance-Based Awards"). As
determined by the Committee in its sole discretion, either the granting or
vesting of such Performance-Based Awards will be based upon one or more of the
following factors: net sales, pre-tax income before allocation of corporate
overhead and bonus, budget, earnings per share, net income, division, group or
corporate financial goals, return on stockholders' equity, return on assets,
attainment of strategic and operational initiatives, appreciation in and/or
maintenance of the price of the Avatar Common Stock or any other publicly-traded
securities of Avatar, market share, gross profits, earnings before interest and
taxes, earnings before interest, taxes, dividends and amortization, economic
value-added models and comparisons with various stock market indices, reductions
in costs, or any combination of the foregoing.
With respect to Performance-Based Awards, the Committee shall establish in
writing, (x) the objective performance-based goals applicable to a given period
and (y) the individual employees or
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<PAGE> 17
class of employees to which such performance-based goals apply no later than 90
days after the commencement of such period (but in no event after 25% of such
period has elapsed). No Performance-Based Award shall be payable to, or vest
with respect to, as the case may be, any participant for a given fiscal period
until the Committee certifies in writing that the objective performance goals
(and any other material terms) applicable to such period have been satisfied.
Other Terms of Benefits
The Incentive Plan provides that Benefits shall not be transferable other
than by will or the laws of descent and distribution. The Committee shall
determine the treatment to be afforded to a participant in the event of
termination of employment for any reason including death, disability or
retirement. Notwithstanding the foregoing, other than with respect to incentive
stock options, the Committee may permit the transferability of an award by a
participant to members of the participant's immediate family or trusts for the
benefit of such person or family partnerships.
Upon the grant of any Benefit under the Incentive Plan, the Committee may,
by way of an agreement with the participant, establish such other terms,
conditions, restrictions and/or limitations covering the grant of the Benefit as
are not inconsistent with the Incentive Plan. No Benefit shall be granted under
the Incentive Plan after February 13, 2007. The Board of Directors reserves the
right to amend, suspend or terminate the Incentive Plan at any time, subject to
the rights of participants with respect to any outstanding Benefits.
The Incentive Plan contains provisions for equitable adjustment of Benefits
in the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, reverse stock split, split up, spinoff, combination of
shares, exchange of shares, dividend in kind or other like change in capital
structure or distribution (other than normal cash dividends) to stockholders of
Avatar.
Certain Federal Income Tax Consequences
The statements in the following paragraphs of the principal federal income
tax consequences of Benefits under the Incentive Plan are based on statutory
authority and judicial and administrative interpretations, as of the date of
this Proxy Statement, which are subject to change at any time (possibly with
retroactive effect). The law is technical and complex, and the discussion below
represents only a general summary.
Incentive Stock Options. Incentive stock options ("ISOs") granted under
the Incentive Plan are intended to meet the definitional requirements of Section
422(b) of the Code for "incentive stock options."
An employee who receives an ISO does not recognize any taxable income upon
the grant of such ISO. Similarly, the exercise of an ISO generally does not give
rise to federal income tax to the employee, provided that (i) the federal
"alternative minimum tax," which depends on the employee's particular tax
situation, does not apply and (ii) the employee is employed by Avatar from the
date of grant of the option until three months prior to the exercise thereof,
except where such employment terminates by reason of disability (where the three
month period is extended to one year) or death (where this requirement does not
apply). If an employee exercises an ISO after these requisite periods, the ISO
will be treated as an NSO (as defined below) and will be subject to the rules
set forth below under the caption "Non-Qualified Stock Options and Stock
Appreciation Rights."
Further, if after exercising an ISO, an employee disposes of the Avatar
Common Stock so acquired more than two years from the date of grant and more
than one year from the date of transfer of the Avatar Common Stock pursuant to
the exercise of such ISO (the "applicable holding period"), the employee will
generally recognize a long-term capital gain or loss equal to the difference, if
any, between the amount received for the shares and the exercise price. If,
however,
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<PAGE> 18
an employee does not hold the shares so acquired for the applicable holding
period -- thereby making a "disqualifying disposition" -- the employee would
recognize ordinary income equal to the excess of the fair market value of the
shares at the time the ISO was exercised over the exercise price and the
balance, if any, income would be long-term capital gain (provided the holding
period for the shares exceeded one year and the employee held such shares as a
capital asset at such time). If the disqualifying disposition is a sale or
exchange that would permit a loss to be recognized under the Code (were a loss
in fact to be realized), and the sales proceeds are less than the fair market
value of the shares on the date of exercise, the employee's ordinary income
therefrom would be limited to the gain (if any) realized on the sale.
An employee who exercises an ISO by delivering Avatar Common Stock
previously acquired pursuant to the exercise of another ISO is treated as making
a "disqualifying disposition" of such Avatar Common Stock if such shares are
delivered before the expiration of their applicable holding period. Upon the
exercise of an ISO with previously acquired shares as to which no disqualifying
disposition occurs, despite some uncertainty, it appears that the employee would
not recognize gain or loss with respect to such previously acquired shares.
Avatar will not be allowed a federal income tax deduction upon the grant or
exercise of an ISO or the disposition, after the applicable holding period, of
the Avatar Common Stock acquired upon exercise of an ISO. In the event of a
disqualifying disposition, Avatar generally will be entitled to a deduction in
an amount equal to the ordinary income included by the employee, provided that
such amount constitutes an ordinary and necessary business expense to Avatar and
is reasonable and the limitations of Sections 280G and 162(m) of the Code
(discussed below) do not apply.
