e424b5
The
information contained in this preliminary prospectus supplement
is not complete and may be changed. A registration statement
relating to these securities has been declared effective by the
Securities and Exchange Commission. This preliminary prospectus
supplement and the accompanying prospectus are not an offer to
sell these securities and they are not soliciting an offer to
buy these securities in any jurisdiction where the offer or sale
of these securities is not permitted.
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Filed Pursuant to
Rule 424(b)(5)
Registration
No. 333-171349
Subject to
completion, dated January 31, 2011
Preliminary prospectus
supplement to prospectus dated January 28, 2011
$50,000,000
Hovnanian Enterprises,
Inc.
Shares,
Class A common stock
$ per share
We are
offering shares
of our Class A Common Stock for a total price to public of
approximately $50,000,000.
Our Class A Common Stock is traded on the New York Stock
Exchange under the symbol HOV. On January 28,
2011, the last reported sales price of our Class A Common
Stock was $4.56 per share. We have granted the underwriters an
option to purchase up
to
additional shares of Class A Common Stock to cover
over-allotments, if any, for a total price to public of
$7,500,000.
Class A common stockholders will be subject to both our
Rights Plan and the transfer restrictions of our amended
Certificate of Incorporation. See Limitation on beneficial
ownership of Class A Common Stock in this prospectus
supplement.
Concurrently with this offering of Class A Common Stock,
pursuant to separate prospectus supplements, we are offering
$150.0 million aggregate principal amount of Senior Notes
due 2015 and 3,000,000 % tangible
equity units (or 3,450,000 %
tangible equity units if the underwriters exercise their
over-allotment option in full), each with a stated amount of
$25. The completion of this offering is not contingent on the
completion of the offerings of the senior notes or the tangible
equity units, and the completion of the offerings of the senior
notes and tangible equity units are not contingent on the
completion of this offering or each other.
Investing in our Class A Common Stock involves risks.
See Risk Factors beginning on
page S-11.
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Per share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to Hovnanian Enterprises, Inc.
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$
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$
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The underwriters expect to deliver the shares to purchasers on
or
about ,
2011.
Joint book-running managers
J.P. Morgan Credit Suisse BofA
Merrill Lynch Citi
Co-manager
Wells Fargo
Securities
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these
securities or determined if this prospectus supplement or the
accompanying prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this prospectus
is ,
2011.
We have not authorized anyone to provide you with any
information other than that contained in this prospectus
supplement, the accompanying prospectus, any free writing
prospectus prepared by or on behalf of us and the documents
incorporated by reference herein. We take no responsibility for,
and can provide no assurance as to the reliability of, any other
information that others may give you. This prospectus supplement
and the accompanying prospectus may only be used where it is
legal to sell these securities. The information in this
prospectus supplement and the accompanying prospectus may only
be accurate on the date of this prospectus supplement or such
incorporated document.
Table of
contents
Prospectus
supplement
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Page
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S-1
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S-11
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S-25
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S-26
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S-29
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S-30
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S-33
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S-36
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S-37
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S-42
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S-42
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S-42
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S-42
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Prospectus dated
January 28, 2011
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Page
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About this prospectus
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1
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Forward-looking statements
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1
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Available information
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2
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Incorporation of certain documents by reference
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3
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The company
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3
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Risk factors
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4
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Ratios of earnings to fixed charges and earnings to combined
fixed charges and preferred stock dividends
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4
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Use of proceeds
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5
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Description of debt securities
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5
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Description of capital stock
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17
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Description of depositary shares
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20
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Description of stock purchase contracts and stock purchase units
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24
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Description of units
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24
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Description of warrants
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24
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Plan of distribution
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25
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Legal matters
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26
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Experts
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27
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S-i
About this
prospectus supplement
This prospectus supplement is part of a registration statement
that we have filed with the Securities and Exchange Commission
(SEC) utilizing a shelf registration
process. Under this shelf process, we are offering to sell the
securities described in this prospectus supplement, using this
prospectus supplement and the accompanying prospectus. When we
refer to prospectus we are referring to both this
prospectus supplement as well as the accompanying prospectus.
This prospectus supplement describes the specific terms of this
offering. The accompanying prospectus and the information
incorporated by reference therein describes our business and
gives more general information, some of which may not apply to
this offering. You should read this prospectus supplement
together with the accompanying prospectus, including the
documents incorporated by reference therein and herein, before
making an investment in the securities offered by this
prospectus supplement. If the information in this prospectus
supplement or the information incorporated by reference in this
prospectus supplement is inconsistent with the accompanying
prospectus, the information in this prospectus supplement or the
information incorporated by reference in this prospectus
supplement will apply and will supersede that information in the
accompanying prospectus.
Unless the context otherwise requires, all references in this
prospectus supplement to Hovnanian, us,
we, our or Company are to
Hovnanian Enterprises, Inc., a Delaware corporation, together
with its consolidated subsidiaries.
Industry and
market data
We obtained the market and competitive position data used
throughout this prospectus supplement, the accompanying
prospectus and the documents incorporated by reference in this
prospectus supplement and the accompanying prospectus from our
own research, surveys or studies conducted by third parties and
industry or general publications. Industry publications and
surveys generally state that they have obtained information from
sources believed to be reliable, but do not guarantee the
accuracy and completeness of such information. While we believe
that each of these studies and publications is reliable, neither
we nor the underwriters have independently verified such data
and neither we nor the underwriters make any representation as
to the accuracy of such information. Similarly, we believe our
internal research is reliable, but it has not been verified by
any independent sources.
Forward-looking
statements
This prospectus supplement, the accompanying prospectus and the
documents incorporated by reference include
forward-looking statements. Such statements involve
known and unknown risks, uncertainties and other factors that
may cause actual results, performance or achievements of the
Company to be materially different from any future results,
performance or achievements expressed or implied by the
forward-looking statements. Although we believe that our plans,
intentions and expectations reflected in, or suggested by such
forward-looking statements are reasonable, we can give no
assurance that such plans, intentions, or expectations will be
achieved. Such risks, uncertainties and other factors include,
but are not limited to:
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Changes in general and local economic and industry and business
conditions and impacts of the sustained homebuilding downturn;
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S-ii
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Adverse weather and other environmental conditions and natural
disasters;
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Changes in market conditions and seasonality of the
Companys business;
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Changes in home prices and sales activity in the markets where
the Company builds homes;
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Government regulation, including regulations concerning
development of land, the home building, sales and customer
financing processes, tax laws, and the environment;
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Fluctuations in interest rates and the availability of mortgage
financing;
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Shortages in, and price fluctuations of, raw materials and labor;
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The availability and cost of suitable land and improved lots;
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Levels of competition;
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Availability of financing to the Company;
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Utility shortages and outages or rate fluctuations;
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Levels of indebtedness and restrictions on the Companys
operations and activities imposed by the agreements governing
the Companys outstanding indebtedness;
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The Companys sources of liquidity;
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Changes in credit ratings;
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Availability of net operating loss carryforwards;
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Operations through joint ventures with third parties;
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Product liability litigation and warranty claims;
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Successful identification and integration of acquisitions;
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Significant influence of the Companys controlling
stockholders;
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Geopolitical risks, terrorist acts and other acts of
war; and
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Other factors described in detail in our Annual Report on
Form 10-K/A
for the year ended October 31, 2010, and in this prospectus
supplement under Risk Factors.
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All forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety
by the cautionary statements and risk factors contained
throughout this prospectus. Except as otherwise required by
applicable securities laws, we undertake no obligation to
publicly update or revise any forward-looking statements,
whether as a result of new information, future events, changed
circumstances or any other reason.
S-iii
Summary
The following summary contains information about Hovnanian
and the offering of the Class A Common Stock. It does not
contain all of the information that may be important to you in
making a decision to purchase the Class A Common Stock. For
a more complete understanding of Hovnanian and the offering of
the Class A Common Stock, we urge you to read this entire
prospectus supplement, the accompanying prospectus and the
documents incorporated by reference carefully, including the
Risk Factors sections and our financial statements
and the notes to those statements incorporated by reference
herein.
Unless otherwise specifically indicated, all information in
this prospectus supplement assumes the underwriters option
to purchase additional shares of Class A Common Stock is
not exercised.
The
company
We design, construct, market, and sell single-family detached
homes, attached townhomes and condominiums, mid-rise
condominiums, urban infill and active adult homes in planned
residential developments and are one of the nations
largest builders of residential homes. Founded in 1959 by Kevork
Hovnanian, Hovnanian Enterprises, Inc. was incorporated in New
Jersey in 1967 and reincorporated in Delaware in 1983. Since the
incorporation of our predecessor company and including
unconsolidated joint ventures, we have delivered in excess of
291,000 homes, including 5,009 homes in fiscal 2010. The Company
consists of two distinct operations: homebuilding and financial
services. Our homebuilding operations consist of six segments:
Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West.
Our financial services operations provide mortgage loans and
title services to the customers of our homebuilding operations.
We are currently, excluding unconsolidated joint ventures,
offering homes for sale in 192 communities in 40 markets in
18 states throughout the United States. Our operations span
all significant aspects of the home-buying processfrom
design, construction, and sale, to mortgage origination and
title services. We market and build homes for first-time buyers,
first-time and second-time
move-up
buyers, luxury buyers, active adult buyers, and empty nesters.
We offer a variety of home styles at base prices ranging from
$34,000 (low income housing) to $1,660,000 with an average sales
price, including options, of $281,000 nationwide in fiscal 2010.
We market and build homes that are constructed in 20 of the
nations top 50 housing markets. We segregate our
homebuilding operations geographically into the following six
segments:
Northeast: New Jersey, New York, and Pennsylvania
Mid-Atlantic: Delaware, Maryland, Virginia, West Virginia,
and Washington, D.C.
Midwest: Illinois, Kentucky, Minnesota, and Ohio
Southeast: Florida, Georgia, North Carolina, and South
Carolina
Southwest: Arizona and Texas
West: California
Our corporate offices are located at 110 West Front Street,
P.O. Box 500, Red Bank, New Jersey 07701,
our telephone number is
732-747-7800,
and our Internet web site address is
S-1
www.khov.com. Information on or accessible through our website
is not a part of, or incorporated by reference in, this
prospectus.
Business
strategies
Due to the progressive weakening of demand in our homebuilding
markets over the past several years, we have experienced
declines in revenues and gross profit, sustained significant
asset impairment charges, and incurred losses before income
taxes in fiscal 2007, 2008, 2009, and 2010. Although the timing
of a recovery in the housing market is unclear, because certain
long-term fundamentals which support housing demand, namely
population growth and household formation, remain solid, we
believe the current negative conditions will moderate over time.
Consequently, our primary focus while market conditions have
been weak over the past several years has been to strengthen our
financial condition by reducing inventories of homes and land,
controlling and reducing construction and overhead costs,
maximizing cash flows, reducing outstanding debt, and
maintaining strong liquidity. However, in the first quarter of
2009, we began to see opportunities to purchase land at prices
and terms that make economic sense in light of our sales prices
and sales paces. As a result, we determined to either purchase
or option certain new properties. In order to return to
profitability, we will need to continue purchasing new land and
that will generate good investment returns and drive greater
operating efficiencies, as well as control expenses commensurate
with our level of deliveries.
In addition to our current focus on maintaining strong liquidity
and evaluating new investment opportunities, we will continue to
focus on our historic key business strategies. We believe that
these strategies separate us from our competitors in the
residential homebuilding industry and the adoption,
implementation, and adherence to these principles will continue
to benefit our business.
Our goal is to become a significant builder in each of the
selected markets in which we operate, which will enable us to
achieve powers and economies of scale and differentiate
ourselves from most of our competitors.
We offer a broad product array to provide housing to a
wide range of customers. Our customers consist of
first-time buyers, first-time and second-time
move-up
buyers, luxury buyers, active adult buyers, and empty nesters.
Our diverse product array includes single-family detached homes,
attached townhomes and condominiums, mid-rise condominiums,
urban infill, and active adult homes.
We are committed to customer satisfaction and quality in
the homes that we build. We recognize that our
future success rests in the ability to deliver quality homes to
satisfied customers. We seek to expand our commitment to
customer service through a variety of quality initiatives. In
addition, our focus remains on attracting and developing quality
associates. We use several leadership development and mentoring
programs to identify key individuals and prepare them for
positions of greater responsibility within our Company.
We focus on achieving high return on invested
capital. Each new community is evaluated based on
its ability to meet or exceed internal rate of return
requirements. Our belief is that the best way to create lasting
value for our shareholders is through a strong focus on return
on invested capital. However, given market conditions during the
downturn, until 2009, it had been difficult to find new land
investments that meet or exceed these rate of return
requirements. Therefore, we have focused on managing the balance
sheet by selling through our currently owned inventory and
conserving cash to be prepared to invest in new land when market
conditions are
S-2
right. Since the first quarter of fiscal 2009, we have begun to
see land investment opportunities that meet or exceed our
underwriting requirements. New land purchases at pricing that
will generate good investment returns are needed to return to
profitability.
We utilize a risk-averse land strategy. We
attempt to acquire land with a minimum cash investment and
negotiate takedown options, thereby limiting the financial
exposure to the amounts invested in property and predevelopment
costs. This policy significantly reduces our risk and generally
allows us to obtain necessary development approvals before
acquisition of the land.
We enter into homebuilding and land development joint
ventures from time to time as a means of controlling lot
positions, expanding our market opportunities, establishing
strategic alliances, reducing our risk profile, leveraging our
capital base, and enhancing our returns on
capital. Our homebuilding joint ventures are
generally entered into with third-party investors to develop
land and construct homes that are sold directly to homebuyers.
Our land development joint ventures include those with
developers and other homebuilders, as well as financial
investors to develop finished lots for sale to the joint
ventures members or other third parties.
We manage our financial services operations to better
serve all of our homebuyers. Our current mortgage
financing and title service operations enhance our contact with
customers and allow us to coordinate the home-buying experience
from beginning to end.
Related
transactions
Concurrent
offerings
Concurrently with this offering, pursuant to a separate
prospectus supplement, we are offering $150.0 million
aggregate principal amount of our Senior Notes due 2015, in an
underwritten public offering (the Notes Offering).
We estimate that the net proceeds of the Notes Offering, after
deducting the underwriting discount and estimated offering
expenses, will be approximately $147.0 million, although
there can be no assurance that the Notes Offering will be
completed.
Concurrently with this offering, pursuant to a separate
prospectus supplement, we are also offering
3,000,000 % tangible equity units
(or 3,450,000 % tangible equity
units if the underwriters exercise their over-allotment option
with respect to that offering in full) (the Units),
each with a stated amount of $25, in an underwritten public
offering (the Units Offering and together with the
Notes Offering, the Concurrent Offerings). We
estimate that the net proceeds of the Units Offering, after
deducting the underwriting discount and estimated offering
expenses will be approximately $72.5 million (or
approximately $83.4 million if the underwriters exercise
their over-allotment option with respect to that offering in
full), although there can be no assurance that the Units
Offering will be completed.
Completion of this offering is not contingent on the completion
of either of the Concurrent Offerings and neither of the
Concurrent Offerings is contingent on the completion of the
other Concurrent Offering or this offering.
Tender offers and
redemptions
On or about the date of this prospectus supplement, we intend to
commence (i) a cash tender offer (the 2012 Senior
Notes Tender Offer) for any and all of the approximately
$35.5 million outstanding aggregate principal amount of our
8% Senior Notes due 2012 (the 2012 Senior
S-3
Notes), (ii) a cash tender offer (the 2012
Senior Subordinated Notes Tender Offer) for any and all of
the approximately $66.6 million outstanding aggregate
principal amount of our 8.875% Senior Subordinated Notes
due 2012 (the 2012 Senior Subordinated Notes), and
(iii) a cash tender offer (the 2013 Notes Tender
Offer and together with the 2012 Senior Notes Tender Offer
and the 2012 Senior Subordinated Notes Tender Offer, the
Tender Offers ) for any and all of the approximately
$53.5 million outstanding aggregate principal amount of our
73/4% Senior
Subordinated Notes due 2013 (the 2013 Notes and
together with the 2012 Senior Notes and the 2012 Senior
Subordinated Notes, the Tender Offer Notes). The
consummation of each of the Tender Offers is conditioned upon
the satisfaction, or waiver by us, of certain conditions,
including the receipt of aggregate net cash proceeds from this
offering and the Concurrent Offerings sufficient to finance the
payment of the consideration to holders of the Tender Offer
Notes that participate in the Tender Offers. Neither completion
of this offering nor the Concurrent Offerings is conditioned
upon completion of the Tender Offers.
All of the Tender Offer Notes are currently redeemable at our
option and we currently expect that we will exercise our right
to optionally redeem any and all Tender Offer Notes that have
not been accepted and paid for in the Tender Offers (the
Redemptions) at a price equal to 100% of the
principal amount thereof, plus accrued unpaid interest to the
redemption date, in the case of the 2012 Senior Notes and 2012
Senior Subordinated Notes, and a price equal to 101.292% of the
principal amount thereof, plus accrued and unpaid interest, in
the case of the 2013 Notes.
We intend to finance the Tender Offers
and/or the
Redemptions with a portion of the net proceeds of this offering
and the Concurrent Offerings. The remaining net proceeds will be
used for general corporate purposes. Credit Suisse Securities
(USA) LLC will serve as dealer manager for the Tender Offers.
S-4
The
offering
The following summary is not intended to be complete. For a more
detailed description of our Class A Common Stock, see
Description of Capital Stock in the accompanying
prospectus.
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Class A Common Stock offered by us
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shares(1)(2)
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Class A Common Stock outstanding after this offering
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shares(1)(3)
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Class B Common Stock outstanding
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14,564,421 shares(4)
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Voting rights
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Each share of Class A Common Stock entitles its holder to one
vote per share. Holders of Class B Common Stock are generally
entitled to ten votes per share.
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Use of Proceeds
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We estimate that the net proceeds to us from this offering,
after deducting underwriting discounts and commissions and
estimated expenses of the offering, will be approximately
$47.2 million (or approximately $54.3 million if the
underwriters exercise their over-allotment option in full). We
intend to use the net proceeds of this offering, together with
the net proceeds from the Concurrent Offerings to finance the
Tender Offers and/or the Redemptions, and for general corporate
purposes. See Related Transactions above and
Use of Proceeds.
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Risk Factors
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See Risk Factors beginning on
page S-11
of this prospectus supplement for a discussion of risks you
should carefully consider before deciding to invest in the Class
A Common Stock.
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Limitation on beneficial ownership
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Class A common stockholders will be subject to both our Rights
Plan and the transfer restrictions of our amended Certificate of
Incorporation. See Limitation on beneficial ownership of
Class A Common Stock in this prospectus supplement and
Description of Capital StockRights Plan in the
accompanying prospectus for more information.
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New York Stock Exchange Symbol
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HOV
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(1)
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Does not include the exercise of
the underwriters over-allotment option.
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(2)
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Each share of Class A Common
Stock will be issued with an associated Preferred Stock Purchase
Right. Each Preferred Stock Purchase Right initially represents
the right, if such Preferred Stock Purchase Right becomes
exercisable, to purchase from Hovnanian one ten-thousandth of a
share of its Series B Junior Preferred Stock for each share
of Class A Common Stock. The Preferred Stock Purchase
Rights initially will trade together with the Class A
Common Stock. See Description of Capital StockRights
Plan in the accompanying prospectus.