Non-Qualified Stock Options and Stock Appreciation Rights. Non-qualified
stock options ("NSOs") granted under the Incentive Plan are options that do not
qualify as ISOs. An employee who receives an NSO or an SAR will not recognize
any taxable income upon the grant of such NSO or SAR. However, the employee
generally will recognize ordinary income upon exercise of an NSO in an amount
equal to the excess of the fair market value of the shares of Avatar Common
Stock at the time of exercise over the exercise price. Similarly, upon the
receipt of cash or shares pursuant to the exercise of an SAR, the individual
generally will recognize ordinary income in an amount equal to the sum of the
cash and the fair market value of the shares received.
As a result of Section 16(b) of the Exchange Act, under certain
circumstances, the timing of income recognition may be deferred (generally for
up to six months following the exercise of an NSO or SAR (the "Deferral
Period")) for any individual who is an officer or director of Avatar or a
beneficial owner of more than ten percent (10%) of any class of equity
securities of Avatar. Absent a Section 83(b) election (as described below under
"Other Awards"), recognition of income by the individual will be deferred until
the expiration of the Deferral Period, if any.
The ordinary income recognized with respect to the receipt of shares or
cash upon exercise of an NSO or an SAR will be subject to both wage withholding
and other employment taxes. In addition to the customary methods of satisfying
the withholding tax liabilities that arise upon the exercise of an SAR for
shares or upon the exercise of an NSO, Avatar may satisfy the liability in whole
or in part by withholding shares of Avatar Common Stock from those that
otherwise would be issuable to the individual or by the employee tendering other
shares owned by him or her, valued at their fair market value as of the date
that the tax withholding obligation arises.
A federal income tax deduction generally will be allowed to Avatar in an
amount equal to the ordinary income included by the individual with respect to
his or her NSO or SAR, provided that such amount constitutes an ordinary and
necessary business expense to Avatar and is reasonable and the limitations of
Sections 280G and 162(m) of the Code do not apply.
If an individual exercises an NSO by delivering shares of Avatar Common
Stock, other than shares previously acquired pursuant to the exercise of an ISO
which is treated as a "disqualifying disposition" as described above, the
individual will not recognize gain or loss with respect to the
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<PAGE> 19
exchange of such shares, even if their then fair market value is different from
the individual's tax basis. The individual, however, will be taxed as described
above with respect to the exercise of the NSO as if he or she had paid the
exercise price in cash, and Avatar likewise generally will be entitled to an
equivalent tax deduction.
Other Awards. With respect to other Benefits under the Incentive Plan that
are settled either in cash or in shares of Avatar Common Stock that are either
transferable or not subject to a substantial risk of forfeiture (as defined in
the Code and the regulations thereunder), employees generally will recognize
ordinary income equal to the amount of cash or the fair market value of the
Avatar Common Stock received.
With respect to Benefits under the Incentive Plan that are settled in
shares of Avatar Common Stock that are restricted to transferability or subject
to a substantial risk of forfeiture -- absent a written election pursuant to
Section 83(b) of the Code filed with the Internal Revenue Service within 30 days
after the date of transfer of such shares pursuant to the award (a "Section
83(b) election") -- an individual will recognize ordinary income at the earlier
of the time at which (i) the shares become transferable or (ii) the restrictions
that impose a substantial risk of forfeiture of such shares lapse, in an amount
equal to the excess of the fair market value (on such date) of such shares over
the price paid for the award, if any. If a Section 83(b) election is made, the
individual will recognize ordinary income, as of the transfer date, in an amount
equal to the excess of the fair market value of the Avatar Common Stock as of
that date over the price paid for such award, if any.
The ordinary income recognized with respect to the receipt of cash, shares
of Avatar Common Stock or other property under the Incentive Plan will be
subject to both wage withholding and other employment taxes.
Avatar generally will be allowed a deduction for federal income tax
purposes in an amount equal to the ordinary income recognized by the employee,
provided that such amount constitutes an ordinary and necessary business expense
and is reasonable and the limitations of Sections 280G and 162(m) of the Code do
not apply.
Dividends and Dividend Equivalents. To the extent Benefits under the
Incentive Plan earn dividends or dividend equivalents, whether paid currently or
credited to an account established under the Incentive Plan, an individual
generally will recognize ordinary income with respect to such dividends or
dividend equivalents.
Change in Control. In general, if the total amount of payments to an
individual that are contingent upon a "change of control" of Avatar (as defined
in Section 280G of the Code), including payments under the Incentive Plan that
vest upon a "change in control," equals or exceeds three times the individual's
"base amount" (generally, such individual's average annual compensation for the
five calendar years preceding the change in control), then, subject to certain
exceptions, the payments may be treated as "parachute payments" under the Code,
in which case a portion of such payments would be non-deductible to Avatar and
the individual would be subject to a 20% excise tax on such portion of the
payments.
Certain Limitations on Deductibility of Executive Compensation. With
certain exceptions, Section 162(m) of the Code denies a deduction to publicly
held corporations for compensation paid to certain executive officers in excess
of $1 million per executive per taxable year (including any deduction with
respect to the exercise of an NSO or SAR or the disqualifying disposition of
stock purchased pursuant to an ISO). One such exception applies to certain
performance-based compensation provided that such compensation has been approved
by stockholders in a separate vote and certain other requirements are met. If
approved by its stockholders, Avatar believes that Stock Options, SARs and
Performance-Based Awards granted under the Incentive Plan should qualify for the
performance-based compensation exception to Section 162(m).
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Other Information
The closing price of a share of Avatar Common Stock on April 23, 1997 was
$32.50 per share.
The Incentive Plan is being submitted for stockholder approval in
accordance with the laws of the State of Delaware. The favorable vote of a
majority of the shares of Avatar Common Stock represented and entitled to vote
at the Annual Meeting is required for approval of the Incentive Plan. If the
Incentive Plan is not approved by the stockholders, the option granted to Mr.
Kelfer will be voided and Avatar will reconsider the alternatives available with
respect to the compensation of officers and key employees.
Board Recommendation
The Board of Directors believes that the Incentive Plan is in the best
interest of Avatar and its stockholders and therefore recommends that the
stockholders vote FOR the approval of the Incentive Plan.
New Plan Benefits
On February 13, 1997, Avatar entered into a Nonqualified Stock Option
Agreement with Mr. Kelfer, pursuant to which, subject to stockholder approval of
the Incentive Plan, Mr. Kelfer was granted an option to purchase 225,000 shares
of Avatar Common Stock, which option is not intended to qualify as an "incentive
stock option" under Section 422 of the Code. See "Employment and Other
Agreements" with respect to the Nonqualified Stock Option Agreement with Mr.
Kelfer.
3. APPOINTMENT OF AUDITORS
Ernst & Young LLP, independent accountants, audited the financial
statements of Avatar for the fiscal year ended December 31, 1996. Such audit
services consisted of the firm's examination of and report on the annual
financial statements and assistance and consultation in connection with filings
with the Securities and Exchange Commission and other matters.
Representatives of Ernst & Young LLP are expected to attend the Annual
Meeting, will have the opportunity to make a statement if they desire to do so
and will be available to respond to appropriate questions.
Based upon the recommendation of the Audit Committee, and subject to
approval by the stockholders, the Board of Directors has appointed Ernst & Young
LLP, independent accountants, as auditors of Avatar for the fiscal year ending
December 31, 1997. Approval by the stockholders will require the affirmative
vote of a majority of the votes present at the meeting in person or by proxy and
entitled to be cast. The Board of Directors recommends that the accompanying
proxy be voted FOR such approval and it is intended that the proxies not
otherwise limited will be voted in such manner.
1998 STOCKHOLDERS' PROPOSALS
Proposals of stockholders intended to be presented at the Annual Meeting in
1998 must be received by the office of the Secretary, Avatar Holdings Inc., P.O.
Box 523000, Miami, Florida 33152, no later than December 24, 1997.
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SECTION 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Avatar's
officers and directors, and any persons who own more than ten percent of
Avatar's Common Stock to file reports of initial ownership of Avatar's Common
Stock and subsequent changes in that ownership with the Securities and Exchange
Commission. Officers, directors and greater than ten-percent beneficial owners
are also required to furnish Avatar with copies of all Section 16(a) forms they
file. Based solely upon a review of the copies of the forms furnished to Avatar,
or written representations from certain reporting persons that no Forms 5 were
required, Avatar believes that during the 1996 fiscal year all Section 16(a)
filing requirements were complied with.
ADDITIONAL INFORMATION
All of the expenses involved in preparing, assembling and mailing this
Proxy Statement and the accompanying material will be paid by Avatar. In
addition to the solicitation of proxies by mail, Avatar will request brokers and
securities dealers to obtain proxies from and send proxy material to their
principals. Expenses incurred in this connection will be reimbursed by Avatar.
Proxies may be solicited personally, by telephone or telegraph, by the directors
and officers of Avatar without additional compensation. The Board of Directors
knows of no business to come before the meeting other than as stated in the
Notice of Annual Meeting of Stockholders. Should any business other than that
set forth in such Notice properly come before the meeting, or any adjournment or
adjournments thereof, it is the intention of the persons named in the
accompanying proxy to vote such proxy in accordance with their judgment on such
matters.
By Order of the Board of Directors,
Juanita I. Kerrigan
Vice President and Secretary
Dated: April 29, 1997.
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AVATAR HOLDINGS INC.
1997 INCENTIVE AND CAPITAL ACCUMULATION PLAN
1. Purpose. The Avatar Holdings Inc. 1997 Incentive and Capital
Accumulation Plan (the "Plan") is intended to provide incentives which will
attract, retain and motivate highly competent persons as key employees of Avatar
Holdings Inc. (the "Company") and of any subsidiary corporation now existing or
hereafter formed or acquired, by providing them opportunities to acquire shares
of the common stock, par value $1.00 per share, of the Company ("Common Stock")
or to receive monetary payments based on the value of such shares pursuant to
the Benefits (as defined below) described herein. Furthermore, the Plan is
intended to assist in aligning the interests of the Company's key employees to
those of its stockholders.
2. Administration. (a) The Plan will be administered by a committee of the
Board of Directors of the Company (the "Board") or a subcommittee of a committee
of the Board (which may be the Company's Compensation Committee), appointed by
the Board from among its members (the "Committee"), and shall be comprised
solely of not less than two members who shall be (i) "Non-Employee Directors"
within the meaning of Rule 16b-3(b)(3) (or any successor rule) promulgated under
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii)
unless otherwise determined by the Board of Directors, "outside directors"
within the meaning of Treasury Regulation Section 1.162-27(e)(3) under Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Committee is authorized, subject to the provisions of the Plan, to establish
such rules and regulations as it deems necessary for the proper administration
of the Plan and to make such determinations and interpretations and to take such
action in connection with the Plan and any Benefits (as defined below) granted
hereunder as it deems necessary or advisable. All determinations and
interpretations made by the Committee shall be binding and conclusive on all
participants and their legal representatives. No member of the Board of
Directors, no member of the Committee and no employee of the Company shall be
liable for any act or failure to act hereunder, except in circumstances
involving his or her bad faith, gross negligence or willful misconduct, or for
any act or failure to act hereunder by any other member or employee or by any
agent to whom duties in connection with the administration of this Plan have
been delegated. The Company shall indemnify members of the Committee and any
agent of the Committee who is an employee of the Company, against any and all
liabilities or expenses to which they may be subjected by reason of any act or
failure to act with respect to their duties on behalf of the Plan, except in
circumstances involving such person's bad faith, gross negligence or willful
misconduct.