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(3)
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The number of shares of
Class A Common Stock outstanding after the offering is
based upon 63,494,586 shares outstanding as of
January 18, 2011 and excludes up to 4,790,921 shares
of Class A Common Stock issuable upon the exercise of
options
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S-5
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outstanding as of January 18,
2011 of which 2,418,661 options are immediately exercisable at a
weighted average price of $10.16 and up to 105,950 shares
of Class A Common Stock that will become unrestricted
shares upon vesting.
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(4)
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Outstanding as of January 18,
2011. There is no established public trading market for our
Class B Common Stock and in order to trade Class B
Common Stock, the shares must be converted into Class A
Common Stock on a
one-for-one
basis. The number of shares of Class B Common Stock
outstanding excludes up to 1,500,000 shares of Class B
Common Stock issuable upon the exercise of options outstanding
as of January 18, 2011 of which 93,750 options are
immediately exercisable at a weighted average price of $4.07.
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S-6
Summary financial
information
The following table presents summary historical consolidated
financial and other data of Hovnanian Enterprises, Inc. and
subsidiaries as of and for the years ended October 31,
2010, 2009, 2008, 2007 and 2006. We derived the summary
consolidated statement of operations and other data for the
years ended October 31, 2010, 2009, 2008, and the summary
consolidated balance sheet data as of October 31 2010 and 2009
from Hovnanians audited consolidated financial statements
incorporated by reference herein. The summary consolidated
statement of operations and other data for the years ended
October 31, 2007 and 2006 and the summary consolidated
balance sheet data as of October 31, 2008, 2007 and 2006
have been derived from Hovnanians audited consolidated
financial statements not incorporated by reference herein. You
should read this data in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations incorporated by
reference herein and our consolidated financial statements and
related notes for the three years ended October 31, 2010,
incorporated by reference herein.
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Year ended
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October 31,
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October 31,
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October 31,
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October 31,
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October 31,
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(Dollars in thousands, except
per share data)
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2010
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2009
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2008
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2007
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2006
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Statement of operations and other data
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Revenues
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$
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1,371,842
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$
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1,596,290
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$
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3,308,111
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$
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4,798,921
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$
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6,148,235
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Inventory impairment loss and land option write-offs
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$
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135,699
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$
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659,475
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$
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710,120
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$
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457,773
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$
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336,204
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Gain on extinguishment of debt
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$
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25,047
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$
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410,185
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Income (loss) from unconsolidated joint ventures
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$
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956
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$
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(46,041
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)
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$
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(36,600
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$
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(28,223
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)
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$
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15,385
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|
(Loss) income before income taxes excluding land-related
charges, intangible impairments and gain on extinguishment of
debt(l)
|
|
$
|
(184,630
|
)
|
|
$
|
(379,118
|
)
|
|
$
|
(391,323
|
)
|
|
$
|
(20,887
|
)
|
|
$
|
581,360
|
|
(Loss) income before income taxes
|
|
$
|
(295,282
|
)
|
|
$
|
(672,019
|
)
|
|
$
|
(1,168,048
|
)
|
|
$
|
(646,966
|
)
|
|
$
|
233,106
|
|
State and Federal income tax (benefit) provision
|
|
|
(297,870
|
)
|
|
|
44,693
|
|
|
|
(43,458
|
)
|
|
|
(19,847
|
)
|
|
|
83,573
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
2,588
|
|
|
|
(716,712
|
)
|
|
|
(1,124,590
|
)
|
|
|
(627,119
|
)
|
|
|
149,533
|
|
Less: preferred stock dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,674
|
|
|
|
10,675
|
|
|
|
|
|
|
|
Net income (loss) attributable to common stockholders
|
|
$
|
2,588
|
|
|
$
|
(716,712
|
)
|
|
$
|
(1,124,590
|
)
|
|
$
|
(637,793
|
)
|
|
$
|
138,858
|
|
|
|
|
|
|
|
Per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share
|
|
$
|
0.03
|
|
|
$
|
(9.16
|
)
|
|
$
|
(16.04
|
)
|
|
$
|
(10.11
|
)
|
|
$
|
2.21
|
|
Weighted average number of common shares outstanding
|
|
|
78,691
|
|
|
|
78,238
|
|
|
|
70,131
|
|
|
|
63,079
|
|
|
|
62,822
|
|
Assuming dilution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share
|
|
$
|
0.03
|
|
|
$
|
(9.16
|
)
|
|
$
|
(16.04
|
)
|
|
$
|
(10.11
|
)
|
|
$
|
2.14
|
|
Weighted average number of common shares outstanding
|
|
|
79,683
|
|
|
|
78,238
|
|
|
|
70,131
|
|
|
|
63,079
|
|
|
|
64,838
|
|
|
|
S-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Consolidated balance sheet data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,817,560
|
|
|
$
|
2,024,577
|
|
|
$
|
3,637,322
|
|
|
$
|
4,540,548
|
|
|
$
|
5,480,035
|
|
Mortgages, term loans, revolving credit agreements, and notes
payable
|
|
$
|
98,613
|
|
|
$
|
77,364
|
|
|
$
|
107,913
|
|
|
$
|
410,298
|
|
|
$
|
319,943
|
|
Senior secured notes, senior notes and senior subordinated notes
|
|
$
|
1,616,347
|
|
|
$
|
1,751,701
|
|
|
$
|
2,505,805
|
|
|
$
|
1,910,600
|
|
|
$
|
2,049,778
|
|
Total equity deficit
|
|
$
|
(337,938
|
)
|
|
$
|
(348,868
|
)
|
|
$
|
330,264
|
|
|
$
|
1,321,803
|
|
|
$
|
1,942,163
|
|
|
|
S-8
Important indicators of our future results are recently signed
contracts and home contract backlog for future deliveries. Our
sales contracts and homes in contract backlog, which primarily
use base sales prices by segment, are set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net contracts(2)
|
|
|
|
|
|
|
for the year
|
|
|
Contract backlog as of
|
|
|
|
ended October 31,
|
|
|
October 31,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Northeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
193,826
|
|
|
$
|
350,515
|
|
|
$
|
381,401
|
|
|
$
|
94,363
|
|
|
$
|
196,262
|
|
|
$
|
215,604
|
|
Homes
|
|
|
497
|
|
|
|
783
|
|
|
|
934
|
|
|
|
236
|
|
|
|
457
|
|
|
|
497
|
|
Mid-Atlantic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
236,095
|
|
|
$
|
281,194
|
|
|
$
|
313,405
|
|
|
$
|
106,589
|
|
|
$
|
150,819
|
|
|
$
|
165,871
|
|
Homes
|
|
|
629
|
|
|
|
789
|
|
|
|
880
|
|
|
|
262
|
|
|
|
386
|
|
|
|
385
|
|
Midwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
72,347
|
|
|
$
|
95,764
|
|
|
$
|
106,887
|
|
|
$
|
34,188
|
|
|
$
|
46,418
|
|
|
$
|
61,108
|
|
Homes
|
|
|
408
|
|
|
|
482
|
|
|
|
497
|
|
|
|
222
|
|
|
|
253
|
|
|
|
291
|
|
Southeast:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
76,799
|
|
|
$
|
103,173
|
|
|
$
|
132,245
|
|
|
$
|
20,212
|
|
|
$
|
35,970
|
|
|
$
|
45,657
|
|
Homes
|
|
|
331
|
|
|
|
461
|
|
|
|
584
|
|
|
|
82
|
|
|
|
135
|
|
|
|
163
|
|
Southwest:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
393,943
|
|
|
$
|
377,292
|
|
|
$
|
518,565
|
|
|
$
|
88,123
|
|
|
$
|
77,418
|
|
|
$
|
100,305
|
|
Homes
|
|
|
1,753
|
|
|
|
1,798
|
|
|
|
2,285
|
|
|
|
337
|
|
|
|
351
|
|
|
|
420
|
|
West:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
144,782
|
|
|
$
|
220,369
|
|
|
$
|
421,292
|
|
|
$
|
27,304
|
|
|
$
|
52,666
|
|
|
$
|
57,642
|
|
Homes
|
|
|
588
|
|
|
|
914
|
|
|
|
1,366
|
|
|
|
110
|
|
|
|
190
|
|
|
|
151
|
|
Consolidated total:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
1,117,792
|
|
|
$
|
1,428,307
|
|
|
$
|
1,873,795
|
|
|
$
|
370,779
|
|
|
$
|
559,553
|
|
|
$
|
646,187
|
|
Homes
|
|
|
4,206
|
|
|
|
5,227
|
|
|
|
6,546
|
|
|
|
1,249
|
|
|
|
1,772
|
|
|
|
1,907
|
|
Unconsolidated joint ventures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
114,740
|
|
|
$
|
56,886
|
|
|
$
|
221,858
|
|
|
$
|
67,112
|
|
|
$
|
88,263
|
|
|
$
|
157,167
|
|
Homes
|
|
|
266
|
|
|
|
193
|
|
|
|
540
|
|
|
|
145
|
|
|
|
159
|
|
|
|
263
|
|
Totals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars
|
|
$
|
1,232,532
|
|
|
$
|
1,485,193
|
|
|
$
|
2,095,653
|
|
|
$
|
437,891
|
|
|
$
|
647,816
|
|
|
$
|
803,354
|
|
Homes
|
|
|
4,472
|
|
|
|
5,420
|
|
|
|
7,086
|
|
|
|
1,394
|
|
|
|
1,931
|
|
|
|
2,170
|
|
|
|
|
|
|
(1)
|
|
(Loss) income before income-taxes
excluding land-related charges, intangible impairments and gain
on extinguishment of debt is not a financial measure calculated
in accordance with U.S. generally accepted accounting principles
(GAAP). The most directly comparable GAAP financial
measure is (Loss) income before income taxes. The reconciliation
of (Loss) income before income taxes excluding land-related
charges, intangible impairments and gain on extinguishment of
debt to (Loss) income before income taxes is presented below.
(Loss) income before income taxes excluding land-related
charges, intangible impairments and gain on extinguishment of
debt should be considered in addition to, but not as a
substitute for, (loss) income before income taxes, net income
(loss) and other measures of financial performance prepared in
accordance with GAAP that are presented on the financial
statements and notes included in Hovnanians public
filings. Additionally, the Companys calculation of (Loss)
income before income taxes excluding land-related charges,
intangible impairments and gain on extinguishment of debt may be
different than the calculation used by other companies, and,
therefore, comparability may be affected. Management believes
(Loss) income before income taxes excluding land-related
charges, intangible impairments and gain on extinguishment of
debt to be relevant and useful information because it provides a
better metric for our operating performance.
|
S-9
The following table sets forth a reconciliation of (Loss) income
before income taxes excluding land-related charges, intangible
impairments and gain on extinguishment of debt to (loss) income
before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
|
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
|
October 31,
|
|
(Dollars in thousands)
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
(Loss) income before income taxes
|
|
$
|
(295,282
|
)
|
|
$
|
(672,019
|
)
|
|
$
|
(1,168,048
|
)
|
|
$
|
(646,966
|
)
|
|
$
|
233,106
|
|
Inventory impairment loss and land option write-offs
|
|
|
135,699
|
|
|
|
659,475
|
|
|
|
710,120
|
|
|
|
457,773
|
|
|
|
336,204
|
|
Goodwill and definite life intangible impairments
|
|
|
|
|
|
|
|
|
|
|
35,363
|
|
|
|
135,206
|
|
|
|
4,241
|
|
Unconsolidated joint venture investment, intangible and
land-related charges
|
|
|
|
|
|
|
43,611
|
|
|
|
31,242
|
|
|
|
33,100
|
|
|
|
7,809
|
|
Gain on extinguishment of debt
|
|
|
(25,047
|
)
|
|
|
(410,185
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes excluding land-related
charges, intangible impairments and gain on extinguishment of
debt
|
|
$
|
(184,630
|
)
|
|
$
|
(379,118
|
)
|
|
$
|
(391,323
|
)
|
|
$
|
(20,887
|
)
|
|
$
|
581,360
|
|
|
|
|
|
|
(2)
|
|
Net contracts are defined as new
contracts during the period for the purchase of homes, less
cancellations of prior contracts in the same period.
|
S-10
Risk
factors
An investment in our Class A Common Stock involves a
high degree of risk. Before making a decision to invest in the
Class A Common Stock, you should carefully consider the
following:
|
|
|
the risk factors described below and those contained in the
documents incorporated by reference in this prospectus
supplement; and
|
|
|
the other information included in this prospectus supplement,
the accompanying prospectus and the documents incorporated by
reference in this prospectus supplement.
|
Risks related to
our business
The homebuilding industry is significantly affected by
changes in general and local economic conditions, real estate
markets, and weather and other environmental conditions, which
could affect our ability to build homes at prices our customers
are willing or able to pay, could reduce profits that may not be
recaptured, could result in cancellation of sales contracts, and
could affect our liquidity.
The homebuilding industry is cyclical, has from time to time
experienced significant difficulties, and is significantly
affected by changes in general and local economic conditions
such as:
|
|
|
Employment levels and job growth;
|
|
Availability of financing for home buyers;
|
|
Interest rates;
|
|
Foreclosure rates;
|
|
Inflation;
|
|
Adverse changes in tax laws;
|
|
Consumer confidence;
|
|
Housing demand;
|
|
Population growth; and
|
|
Availability of water supply in locations in which we operate.
|
Turmoil in the financial markets could affect our liquidity. In
addition, our cash balances are primarily invested in short-term
government-backed instruments. The remaining cash balances are
held at numerous financial institutions and may, at times,
exceed insurable amounts. We believe we help to mitigate this
risk by depositing our cash in major financial institutions and
diversifying our investments. In addition, our homebuilding
operations often require us to obtain letters of credit. In
connection with the issuance of our senior secured first lien
notes in the fourth quarter of fiscal 2009, we terminated our
revolving credit facility and refinanced the borrowing capacity
thereunder. In addition, we entered into certain stand alone
letter of credit facilities, and agreements pursuant to which
all of the outstanding letters of credit under our revolving
credit facility were replaced with letters of credit issued
under such new letter of credit facilities and agreements.
However, we may need additional letters of credit above the
amounts provided under these new letter of credit facilities and
agreements. If we are unable to obtain such additional letters
of credit as needed to operate our business, we may be adversely
affected.
Weather conditions and natural disasters such as hurricanes,
tornadoes, earthquakes, floods, droughts, fires and other
environmental conditions can harm the local homebuilding
business. Our business in Florida was adversely affected in late
2005 and into 2006 due to the effect of
S-11
Hurricane Wilma on materials and labor availability and pricing.
Conversely, Hurricane Ike, which hit Houston in September 2008,
did not have an effect on materials and labor availability or
pricing, but did affect the volume of home sales in subsequent
weeks.
The difficulties described above could cause us to take longer
and incur more costs to build our homes. We may not be able to
recapture increased costs by raising prices in many cases
because we fix our prices up to 12 months in advance of
delivery by signing home sales contracts. In addition, some home
buyers may cancel or not honor their home sales contracts
altogether.
The homebuilding
industry is undergoing a significant and sustained downturn
which has, and could continue to, materially and adversely
affect our business, liquidity, and results of
operations.
The homebuilding industry is now experiencing a significant and
sustained downturn. An industry-wide softening of demand for new
homes has resulted from a lack of consumer confidence, decreased
availability of mortgage financing, and large supplies of resale
and new home inventories, among other factors. In addition, an
oversupply of alternatives to new homes, such as rental
properties, resale homes, and foreclosures, has depressed prices
and reduced margins for the sale of new homes. Industry
conditions had a material adverse effect on our business and
results of operations in fiscal years 2007 through 2010 and may
continue to materially adversely affect our business and results
of operations in fiscal 2011. Further, we substantially
increased our inventory through fiscal 2006, which required
significant cash outlays and which has increased our price and
margin exposure as we continue to work through this inventory.
Looking forward, if the housing market continues to deteriorate
it will become more difficult to generate positive cash flow.
General economic conditions in the U.S. remain weak. Market
volatility has been unprecedented and extraordinary in the last
several years, and the resulting economic turmoil may continue
to exacerbate industry conditions or have other unforeseen
consequences, leading to uncertainty about future conditions in
the homebuilding industry. Continuation or worsening of this
downturn or general economic conditions would continue to have a
material adverse effect on our business, liquidity, and results
of operations.
In addition, an increase in the default rate on the mortgages we
originate may adversely affect our ability to sell mortgages or
the pricing we receive upon the sale of mortgages. Although
substantially all of the mortgage loans we originate are sold in
the secondary mortgage market on a servicing released,
non-recourse basis, we remain liable for certain limited
representations, such as fraud, and warranties related to loan
sales. As default rates rise, this may increase our potential
exposure regarding mortgage loan sales because investors may
seek to have us buy back or make whole investors for mortgages
we previously sold. To date, we have not made significant
payments related to our mortgage loans but because of the
uncertainties inherent to these matters, actual future payments
could differ significantly from our currently estimated amounts.
There can be no assurances that government responses to the
disruptions in the financial markets will restore consumer
confidence, stabilize the markets, or increase liquidity and the
availability of credit, or whether any such results will be
sustainable. The housing market has benefited from a number of
government programs, including:
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Tax credits for home buyers provided by the federal government
and certain state governments, including California; and
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Support of the mortgage market, including through purchases of
mortgage-backed securities by The Federal Reserve Bank and the
underwriting of a substantial amount of new mortgages by the
Federal Housing Administration (FHA) and other
governmental agencies.
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These programs are expected to wind down over time; for example
the California tax credit ended in the fourth quarter of fiscal
2009 and the federal tax credit expired in April 2010. In
addition, in fiscal 2010, the U.S. Department of Housing
and Urban Development (HUD) tightened FHA
underwriting standards. Housing markets may further decline as
these programs are modified or terminated.
Leverage places
burdens on our ability to comply with the terms of our
indebtedness, may restrict our ability to operate, may prevent
us from fulfilling our obligations, and may adversely affect our
financial condition.
We have a significant amount of debt.
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Our debt, as of October 31, 2010, including the debt of the
subsidiaries that guarantee our debt, was $1,630.6 million
($1,616.3 million net of discount); and
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our debt service payments for the
12-month
period ended October 31, 2010 were $165.7 million,
which includes interest incurred of $152.1 million and
mandatory principal payments on our corporate debt under the
terms of our indentures of $13.6 million, but which does
not include principal and interest on nonrecourse secured debt,
debt of our financial subsidiaries and fees under our letter of
credit facilities and agreements.
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In addition, as of October 31, 2010, we had
$89.5 million in aggregate outstanding face amount of
letters of credit issued under various letter of credit
facilities and agreements, which were collateralized by
$92.3 million of cash. Our fees for these letters of credit
for the 12 months ended October 31, 2020, which are
based on both the used and unused portion of the facilities and
agreements, were $1.4 million. We also had substantial
contractual commitments and contingent obligations, including
approximately $359.1 million of performance bonds as of
October 31, 2010. See Managements Discussion
and Analysis of Financial Condition and Results of
OperationsContractual Obligations in our Annual
Report on
Form 10-K/A
incorporated by reference herein.
Our significant amount of debt could have important
consequences. For example, it could:
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Limit our ability to obtain future financing for working
capital, capital expenditures, acquisitions, debt service
requirements, or other requirements;
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Require us to dedicate a substantial portion of our cash flow
from operations to the payment of our debt and reduce our
ability to use our cash flow for other purposes;
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Limit our flexibility in planning for, or reacting to, changes
in our business;
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Place us at a competitive disadvantage because we have more debt
than some of our competitors; and
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Make us more vulnerable to downturns in our business and general
economic conditions.
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Our ability to meet our debt service and other obligations will
depend upon our future performance. We are engaged in businesses
that are substantially affected by changes in economic cycles.