(b) The Committee may delegate to one or more of its members, or to one or
more agents, such administrative duties as it may deem advisable, and the
Committee, or any person to whom it has delegated duties as aforesaid, may
employ one or more persons to render advice with respect to any responsibility
the Committee or such person may have under the Plan. The Committee may employ
such legal or other counsel, consultants and agents as it may deem desirable for
the administration of the Plan and may rely upon any opinion or computation
received from any such counsel, consultant or agent. Expenses incurred by the
Committee in the engagement of such counsel, consultant or agent shall be paid
by the Company, or the subsidiary or affiliate whose employees have benefitted
from the Plan, as determined by the Committee.
3. Participants. Participants will consist of such key employees of the
Company and any subsidiary corporation of the Company as the Committee in its
sole discretion determines to be in a position to impact the success and future
growth and profitability of the Company and whom the Committee may designate
from time to time to receive Benefits under the Plan. Designation of a
participant in any year shall not require the Committee to designate such person
to receive a Benefit in any other year or, once designated, to receive the same
type or amount of Benefit as granted to the participant in any other year. The
Committee shall consider such factors as it deems pertinent in selecting
participants and in determining the type and amount of their respective
Benefits.
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4. Type of Benefits. Benefits under the Plan may be granted in any one or
a combination of (a) Stock Options, (b) Stock Appreciation Rights, (c) Stock
Awards, (d) Performance Awards, and (e) Stock Units (each as described below,
and collectively, the "Benefits"). Stock Awards, Performance Awards, and Stock
Units may, as determined by the Committee in its discretion, constitute
Performance-Based Awards, as described in Section 11 below. Benefits shall be
evidenced by agreements (which need not be identical) in such forms as the
Committee may from time to time approve; provided, however, that in the event of
any conflict between the provisions of the Plan and any such agreements, the
provisions of the Plan shall prevail.
5. Common Stock Available Under the Plan. The aggregate number of shares
of Common Stock that may be subject to Benefits, including Stock Options,
granted under this Plan shall be 425,000 shares of Common Stock, which may be
authorized and unissued or treasury shares, subject to any adjustments made in
accordance with Section 12 hereof. The maximum number of shares of Common Stock
with respect to which Benefits may be granted or measured to any individual
participant under the Plan during the term of the Plan shall not exceed 425,000,
provided, however, that the maximum number of shares of Common Stock with
respect to which Stock Options and Stock Appreciation Rights may be granted to
an individual participant under the Plan during the term of the Plan shall not
exceed 225,000 (in each case, subject to adjustments made in accordance with
Section 12 hereof). Other than those shares of Common Stock subject to Benefits
that are cancelled or terminated as a result of the Committee's exercise of its
discretion with respect to Performance-Based Awards as provided for in Section
11, any shares of Common Stock subject to a Stock Option or Stock Appreciation
Right which for any reason is cancelled or terminated without having been
exercised, any shares subject to Stock Awards, Performance Awards or Stock Units
which are forfeited, any shares subject to Performance Awards settled in cash or
any shares delivered to the Company as part or full payment for the exercise of
a Stock Option or Stock Appreciation Right shall again be available for Benefits
under the Plan. The preceding sentence shall apply only for purposes of
determining the aggregate number of shares of Common Stock subject to Benefits
but shall not apply for purposes of determining the maximum number of shares of
Common Stock with respect to which Benefits (including the maximum number of
shares of Common Stock subject to Stock Options and Stock Appreciation Rights)
that may be granted to any individual participant under the Plan.
6. Stock Options. Stock Options will consist of awards from the Company
that will enable the holder to purchase a specific number of shares of Common
Stock, at set terms and at a fixed purchase price. Stock Options may be
"incentive stock options" ("Incentive Stock Options"), within the meaning of
Section 422 of the Code, or Stock Options which do not constitute Incentive
Stock Options ("Nonqualified Stock Options"). The Committee will have the
authority to grant to any participant one or more Incentive Stock Options,
Nonqualified Stock Options, or both types of Stock Options (in each case with or
without Stock Appreciation Rights). Each Stock Option shall be subject to such
terms and conditions consistent with the Plan as the Committee may impose from
time to time, subject to the following limitations:
(a) Exercise Price. Each Stock Option granted hereunder shall have
such per-share exercise price as the Committee may determine at the date of
grant; provided, however, subject to subsection (d) below, that the per
share exercise price shall not be less than 100% of the Fair Market Value
(as defined below) of the Common Stock on the date the option is granted.