Our revenues and earnings vary with the level of general
economic activity in
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the markets we serve. Our businesses are also affected by
customer sentiment and financial, political, business, and other
factors, many of which are beyond our control. The factors that
affect our ability to generate cash can also affect our ability
to raise additional funds for these purposes through the sale of
equity securities, the refinancing of debt, or the sale of
assets. Changes in prevailing interest rates may affect our
ability to meet our debt service obligations to the extent we
have any floating rate indebtedness. A higher interest rate on
our debt service obligations could result in lower earnings or
increased losses.
Our sources of
liquidity are limited and may not be sufficient to meet our
needs.
In connection with the issuance of our senior secured first lien
notes in the fourth quarter of fiscal 2009, we terminated our
revolving credit facility and refinanced the borrowing capacity
thereunder. Because we no longer have a revolving credit
facility, we are dependent on our current cash balance and
future cash flows from operations (which may not be positive) to
enable us to service our indebtedness, to cover our operating
expenses,
and/or to
fund our other liquidity needs. In addition, we may need to
refinance all or a portion of our debt on or before maturity,
which we may not be able to do on favorable terms or at all. If
our cash flows and capital resources are insufficient to fund
our debt service obligations or we are unable to refinance our
indebtedness, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional
capital, or restructure our indebtedness. These alternative
measures may not be successful and may not permit us to meet our
debt service obligations. We have also entered into certain cash
collateralized letter of credit agreements and facilities that
require us to maintain specified amounts of cash in segregated
accounts as collateral to support our letters of credit issued
thereunder, which will affect the amount of cash we have
available for other uses. If our available cash and capital
resources are insufficient to meet our debt service obligations,
we could face substantial liquidity problems and might be
required to dispose of material assets or operations to meet our
debt service and other obligations. We may not be able to
consummate those dispositions or the proceeds from the
dispositions may not be adequate to meet any debt service
obligations then due.
Restrictive
covenants in our debt instruments may restrict our ability to
operate and if our financial performance worsens, we may not be
able to undertake transactions within the restrictions of our
debt instruments.
The indentures governing our outstanding debt securities impose
certain restrictions on our operations and activities. The most
significant restrictions relate to debt incurrence, creating
liens, sales of assets, cash distributions, including paying
dividends on common and preferred stock, capital stock and debt
repurchases, and investments by us and certain of our
subsidiaries. Because of these restrictions, we are currently
prohibited from paying dividends on our preferred stock and
anticipate that we will remain prohibited for the foreseeable
future.
The restrictions in our debt instruments could prohibit or
restrict our activities such as undertaking capital, raising or
restructuring activities or entering into other transactions. In
such a situation, we may be unable to amend the instrument or
obtain a waiver. In addition, if we fail to make timely payments
on this debt and other material indebtedness, our debt under
these debt instruments could become due and payable prior to
maturity. In such a situation, there can be no assurance that we
would be able to obtain alternative financing. Either situation
could have a material adverse effect on the solvency of the
Company.
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The terms of our
debt instruments allow us to incur additional
indebtedness.
Under the terms of our indebtedness under our indentures, we
have the ability, subject to our debt covenants, to incur
additional amounts of debt. The incurrence of additional
indebtedness could magnify the risks described above. In
addition, certain obligations such as standby letters of credit
and performance bonds issued in the ordinary course of business,
including those issued under our stand-alone letter of credit
agreements and facilities, are not considered indebtedness under
our indentures (and may be secured), and therefore, are not
subject to limits in our debt covenants.
We could be
adversely affected by a negative change in our credit
rating.
Our ability to access capital on favorable terms is a key factor
in our ability to service our indebtedness to cover our
operating expenses, and to fund our other liquidity needs. On
March 16, 2009, Fitch Ratings lowered the Companys
issuer default rating to CCC from B-. On April 7, 2009,
Moodys Investor Services affirmed our corporate family
rating of Caa1, with a negative outlook. On April 1, 2009,
Standard & Poors (S&P) lowered
our B-corporate credit rating to CCC, with a negative outlook.
On September 14, 2010, S&P affirmed our corporate
credit rating of CCC+ but revised our outlook from developing to
negative. Downgrades may make it more difficult and costly for
us to access capital. Therefore, any further downgrade by any of
the principal credit agencies may exacerbate these difficulties.
Our business is
seasonal in nature and our quarterly operating results can
fluctuate.
Our quarterly operating results generally fluctuate by season.
Historically, a large percentage of our agreements of sale have
been entered into in the winter and spring. The construction of
a customers home typically begins after signing the
agreement of sale and can take 12 months or more to
complete. Weather-related problems, typically in the fall, late
winter and early spring, can delay starts or closings and
increase costs and thus reduce profitability. In addition,
delays in opening communities could have an adverse effect on
our sales and revenues. Due to these factors, our quarterly
operating results will likely continue to fluctuate.
Our success
depends on the availability of suitable undeveloped land and
improved lots at acceptable prices and our having sufficient
liquidity to fund such investments.
Our success in developing land and in building and selling homes
depends in part upon the continued availability of suitable
undeveloped land and improved lots at acceptable prices. The
availability of undeveloped land and improved lots for purchase
at favorable prices depends on a number of factors outside of
our control, including the risk of competitive over-bidding on
land and lots and restrictive governmental regulation. Should
suitable land opportunities become less available, the number of
homes we may be able to build and sell would be reduced, which
would reduce revenue and profits. In addition, our ability to
make land purchases will depend upon us having sufficient
liquidity to fund such purchases. We may be at a disadvantage in
competing for land due to our significant debt obligations,
which require substantial cash resources.
S-15
Raw material and
labor shortages and price fluctuations could delay or increase
the cost of home construction and adversely affect our operating
results.
The homebuilding industry has from time to time experienced raw
material and labor shortages. In particular, shortages and
fluctuations in the price of lumber or in other important raw
materials could result in delays in the start or completion of,
or increase the cost of, developing one or more of our
residential communities. In addition, we contract with
subcontractors to construct our homes. Therefore, the timing and
quality of our construction depends on the availability, skill,
and cost of our subcontractors. Delays or cost increases caused
by shortages and price fluctuations could harm our operating
results, the impact of which may be further affected depending
on our ability to raise sales prices to offset increased costs.
Changes in
economic and market conditions could result in the sale of homes
at a loss or holding land in inventory longer than planned,
the cost of which can be significant.
Land inventory risk can be substantial for homebuilders. We must
continuously seek and make acquisitions of land for expansion
into new markets and for replacement and expansion of land
inventory within our current markets. The market value of
undeveloped land, buildable lots, and housing inventories can
fluctuate significantly as a result of changing economic and
market conditions. In the event of significant changes in
economic or market conditions, we may have to sell homes at a
loss or hold land in inventory longer than planned. In the case
of land options, we could choose not to exercise them, in which
case we would write off the value of these options. Inventory
carrying costs can be significant and can result in losses in a
poorly performing project or market. The assessment of
communities for indication of impairment is performed quarterly.
While we consider available information to determine what we
believe to be our best estimates as of the reporting period,
these estimates are subject to change in future reporting
periods as facts and circumstances change. See
Managements Discussion and Analysis of Financial
Condition and Results of OperationsCritical Accounting
Policies in our Annual Report on
Form 10-K/A
incorporated by reference herein. For example, during 2010,
2009, and 2008, we decided not to exercise many option contracts
and walked away from land option deposits and predevelopment
costs, which resulted in land option write-offs of
$13.2 million, $45.4 million and $114.1 million,
respectively. Also, in 2010, 2009, and 2008, as a result of the
difficult market conditions, we recorded inventory impairment
losses on owned property of $122.5 million,
$614.1 million, and $596.0 million, respectively. If
market conditions continue to worsen, additional inventory
impairment losses and land option write-offs will likely be
necessary.
Home prices and
sales activities in the California, Maryland, New Jersey, Texas
and Virginia markets have a large impact on our results of
operations because we conduct a significant portion of our
business in these markets.
We presently conduct a significant portion of our business in
the California, Maryland, New Jersey, Texas and Virginia
markets. Home prices and sales activities in these markets and
in most of the other markets in which we operate have declined
from time to time, particularly as a result of slow economic
growth. In particular, market conditions in California,
Maryland, New Jersey and Virginia have declined
significantly since the end of 2006. Furthermore, precarious
economic and budget situations at the state government level may
adversely affect the market for our homes in those affected
areas. If home prices and sales activity decline in
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one or more of the markets in which we operate, our costs may
not decline at all or at the same rate and may negatively impact
our results of operations.
Because almost
all of our customers require mortgage financing, increases in
interest rates or the decreased availability of mortgage
financing could impair the affordability of our homes, lower
demand for our products, limit our marketing effectiveness, and
limit our ability to fully realize our backlog.
Virtually all of our customers finance their acquisitions
through lenders providing mortgage financing. Increases in
interest rates or decreases in availability of mortgage
financing could lower demand for new homes because of the
increased monthly mortgage costs to potential home buyers. Even
if potential customers do not need financing, changes in
interest rates and mortgage availability could make it harder
for them to sell their existing homes to potential buyers who
need financing. This could prevent or limit our ability to
attract new customers as well as our ability to fully realize
our backlog because our sales contracts generally include a
financing contingency. Financing contingencies permit the
customer to cancel its obligation in the event mortgage
financing at prevailing interest rates, including financing
arranged or provided by us, is unobtainable within the period
specified in the contract. This contingency period is typically
four to eight weeks following the date of execution of the sales
contract.
Starting in 2007, many lenders have been significantly
tightening their underwriting standards, and many subprime and
other alternative mortgage products are no longer being made
available in the marketplace. If these trends continue and
mortgage loans continue to be difficult to obtain, the ability
and willingness of prospective buyers to finance home purchases
or to sell their existing homes will be adversely affected,
which will adversely affect our operating results. In addition,
we believe that the availability of mortgage financing,
including Federal National Mortgage Association, Federal Home
Loan Mortgage Corp, and FHA/VA financing, is an important factor
in marketing many of our homes. In addition, in fiscal 2010, HUD
tightened FHA underwriting standards. Any limitations or
restrictions on the availability of those types of financing
could reduce our sales.
Increases in the
costs of owning a home could prevent potential customers from
buying our homes and adversely affect our business or financial
results.
Significant expenses of owning a home, including mortgage
interest expenses and real estate taxes, generally are
deductible expenses for an individuals federal, and in
some cases state, income taxes, subject to limitations under
current tax law and policy. If the federal government or a state
government were to change its income tax laws to eliminate or
substantially limit these income tax deductions, as has been
discussed from time to time, the after-tax cost of owning a new
home would increase for many of our potential customers. The
loss or reduction of these homeowner tax deductions, if such tax
law changes were enacted without any offsetting legislation,
would adversely impact demand for and sales prices of new homes,
including ours. In addition, increases in property tax rates or
fees on developers by local governmental authorities, as
experienced in response to reduced federal and state funding or
to fund local initiatives such as funding schools or road
improvements, can adversely affect the ability of potential
customers to obtain financing or their desire to purchase new
homes, and can have an adverse impact on our business and
financial results.
S-17
We conduct
certain of our operations through unconsolidated joint ventures
with independent third parties in which we do not have a
controlling interest. These investments involve risks and are
highly illiquid.
We currently operate through a number of unconsolidated
homebuilding and land development joint ventures with
independent third parties in which we do not have a controlling
interest. At October 31, 2010, we had invested an aggregate
of $38.0 million in these joint ventures, including
advances to these joint ventures of approximately
$13.5 million. In addition, as part of our strategy, we
intend to continue to evaluate additional joint venture
opportunities.
These investments involve risks and are highly illiquid. There
are a limited number of sources willing to provide acquisition,
development, and construction financing to land development and
homebuilding joint ventures, and as market conditions become
more challenging, it may be difficult or impossible to obtain
financing for our joint ventures on commercially reasonable
terms. Recently, we have been unable to obtain financing for
newly created joint ventures. In addition, we lack a controlling
interest in these joint ventures and, therefore, are usually
unable to require that our joint ventures sell assets or return
invested capital, make additional capital contributions, or take
any other action without the vote of at least one of our venture
partners. Therefore, absent partner agreement, we will be unable
to liquidate our joint venture investments to generate cash.
Homebuilders are
subject to a number of federal, local, state, and foreign laws
and regulations concerning the development of land, the
homebuilding, sales, and customer financing processes and
protection of the environment, which can cause us to incur
delays and costs associated with compliance and which can
prohibit or restrict our activity in some regions or
areas.
We are subject to extensive and complex regulations that affect
the development and home building, sales, and customer financing
processes, including zoning, density, building standards, and
mortgage financing. These regulations often provide broad
discretion to the administering governmental authorities. This
can delay or increase the cost of development or homebuilding.
In light of recent developments in the home building industry
and the financial markets, federal, state, or local governments
may seek to adopt regulations that limit or prohibit
homebuilders from providing mortgage financing to their
customers. If adopted, any such regulations could adversely
affect future revenues and earnings. In addition, some state and
local governments in markets where we operate have approved, and
others may approve, slow-growth or no-growth initiatives that
could negatively impact the availability of land and building
opportunities within those areas. Approval of these initiatives
could adversely affect our ability to build and sell homes in
the affected markets
and/or could
require the satisfaction of additional administrative and
regulatory requirements, which could result in slowing the
progress or increasing the costs of our homebuilding operations
in these markets. Any such delays or costs could have a negative
effect on our future revenues and earnings.
We also are subject to a variety of local, state, federal, and
foreign laws and regulations concerning protection of health and
the environment. The particular environmental laws that apply to
any given community vary greatly according to the community
site, the sites environmental conditions, and the present
and former uses of the site. These environmental laws may result
in delays, may cause us to incur substantial compliance,
remediation,
and/or other
costs and can prohibit or severely restrict development and
homebuilding activity.
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For example, the Company was engaged in discussions with the
U.S. Environmental Protection Agency (EPA) and the
U.S. Department of Justice (DOJ) regarding alleged
violations of storm water discharge requirements. In resolution
of this matter, in April 2010 we agreed to the terms of a
consent decree with the EPA, DOJ and the states of Virginia,
Maryland, West Virginia and the District of Columbia
(collectively the States). The consent decree was approved by
the federal district court in August 2010. Under the terms of
the consent decree, we have paid a fine of $1.0 million
collectively to the United States and the States named above and
have agreed to perform under the terms of the consent decree for
a minimum of three years, which includes implementing certain
operational and training measures nationwide to facilitate
ongoing compliance with storm water regulations. More recently,
the New York State Department of Environmental Conservation is
seeking a civil penalty from us in connection with notices of
violation for allegedly failing to comply with a storm water
permit at an incomplete project in the state of New York; and
the New Jersey Department of Environmental Protection has
contacted us regarding violations it asserts occurred when one
of our contractors demolished a structure in New Jersey prior to
obtaining a storm water permit. Although we do not know the
final outcomes, we believe any penalties and any other impacts
of these two matters will not have a material adverse effect on
us.
We anticipate that increasingly stringent requirements will be
imposed on developers and homebuilders in the future. Although
we cannot predict the effect of these requirements, they could
result in time-consuming and expensive compliance programs and
in substantial expenditures, which could cause delays and
increase our cost of operations. In addition, the continued
effectiveness of permits already granted or approvals already
obtained is dependent upon many factors, some of which are
beyond our control, such as changes in policies, rules, and
regulations and their interpretation and application.
Product liability
litigation and warranty claims that arise in the ordinary course
of business may be costly.
As a homebuilder, we are subject to construction defect and home
warranty claims arising in the ordinary course of business. Such
claims are common in the homebuilding industry and can be
costly. In addition, the amount and scope of coverage offered by
insurance companies is currently limited, and this coverage may
be further restricted and become more costly. If we are not able
to obtain adequate insurance against such claims, we may
experience losses that could hurt our financial results. Our
financial results could also be adversely affected if we were to
experience an unusually high number of claims or unusually
severe claims. Recently, other homebuilders in Alabama, Florida,
Louisiana, Mississippi and Texas have had construction defect
claims associated with allegedly defective drywall manufactured
in China (Chinese Drywall) that may be responsible for noxious
smells and accelerated corrosion of certain metals in the home.
We have currently identified 10 homes with Chinese Drywall that
must be remediated, and we have been notified of 19 more homes
that potentially have Chinese Drywall that may need remediation.
These homes are located in our Florida and Houston markets. The
estimated costs of the remediations of these homes are reserved.
If additional homes are identified to have this issue, or our
actual costs to remediate differ from our current estimated
costs, it may require us to revise our warranty reserves.
S-19
We compete on
several levels with homebuilders that may have greater sales and
financial resources, which could hurt future earnings.
We compete not only for home buyers but also for desirable
properties, financing, raw materials, and skilled labor often
within larger subdivisions designed, planned, and developed by
other homebuilders. Our competitors include other local,
regional, and national homebuilders, some of which have greater
sales and financial resources.
The competitive conditions in the homebuilding industry together
with current market conditions have, and could continue to,
result in:
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difficulty in acquiring suitable land at acceptable prices;
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increased selling incentives;
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lower sales; or
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delays in construction.
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Any of these problems could increase costs
and/or lower
profit margins.
We may have
difficulty in obtaining the additional financing required to
operate and develop our business.
Our operations require significant amounts of cash, and we may
be required to seek additional capital, whether from sales of
equity or borrowing additional money, for the future growth and
development of our business. The terms or availability of
additional capital is uncertain. Moreover, the indentures for
our outstanding debt securities contain provisions that restrict
the debt we may incur in the future and our ability to pay
dividends on equity. If we are not successful in obtaining
sufficient capital, it could reduce our sales and may hinder our
future growth and results of operations. In addition, pledging
substantially all of our assets to support our first, second and
third lien senior secured notes may make it more difficult to
raise additional financing in the future.
Our future growth
may include additional acquisitions of companies that may not be
successfully integrated and may not achieve expected
benefits.
Acquisitions of companies have contributed to our historical
growth and may again be a component of our growth strategy in
the future. In the future, we may acquire businesses, some of
which may be significant. As a result of acquisitions of
companies, we may need to seek additional financing and
integrate product lines, dispersed operations, and distinct
corporate cultures. These integration efforts may not succeed or
may distract our management from operating our existing
business. Additionally, we may not be able to enhance our
earnings as a result of acquisitions. Our failure to
successfully identify and manage future acquisitions could harm
our operating results.
Utility shortages
and outages or rate fluctuations could have an adverse effect on
our operations.
In prior years, the areas in which we operate in California have
experienced power shortages, including periods without
electrical power, as well as significant fluctuations in utility
costs. We may incur additional costs and may not be able to
complete construction on a timely basis if such power
shortages/outages and utility rate fluctuations continue.
Furthermore, power shortages and outages, such as the blackout
that occurred in 2003 in the Northeast, and rate
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fluctuations may adversely affect the regional economies in
which we operate, which may reduce demand for our homes. Our
operations may be adversely affected if further rate
fluctuations
and/or power
shortages and outages occur in California, the Northeast, or in
our other markets.
Geopolitical
risks and market disruption could adversely affect our operating
results and financial condition.
Geopolitical events, such as the aftermath of the war with Iraq
and the continuing involvement in Iraq and Afghanistan, may have
a substantial impact on the economy and the housing market. The
terrorist attacks on the World Trade Center and the Pentagon on
September 11, 2001 had an impact on our business and the
occurrence of similar events in the future cannot be ruled out.