(b) Payment of Exercise Price. The option exercise price may be paid
in cash or, in the discretion of the Committee determined at the date of
grant, by the delivery of shares of Common Stock of the Company then owned
by the participant, by the withholding of shares of Common Stock for which
a Stock Option is exercisable, by delivering to the Company an executed
prommissory note (or such other form of indebtedness) on such terms and
conditions as the Committee shall determine in its sole discretion at the
date of grant, or by a combination of these methods. In the discretion of
the Committee determined at the date of grant, payment may also be made by
delivering a properly executed exercise notice to the
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Company together with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to pay
the exercise price. To facilitate the foregoing, the Company may enter into
agreements for coordinated procedures with one or more brokerage firms. The
Committee may prescribe any other method of paying the exercise price that
it determines to be consistent with applicable law and the purpose of the
Plan, including, without limitation, in lieu of the exercise of a Stock
Option by delivery of shares of Common Stock of the Company then owned by a
participant, providing the Company with a notarized statement attesting to
the number of shares owned, where, upon verification by the Company, the
Company would issue to the participant only the number of incremental
shares to which the participant is entitled upon exercise of the Stock
Option. In determining which methods a participant may utilize to pay the
exercise price, the Committee may consider such factors as it determines
are appropriate.
(c) Exercise Period. Stock Options granted under the Plan shall be
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee; provided, however, that no Stock
Option shall be exercisable later than ten years after the date it is
granted. All Stock Options shall terminate at such earlier times and upon
such conditions or circumstances as the Committee shall in its discretion
set forth in such option agreement at the date of grant.
(d) Limitations on Incentive Stock Options. Incentive Stock Options
may be granted only to participants who are employees of the Company or
subsidiary corporation of the Company at the date of grant. The aggregate
market value (determined as of the time the option is granted) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by a participant during any calendar year (under all
option plans of the Company) shall not exceed $100,000. For purposes of the
preceding sentence, Incentive Stock Options will be taken into account in
the order in which they are granted. Incentive Stock Options may not be
granted to any participant who, at the time of grant, owns stock possessing
(after the application of the attribution rules of Section 424(d) of the
Code) more than 10% of the total combined voting power of all outstanding
classes of stock of the Company or any subsidiary corporation of the
Company, unless the option price is fixed at not less than 110% of the Fair
Market Value of the Common Stock on the date of grant and the exercise of
such option is prohibited by its terms after the expiration of five years
from the date of grant of such option. Notwithstanding anything to the
contrary contained herein, no Incentive Stock Option may be exercised later
than ten years after the date it is granted. In addition, no Incentive
Stock Option shall be issued to a participant in tandem with a Nonqualified
Stock Option.
7. Stock Appreciation Rights. The Committee may, in its discretion, grant
Stock Appreciation Rights to the holders of any Stock Options granted hereunder.
In addition, Stock Appreciation Rights may be granted independently of, and
without relation to, options. A Stock Appreciation Right means a right to
receive a payment, in cash, Common Stock or a combination thereof, in an amount
equal to the excess of (x) the Fair Market Value, or other specified valuation,
of a specified number of shares of Common Stock on the date the right is
exercised over (y) the Fair Market Value, or other specified valuation (which
shall be no less than the Fair Market Value), of such shares of Common Stock on
the date the right is granted, all as determined by the Committee; provided,
however, that if a Stock Appreciation Right is granted retroactively in tandem
with or in substitution for a Stock Option, the designated Fair Market Value in
the award agreement may be the Fair Market Value on the date such Stock Option
was granted. Each Stock Appreciation Right shall be subject to such terms and
conditions as the Committee shall impose from time to time.
8. Stock Awards. The Committee may, in its discretion, grant Stock Awards
(which may include mandatory payment of bonus incentive compensation in stock)
consisting of Common Stock issued or transferred to participants with or without
other payments therefor as additional compensation for services to the Company.
Stock Awards may be subject to such terms and conditions as the
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Committee determines appropriate, including, without limitation, restrictions on
the sale or other disposition of such shares, the right of the Company to
reacquire such shares for no consideration upon termination of the participant's
employment within specified periods, and may constitute Performance-Based
Awards, as described below. The Committee may require the participant to deliver
a duly signed stock power, endorsed in blank, relating to the Common Stock
covered by such an Award. The Committee may also require that the stock
certificates evidencing such shares be held in custody or bear restrictive
legends until the restrictions thereon shall have lapsed. The Stock Award shall
specify whether the participant shall have, with respect to the shares of Common
Stock subject to a Stock Award, all of the rights of a holder of shares of
Common Stock of the Company, including the right to receive dividends and to
vote the shares.
9. Performance Awards. (a) Performance Awards may be granted to
participants at any time and from time to time, as shall be determined by the
Committee. Performance Awards may, as determined by the Committee in its sole
discretion, constitute Performance-Based Awards. The Committee shall have
complete discretion in determining the number, amount and timing of awards
granted to each participant. Such Performance Awards may be in the form of
shares of Common Stock or Stock Units. Performance Awards may be awarded as
short-term or long-term incentives. With respect to those Performance Awards
that are intended to constitute Performance-Based Awards, the Committee shall
set performance targets at its discretion which, depending on the extent to
which they are met, will determine the number and/or value of Performance Awards
that will be paid out to the participants, and may attach to such Performance
Awards one or more restrictions. Performance targets may be based upon, without
limitation, Company-wide, divisional and/or individual performance.
(b) With respect to those Performance Awards that are not intended to
constitute Performance-Based Awards, the Committee shall have the authority at
any time to make adjustments to performance targets for any outstanding
Performance Awards which the Committee deems necessary or desirable unless at
the time of establishment of goals the Committee shall have precluded its
authority to make such adjustments.
(c) Payment of earned Performance Awards shall be made in accordance with
terms and conditions prescribed or authorized by the Committee. The participant
may elect to defer, or the Committee may require or permit the deferral of, the
receipt of Performance Awards upon such terms as the Committee deems
appropriate.
10. Stock Units. (a) The Committee may, in its discretion, grant Stock
Units to participants hereunder. Stock Units may, as determined by the Committee
in its sole discretion, constitute Performance-Based Awards. The Committee shall
determine the criteria for the vesting of Stock Units. A Stock Unit granted by
the Committee shall provide payment in shares of Common Stock at such time as
the award agreement shall specify. Shares of Common Stock issued pursuant to
this Section 10 may be issued with or without other payments therefor as may be
required by applicable law or such other consideration as may be determined by
the Committee. The Committee shall determine whether a participant granted a
Stock Unit shall be entitled to a Dividend Equivalent Right (as defined below).
(b) Upon vesting of a Stock Unit, unless the Committee has determined to
defer payment with respect to such unit or a Participant has elected to defer
payment under subsection (c) below, shares of Common Stock representing the
Stock Units shall be distributed to the participant unless the Committee, with
the consent of the participant, provides for the payment of the Stock Units in
cash or partly in cash and partly in shares of Common Stock equal to the value
of the shares of Common Stock which would otherwise be distributed to the
participant.
(c) Prior to the year with respect to which a Stock Unit may vest, the
participant may elect not to receive Common Stock upon the vesting of such Stock
Unit and for the Company to continue to maintain the Stock Unit on its books of
account. In such event, the value of a Stock Unit shall be payable in shares of
Common Stock pursuant to the agreement of deferral.
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(d) A "Stock Unit" means a notational account representing one share of
Common Stock. A "Dividend Equivalent Right" means the right to receive the
amount of any dividend paid on the share of Common Stock underlying a Stock
Unit, which shall be payable in cash or in the form of additional Stock Units.
11. Performance-Based Awards. Certain Benefits granted under the Plan may
be granted in a manner such that the Benefits qualify for the performance-based
compensation exemption of Section 162(m) of the Code ("Performance-Based
Awards"). As determined by the Committee in its sole discretion, either the
granting or vesting of such Performance-Based Awards is to be based upon one or
more of the following factors: net sales, pretax income before allocation of
corporate overhead and bonus, budget, earnings per share, net income, division,
group or corporate financial goals, return on stockholders' equity, return on
assets, attainment of strategic and operational initiatives, appreciation in
and/or maintenance of the price of the Common Stock or any other publicly-traded
securities of the Company, market share, gross profits, earnings before interest
and taxes, earnings before interest, taxes, dividends and amortization, economic
value-added models and comparisons with various stock market indices, reductions
in costs or any combination of the foregoing. With respect to Performance-Based
Awards, (i) the Committee shall establish in writing (x) the objective
performance-based goals applicable to a given period and (y) the individual
employees or class of employees to which such performance-based goals apply no
later than 90 days after the commencement of such period (but in no event after
25% of such period has elapsed) and (ii) no Performance-Based Awards shall be
payable to or vest with respect to, as the case may be, any participant for a
given period until the Committee certifies in writing that the objective
performance goals (and any other material terms) applicable to such period have
been satisfied. With respect to any Benefits intended to qualify as
Performance-Based Awards, after establishment of a performance goal, the
Committee shall not revise such performance goal or increase the amount of
compensation payable thereunder (as determined in accordance with Section 162(m)
of the Code) upon the attainment of such performance goal. Notwithstanding the
preceding sentence, the Committee may reduce or eliminate the number of shares
of Common Stock or cash granted or the number of shares of Common Stock vested
upon the attainment of such performance goal.
12. Adjustment Provisions; Change in Control. (a) If there shall be any
change in the Common Stock of the Company, through merger, consolidation,
reorganization, recapitalization, stock dividend, stock split, reverse stock
split, split up, spinoff, combination of shares, exchange of shares, dividend in
kind or other like change in capital structure or distribution (other than
normal cash dividends) to stockholders of the Company, an adjustment shall be
made to each outstanding Stock Option and Stock Appreciation Right such that
each such Stock Option and Stock Appreciation Right shall thereafter be
exercisable for such securities, cash and/or other property as would have been
received in respect of the Common Stock subject to such Stock Option or Stock
Appreciation Right had such Stock Option or Stock Appreciation Right been
exercised in full immediately prior to such change or distribution, and such an
adjustment shall be made successively each time any such change shall occur. In
addition, in the event of any such change or distribution, in order to prevent
dilution or enlargement of participants' rights under the Plan, the Committee
will have authority to adjust, in an equitable manner, the number and kind of
shares that may be issued under the Plan, the exercisability and vesting
pensions of such Benefits, the number and kind of shares subject to outstanding
Benefits, the exercise price applicable to outstanding Benefits, and the Fair
Market Value of the Common Stock and other value determinations applicable to
outstanding Benefits. Appropriate adjustments may also be made by the Committee
in the terms of any Benefits under the Plan to reflect such changes or
distributions and to modify any other terms of outstanding Benefits on an
equitable basis, including modifications of performance targets and changes in
the length of performance periods. In addition, other than with respect to Stock
Options, Stock Appreciation Rights and other awards intended to constitute
Performance-Based Awards, the Committee is authorized to make adjustments to the
terms and conditions of, and the criteria included in, Benefits in recognition
of unusual or nonrecurring events affecting the Company or the
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financial statements of the Company, or in response to changes in applicable
laws, regulations, or accounting principles. Notwithstanding the foregoing, (i)
any adjustment with respect to an Incentive Stock Option shall comply with the
rules of Section 424(a) of the Code, and (ii) in no event shall any adjustment
be made which would render any Incentive Stock Option granted hereunder other
than an incentive stock option for purposes of Section 422 of the Code.