The war and the continuing involvement in Iraq and Afghanistan,
terrorism, and related geopolitical risks have created many
economic and political uncertainties, some of which may have
additional material adverse effects on the U.S. economy,
and our customers and, in turn, our results of operations and
financial condition.
Risks related to
the Class A common stock
We do not expect
to pay dividends to holders of our Class A Common
Stock.
Certain debt instruments to which we are a party contain
restrictions on the payment of cash dividends. As a result of
the most restrictive of these provisions, we are not currently
able to pay any cash dividends and anticipate that we will be
prohibited from doing so for the foreseeable future. We have
never paid cash dividends on our Class A Common Stock nor
do we currently intend to pay cash dividends on our Class A
Common Stock. Other than the payment of dividends on our
Series A Preferred Stock (if permitted by our debt
instruments), our board of directors presently intends to retain
all earnings, if any, for use in our business operations.
Future sales of
substantial amounts of our Class A Common Stock could
affect the market price of our Class A Common
Stock.
Future sales of substantial amounts of our Class A Common
Stock, or securities convertible or exchangeable into shares of
our Class A Common Stock, into the public market, including
shares of Class A Common Stock issued upon exercise of
options or warrants, conversion of Class B Common Stock
upon sale or upon settlement of the purchase contracts for
Class A Common Stock to be issued in the concurrent Units
Offering, or perceptions that those sales
and/or
conversions or exchanges could occur, could adversely affect the
prevailing market price of our Class A Common Stock and our
ability to raise capital in the future.
Our issuance of
additional Class A Common Stock or Preferred Stock may
cause our Class A Common Stock price to decline, which may
negatively impact your investment.
Issuances of substantial numbers of additional shares of our
Class A Common Stock or Preferred Stock, including in
connection with future acquisitions, if any, or the perception
that such issuances could occur, may cause prevailing market
prices for our Class A Common Stock to decline, which may
negatively impact your investment. In addition, our board of
directors is authorized to issue additional series of shares of
Preferred Stock without any action on the part of our
stockholders. Our board of directors also has the power, without
stockholder approval, to set the terms of any such series of
shares of Preferred Stock that may be issued, including voting
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rights, conversion rights, dividend rights, preferences over our
Class A Common Stock or our Series A Preferred Stock
with respect to dividends or if we liquidate, dissolve or wind
up our business and other terms. If we issue cumulative
Preferred Stock in the future that has preference over our
Class A Common Stock with respect to the payment of
dividends or upon our liquidation, dissolution or winding up, or
if we issue Preferred Stock with voting rights that dilute the
voting power of our Class A Common Stock, the market price
of our Class A Common Stock could decrease.
Our stock price
has been and could remain volatile.
The market price for our Class A Common Stock has been and
may continue to be volatile. As the price of our Class A
Common Stock on the New York Stock Exchange constantly changes,
it is impossible to predict whether the price of our
Class A Common Stock will rise or fall. Trading prices of
our Class A Common Stock will be influenced by our
financial conditions, operating results and prospects and by
economic, financial and other factors, such as prevailing
interest rates, interest rate volatility and changes in our
industry and competitors. In addition, general market
conditions, including the level of, and fluctuations in, the
trading prices of stocks generally, and sales of substantial
amounts of Class A Common Stock by us in the market, or the
perception that such sales could occur, could affect the price
of shares of our Class A Common Stock.
Our controlling
stockholders are able to exercise significant influence over
us.
Members of the Hovnanian family, including Ara K. Hovnanian, our
chairman of the board, president and chief executive officer,
have voting control, through personal holdings, the limited
partnership established for members of Mr. Hovnanians
family and family trusts, of Class A and Class B
common stock that enables them to cast approximately 70% of the
votes that may be cast by the holders of our outstanding
Class A and Class B common stock combined. Their
combined stock ownership enables them to exert significant
control over us, including power to control the election of the
Board and to approve matters presented to our stockholders. This
concentration of ownership may also make some transactions,
including mergers or other changes in control, more difficult or
impossible without their support. Also, because of their
combined voting power, circumstances may occur in which their
interests could be in conflict with the interests of other
stakeholders.
Our net operating loss carryforwards could be substantially
limited if we experience an ownership change as defined in the
Internal Revenue Code. As a Class A common stockholder you
will be subject to both our Rights Plan and the transfer
restrictions of our amended Certificate of Incorporation.
Based on recent impairments and our current financial
performance, we generated a federal net operating loss
carryforward of $904.9 million through the year ended
October 31, 2010, and we may generate net operating loss
carryforwards in future years.
Section 382 of the Internal Revenue Code (the
Code) contains rules that limit the ability of a
company that undergoes an ownership change, which is generally
any change in ownership of more than 50% of its stock over a
three-year period, to utilize its net operating loss
carryforwards and certain built-in losses recognized in years
after the ownership change. These rules generally operate by
focusing on ownership shifts among stockholders owning directly
or
S-22
indirectly 5% or more of the stock of a company and any change
in ownership arising from a new issuance of stock by the company.
If we undergo an ownership change for purposes of
Section 382 as a result of this issuance, the Concurrent
Offerings or future transactions involving our stock, including
purchases or sales of stock between 5% shareholders, our ability
to use our net operating loss carryforwards and to recognize
certain built-in losses would be subject to the limitations of
Section 382. Depending on the resulting limitation, a
significant portion of our net operating loss carryforwards
could expire before we would be able to use them. A limitation
imposed under Section 382 on our ability to utilize our net
operating loss carryforwards could have a negative impact on our
financial position and results of operations.
In August 2008, we announced that the Board adopted a
shareholder rights plan (the Rights Plan) designed
to preserve shareholder value and the value of certain tax
assets primarily associated with net loss carryforwards and
built-in losses under Section 382 of the Code and on
December 5, 2008, our stockholders approved the
Boards decision to adopt the Rights Plan. The Rights Plan
is intended to act as a deterrent to any person or group
acquiring 4.9% or more of our outstanding Class A common
stock (any such person an Acquiring Person), without
the approval of the Companys board of directors. Subject
to the terms, provisions and conditions of the rights plan, if
and when they become exercisable, each right would entitle its
holder to purchase from the Company one ten-thousandth of a
share of the Companys Series B Junior Preferred Stock
for a purchase price of $35.00. The rights will not be
exercisable until the earlier of (i) 10 business days after
a public announcement by us that a person or group has become an
Acquiring Person and (ii) 10 business days after the
commencement of a tender or exchange offer by a person or group
for 4.9% of the Class A common stock. If issued, each
fractional share of Series B Junior Preferred Stock would
give the stockholder approximately the same dividend, voting and
liquidation rights as does one share of the Companys
Class A common stock. However, prior to exercise, a right
does not give its holder any rights as a stockholder of the
Company, including without limitation any dividend, voting or
liquidation rights. See Limitation on beneficial ownership
of Class A Common Stock.
In addition, on December 5, 2008, our stockholders approved
an amendment to our Certificate of Incorporation to restrict
certain transfers of our stock in order to preserve the tax
treatment of our net operating loss carryforwards and built-in
losses under Section 382 of the Code. Subject to certain
exceptions pertaining to pre-existing 5% stockholders and
Class B stockholders, the transfer restrictions in the
amended Certificate of Incorporation generally restrict any
direct or indirect transfer (such as transfers of the
Companys stock that result from the transfer of interests
in other entities that own the Companys stock) if the
effect would be to: (i) increase the direct or indirect
ownership of the Companys stock by any person (or public
group) from less than 5% to 5% or more of the Companys
stock; (ii) increase the percentage of the Companys
stock owned directly or indirectly by a person (or public group)
owning or deemed to own 5% or more of the Companys stock;
or (iii) create a new public group (as defined
in the applicable Treasury regulations). See Limitation on
beneficial ownership of Class A common stock.
Holders of our Class A Common Stock will be subject to both
the limitations imposed by the Rights Plan and the amended
Certificate of Incorporation and you should carefully consider
these limitations prior to your purchase.
S-23
Non-U.S.
holders who own, or in certain cases have owned, directly or
constructively, more than a certain ownership threshold may be
subject to United States federal income tax on gain realized on
the disposition of the shares of our Class A Common
Stock.
Because we have significant U.S. real estate holdings, we
believe that we currently are a United States real
property holding corporation (USRPHC) for United States
federal income tax purposes. As a result, a
non-U.S. holder
(as defined in Certain United States federal income tax
and estate consequences to
non-U.S. holdersGain
on disposition of Class A Common Stock) will
generally be subject to United States federal income tax on gain
realized on a sale or other disposition of shares of our
Class A Common Stock if such
non-U.S. holder
exceeds certain ownership thresholds. So long as our
Class A Common Stock continues to be regularly traded on an
established securities market, a
non-U.S. holder
will not be subject to United States federal income tax on the
disposition of our Class A Common Stock if the
non-U.S. holder
has not held (at any time during the shorter of the five year
period preceding the date of disposition or your holding period)
more than 5% (actually or constructively) of our total
outstanding Class A Common Stock.
Non-U.S. holders
should consult their own U.S. income tax advisors
concerning the consequences of disposing of shares of
Class A Common Stock.
S-24
Use of
proceeds
We expect to receive net proceeds from this offering of
approximately $47.2 million (or approximately
$54.3 million if the underwriters exercise their
over-allotment option in full), after deducting underwriting
discounts and estimated transaction expenses payable by us. In
addition, we expect that the net proceeds from the Notes
Offering will be approximately $147.0 million and the net
proceeds from the concurrent Units Offering will be
approximately $72.5 million (or approximately
$83.4 million if the underwriters exercise their
over-allotment option in full for the Units Offering), after
deducting underwriting discounts and estimated transaction
expenses payable by us. There can be no assurance that the Notes
Offering or the Units Offering will be completed.
We intend to use the net proceeds of this offering, together
with the net proceeds from the Concurrent Offerings, to fund the
Tender Offers
and/or the
Redemptions, and for general corporate purposes. The interest
rate of each series of Tender Offer Notes is set forth in
SummaryRelated TransactionsTender Offers and
Redemptions.