(b) In the event of a Change in Control (as defined below), the Committee,
in its discretion, may take such actions as it deems appropriate with respect to
outstanding Benefits, including, without limitation, accelerating the
exercisability or vesting of such Benefits.
The Committee, in its discretion, may determine that, upon the occurrence
of a Change in Control of the Company, each Stock Option and Stock Appreciation
Right outstanding hereunder shall terminate within a specified number of days
after notice to the holder, and such holder shall receive, with respect to each
share of Common Stock subject to such Stock Option or Stock Appreciation Right,
an amount equal to the excess of the Fair Market Value of such shares of Common
Stock immediately prior to the occurrence of such Change in Control over the
exercise price per share of such Stock Option or Stock Appreciation Right; such
amount to be payable in cash, in one or more kinds of property (including the
property, if any, payable in the transaction) or in a combination thereof, as
the Committee, in its discretion, shall determine.
For purposes of this Section 12(b), a "Change in Control" of the Company
shall be deemed to have occurred upon any of the following events:
(A) A person or entity or group of persons or entities, acting in
concert, shall become the direct or indirect beneficial owner (within the
meaning of Rule 13d-3 of the Exchange Act) of securities of the Company
representing fifty-one percent (51%) or more of the combined voting power
of the issued and outstanding common stock of the Company (a "Significant
Owner"), unless such shares are originally issued to such Significant Owner
by the Company; or
(B) The majority of the Company's Board of Directors is no longer
comprised of the incumbent directors who constitute the Board of Directors
on the Effective Date (as hereinafter defined) and any other individual(s)
who becomes a director subsequent to the Effective Date whose initial
election or nomination for election as a director, as the case may be, was
approved by at least a majority of the directors who comprised the
incumbent directors as of the date of such election or nomination; or
(C) A sale of all or substantially all of the assets of the Company; or
(D) The Board of Directors shall approve any merger, consolidation, or
like business combination or reorganization of the Company, the
consummation of which would result in the occurrence of any event described
in clause (C) above, and such transaction shall have been consummated.
13. Transferability. Each Benefit granted under the Plan to a participant
shall not be
transferable otherwise than by will or the laws of descent and distribution, and
shall be exercisable, during the participant's lifetime, only by the
participant. In the event of the death of a participant, each Stock Option or
Stock Appreciation Right theretofore granted to him or her shall be exercisable
during such period after his or her death as the Committee shall in its
discretion set forth in such option or right at the date of grant and then only
by the executor or administrator of the estate of the deceased participant or
the person or persons to whom the deceased participant's rights under the Stock
Option or Stock Appreciation Right shall pass by will or the laws of descent and
distribution. Notwithstanding the foregoing, at the discretion of the Committee,
an award of a Benefit other than an Incentive Stock Option may permit the
transferability of a Benefit by a participant solely to the participant's
spouse, siblings, parents, children and grandchildren or trusts for the benefit
of such persons or partnerships, corporations, limited liability companies or
other entities owned solely by such persons, including trusts for such persons,
subject to any restriction included in the award of the Benefit.
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14. Other Provisions. The award of any Benefit under the Plan may also be
subject to such other provisions (whether or not applicable to the Benefit
awarded to any other participant) as the Committee determines, at the date of
grant, appropriate, including, without limitation, for the installment purchase
of Common Stock under Stock Options, for the installment exercise of Stock
Appreciation Rights, to assist the participant in financing the acquisition of
Common Stock, for the forfeiture of, or restrictions on resale or other
disposition of, Common Stock acquired under any form of Benefit, for the
acceleration of exercisability or vesting of Benefits in the event of a change
in control of the Company, for the payment of the value of Benefits to
participants in the event of a change in control of the Company, or to comply
with federal and state securities laws, or understandings or conditions as to
the participant's employment in addition to those specifically provided for
under the Plan.
15. Fair Market Value. For purposes of this Plan and any Benefits awarded
hereunder, Fair Market Value shall be the closing price of the Company's Common
Stock on the date of calculation (or on the last preceding trading date if
Common Stock was not traded on such date) if the Company's Common Stock is
readily tradeable on a national securities exchange or other market system, and
if the Company's Common Stock is not readily tradeable, Fair Market Value shall
mean the amount determined in good faith by the Committee as the fair market
value of the Common Stock of the Company.
16. Withholding. All payments or distributions of Benefits made pursuant
to the Plan shall be net of any amounts required to be withheld pursuant to
applicable federal, state and local tax withholding requirements. If the Company
proposes or is required to distribute Common Stock pursuant to the Plan, it may
require the recipient to remit to it or to the corporation that employs such
recipient an amount sufficient to satisfy such tax withholding requirements
prior to the delivery of any certificates for such Common Stock. In lieu
thereof, the Company or the employing corporation shall have the right to
withhold the amount of such taxes from any other sums due or to become due from
such corporation to the recipient as the Committee shall prescribe. The
Committee may, in its discretion and subject to such rules as it may adopt
(including any as may be required to satisfy applicable tax and/or non-tax
regulatory requirements), permit an optionee or award or right holder to pay all
or a portion of the federal, state and local withholding taxes arising in
connection with any Benefit consisting of shares of Common Stock by electing to
have the Company withhold shares of Common Stock having a Fair Market Value
equal to the amount of tax to be withheld, such tax calculated at rates required
by statute or regulation.
17. Tenure. A participant's right, if any, to continue to serve the
Company as a director, officer, employee, or otherwise, shall not be enlarged or
otherwise affected by his or her designation as a participant under the Plan.
18. Unfunded Plan. Participants shall have no right, title, or interest
whatsoever in or to any investments which the Company may make to aid it in
meeting its obligations under the Plan. Nothing contained in the Plan, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and any
participant, beneficiary, legal representative or any other person. To the
extent that any person acquires a right to receive payments from the Company
under the Plan, such right shall be no greater than the right of an unsecured
general creditor of the Company. All payments to be made hereunder shall be paid
from the general funds of the Company and no special or separate fund shall be
established and no segregation of assets shall be made to assure payment of such
amounts except as expressly set forth in the Plan. The Plan is not intended to
be subject to the Employee Retirement Income Security Act of 1974, as amended.
19. No Fractional Shares. No fractional shares of Common Stock shall be
issued or delivered pursuant to the Plan or any Benefit. The Committee shall
determine whether cash, or Benefits, or other property shall be issued or paid
in lieu of fractional shares or whether such fractional shares or any rights
thereto shall be forfeited or otherwise eliminated.
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20. Duration, Amendment and Termination. No Benefit shall be granted more
than ten years after the Effective Date; provided, however, that the terms and
conditions applicable to any Benefit granted prior to such date may thereafter
be amended or modified by mutual agreement between the Company and the
participant or such other persons as may then have an interest therein. The
Committee may amend the Plan from time to time or suspend or terminate the Plan
at any time. However, no action authorized by this Section 20 shall reduce the
amount of any existing Benefit or change the terms and conditions thereof
without the participant's consent. No amendment of the Plan shall, without
approval of the stockholders of the Company, (i) increase the total number of
shares which may be issued under the Plan or the maximum number of shares with
respect to Stock Options, Stock Appreciation Rights and other Benefits that may
be granted to any individual under the Plan or (ii) modify the requirements as
to eligibility for Benefits under the Plan; provided, however, that no amendment
may be made without approval of the stockholders of the Company if the amendment
will disqualify any Incentive Stock Options granted hereunder.
21. Governing Law. This Plan, Benefits granted hereunder and actions taken
in connection herewith shall be governed and construed in accordance with the
laws of the State of Delaware (regardless of the law that might otherwise govern
under applicable Delaware principles of conflict of laws).
22. Effective Date. (a) The Plan shall be effective as of February 13,
1997, the date on which the Plan was adopted by the Committee (the "Effective
Date"), provided that the Plan is approved by the stockholders of the Company at
an annual meeting or any special meeting of stockholders of the Company within
12 months of the Effective Date, and such approval of stockholders shall be a
condition to the right of each participant to receive any Benefits hereunder.
Any Benefits granted under the Plan prior to such approval of stockholders shall
be effective as of the date of grant (unless, with respect to any Benefit, the
Committee specifies otherwise at the time of grant), but no such Benefit may be
exercised or settled and no restrictions relating to any Benefit may lapse prior
to such stockholder approval, and if stockholders fail to approve the Plan as
specified hereunder, any such Benefit shall be cancelled.
(b) This Plan shall terminate on February 13, 2007 (unless sooner
terminated by the Committee).
27
<PAGE> 30
Notice of 1997
Annual Meeting
and Proxy
Statement
- --------------------------------------------------------------------------------
AVATAR
HOLDINGS INC.
<PAGE> 31
PROXY
AVATAR HOLDINGS INC.
255 ALHAMBRA CIRCLE
CORAL GABLES, FLORIDA 33134
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Edwin Jacobson and Juanita I. Kerrigan
as Proxies, each with the power to appoint his or her substitute; and hereby
authorizes them to represent and vote, as designated on the reverse side, all
the shares of Common Stock of Avatar Holdings Inc. held of record by the
undersigned at the close of business on March 31, 1997 at the Annual Meeting
of Stockholders to be held on May 29, 1997, or any adjournment or adjournments
thereof.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED
ENVELOPE.
<TABLE>
<S> <C>
Please mark
your votes /X/
as indicated
in this example
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR ITEMS 1, 2 AND 3.
FOR all nominees listed at left (except WITHHOLD AUTHORITY
as marked to the contrary below). to vote for all nominees listed.
Item 1 - ELECTION OF NINE DIRECTORS
Nominees: L. Levy, M. Dresner, E. Jacobson,
G.D. Kelfer, L.T. Kendall, M. Meyerson, / / / /
K.T. Rosen, F.S. Smith, H.K. Stanford.
(INSTRUCTION: To withhold authority to vote for any individual nominee write that nominee's name in the space provided below.)
- ------------------------------------------------------------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
Item 2 - APPROVAL OF THE
AVATAR HOLDINGS INC. 1997
INCENTIVE AND CAPITAL
ACCUMULATION PLAN. / / / / / /
Item 3 - APPROVAL OF THE
APPOINTMENT OF
ERNST & YOUNG, LLP,
INDEPENDENT / / / / / /
ACCOUNTANTS,
AS AUDITORS OF
AVATAR HOLDINGS INC.
FOR 1997.
Item 4 - IN THEIR DISCRETION
THE PROXIES
ARE AUTHORIZED
TO VOTE UPON
SUCH OTHER BUSINESS / / / / / /
AS MAY PROPERLY COME
BEFORE THE MEETING.
Date: , 1997
----------------------------------------------------------------
- ----------------------------------------------------------------------------
(Signature)
- ----------------------------------------------------------------------------
(Signature if held jointly)
Please sign exactly as name appears. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
</TABLE>