S-25
Capitalization
The following table sets forth our capitalization as of
October 31, 2010, on:
|
|
|
an actual basis;
|
|
|
an as adjusted basis to give effect to the sale of our
Class A Common Stock (but not the use of proceeds
therefrom); and
|
|
|
an as further adjusted basis to give effect to the Concurrent
Offerings and the application of the estimated proceeds from
this offering and the Concurrent Offerings.
|
This information should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations incorporated by
reference herein and our financial statements and related notes
incorporated by reference herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2010
|
|
|
|
|
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
for sale of
|
|
|
As further
|
|
|
|
|
|
|
Class A
|
|
|
adjusted
|
|
(unaudited)
|
|
|
|
|
common
|
|
|
for concurrent
|
|
(In thousands)
|
|
Actual
|
|
|
stock
|
|
|
offerings(7)
|
|
|
|
|
Homebuilding cash and cash equivalents, excluding restricted cash
|
|
$
|
359,124
|
|
|
$
|
406,324
|
|
|
$
|
463,949
|
|
Restricted cash(1)
|
|
|
108,983
|
|
|
|
108,983
|
|
|
|
108,983
|
|
Total homebuilding cash and cash equivalents(2)
|
|
$
|
468,107
|
|
|
$
|
515,307
|
|
|
$
|
572,932
|
|
|
|
|
|
|
|
Debt(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonrecourse land mortgages
|
|
|
4,313
|
|
|
|
4,313
|
|
|
|
4,313
|
|
Nonrecourse mortgages secured by operating property
|
|
|
20,657
|
|
|
|
20,657
|
|
|
|
20,657
|
|
105/8% Senior
Secured Notes due 2016
|
|
|
772,415
|
|
|
|
772,415
|
|
|
|
772,415
|
|
111/2
Senior Secured Notes due 2013
|
|
|
475
|
|
|
|
475
|
|
|
|
475
|
|
18% Senior Secured Notes due 2017
|
|
|
11,702
|
|
|
|
11,702
|
|
|
|
11,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8% Senior Notes due 2012
|
|
|
35,475
|
|
|
|
35,475
|
|
|
|
|
|
61/2% Senior
Notes due 2014
|
|
|
54,373
|
|
|
|
54,373
|
|
|
|
54,373
|
|
63/8% Senior
Notes due 2014
|
|
|
29,214
|
|
|
|
29,214
|
|
|
|
29,214
|
|
61/4% Senior
Notes due 2015
|
|
|
52,720
|
|
|
|
52,720
|
|
|
|
52,720
|
|
% Senior Notes due 2015 offered concurrently(4)
|
|
|
|
|
|
|
|
|
|
|
150,000
|
|
61/4% Senior
Notes due 2016
|
|
|
171,616
|
|
|
|
171,616
|
|
|
|
171,616
|
|
71/2% Senior
Notes due 2016
|
|
|
172,269
|
|
|
|
172,269
|
|
|
|
172,269
|
|
85/8% Senior
Notes due 2017
|
|
|
195,918
|
|
|
|
195,918
|
|
|
|
195,918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
87/8% Senior
Subordinated Notes due 2012
|
|
|
66,639
|
|
|
|
66,639
|
|
|
|
|
|
73/4% Senior
Subordinated Notes due 2013
|
|
|
53,531
|
|
|
|
53,531
|
|
|
|
|
|
S-26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of October 31, 2010
|
|
|
|
|
|
|
As adjusted
|
|
|
|
|
|
|
|
|
|
for sale of
|
|
|
As further
|
|
|
|
|
|
|
Class A
|
|
|
adjusted
|
|
(unaudited)
|
|
|
|
|
common
|
|
|
for concurrent
|
|
(In thousands)
|
|
Actual
|
|
|
stock
|
|
|
offerings(7)
|
|
|
|
|
Tangible equity units senior subordinated amortizing notes that
are components of Units offered concurrently
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt(3)
|
|
$
|
1,641,317
|
|
|
$
|
1,641,317
|
|
|
$
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock, $.01 par value; 100,000 Shares
authorized; 5,600 Shares of 7.625% Series A Preferred
Stock issued at October 31, 2010 with a liquidation
preference of $140,000
|
|
$
|
135,299
|
|
|
$
|
135,299
|
|
|
$
|
135,299
|
|
Common Stock, Class A, $.01 par value;
200,000,000 Shares authorized; 74,809,683 Shares
issued at October 31, 2010, actual (including
11,694,720 shares held in treasury)
and Shares
issued as adjusted and as further adjusted (including
11,694,720 Shares held in treasury)(5)
|
|
|
748
|
|
|
|
|
|
|
|
|
|
Common Stock, Class B, $.01 par value (Convertible to
Class A at time of sale); 30,000,000 Shares
authorized; 15,256,543 Shares issued at October 31,
2010 (including 691,748 Shares held in treasury)
|
|
|
153
|
|
|
|
153
|
|
|
|
153
|
|
Paid in capitalcommon stock(6)
|
|
|
463,908
|
|
|
|
|
|
|
|
|
|
Accumulated Deficit
|
|
|
(823,419
|
)
|
|
|
(823,419
|
)
|
|
|
(823,419
|
)
|
Treasury stockat cost
|
|
|
(115,257
|
)
|
|
|
(115,257
|
)
|
|
|
(115,257
|
)
|
|
|
|
|
|
|
Total Hovnanian Enterprises, Inc. stockholders equity
deficit
|
|
|
(338,568
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interest in consolidated joint ventures
|
|
|
630
|
|
|
|
630
|
|
|
|
630
|
|
|
|
|
|
|
|
Total equity deficit(6)
|
|
$
|
(337,938
|
)
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
1,817,560
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
(1)
|
|
As of October 31, 2010,
Restricted Cash includes $92.3 million of cash
collateralizing our letter of credit agreements and facilities,
$14.5 million of cash collateralizing our surety bonds and
$2.2 million for customers deposits, which are
restricted from our use.
|
|
(2)
|
|
As of October 31, 2010, cash
of K. Hovnanian, the Company and the guarantors collateralizing
our secured indebtedness was $300.0 million (which includes
$92.3 million of restricted cash collateralizing certain
letters of credit).
|
|
(3)
|
|
References to our consolidated debt
in this prospectus supplement exclude debt of $73.6 million
under our secured master repurchase agreements, which are
short-term borrowing facilities used by our mortgage banking
subsidiary.
|
|
(4)
|
|
Reflects aggregate principal amount
of the Notes offered in the Notes Offering and does not reflect
any original issue discount on such Notes or the
underwriters discount.
|
S-27
|
|
|
(5)
|
|
(a) As adjusted and as further
adjusted includes shares of our Class A Common Stock
offered hereby and (b) as further adjusted excludes shares
of our Class A Common Stock issuable upon settlement of the
purchase contracts that are components of the Units offered in
the Units Offering.
|
|
(6)
|
|
We have accounted for the purchase
contracts that are components of the Units offered in the Units
Offering as equity and recorded
$ ,
the initial fair value of these contracts, as additional paid in
capital as of October 31, 2010.
|
|
(7)
|
|
Assumes that all of the Tender
Offer Notes are tendered and purchased in the Tender Offers on
the date of issuance of the Notes offered in the Notes Offering
at an aggregate purchase price of approximately
$161.8 million, including estimated fees and expenses
related to the Tender Offers.
|
S-28
Price range of
common stock; dividend policy
Our Class A Common Stock is listed on the New York Stock
Exchange under the symbol HOV. The following table
sets forth the high and low closing sales prices for
transactions involving our Class A Common Stock during each
fiscal quarter, as reported on the New York Stock Exchange
Composite Tape.
|
|
|
|
|
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
|
|
2011:
|
|
|
|
|
|
|
|
|
November 1, 2010 through January 28, 2011
|
|
$
|
4.96
|
|
|
$
|
3.54
|
|
2010:
|
|
|
|
|
|
|
|
|
Quarter ended October 31, 2010
|
|
$
|
4.65
|
|
|
$
|
3.42
|
|
Quarter ended July 31, 2010
|
|
|
7.99
|
|
|
|
3.47
|
|
Quarter ended April 30, 2010
|
|
|
7.23
|
|
|
|
3.55
|
|
Quarter ended January 31, 2010
|
|
|
4.40
|
|
|
|
3.54
|
|
2009:
|
|
|
|
|
|
|
|
|
Quarter ended October 31, 2009
|
|
$
|
5.61
|
|
|
$
|
3.42
|
|
Quarter ended July 31, 2009
|
|
|
3.25
|
|
|
|
1.81
|
|
Quarter ended April 30, 2009
|
|
|
2.93
|
|
|
|
0.58
|
|
Quarter ended January 31, 2009
|
|
|
4.99
|
|
|
|
1.61
|
|
|
|
On January 28, 2011, the last reported sale price of our
Class A Common Stock on the New York Exchange was $4.56 per
share. As of January 18, 2011, our Class A Common
Stock was held of record by approximately 541 holders and our
Class B Common Stock was held of record by approximately
260 holders. There is no established public trading market for
our Class B Common Stock and in order to trade Class B
Common Stock, the shares must be converted into Class A
Common Stock on a
one-for-one
basis.
Certain debt instruments to which we are a party contain
restrictions on the payment of cash dividends. As a result of
the most restrictive of these provisions, we are not currently
able to pay any cash dividends. We have never paid a cash
dividend to common stockholders.
S-29
Limitation on
beneficial ownership of Class A common stock
As a Class A common stockholder, you will be subject to
both our Rights Plan and the transfer restrictions of our
amended Certificate of Incorporation. The following is a summary
of the Rights Plan and the transfer restrictions of our amended
Certificate of Incorporation but is not complete. We refer you
to both the Rights Agreement and our amended Certificate of
Incorporation which are filed as exhibits to the registration
statement of which this prospectus forms a part.
Rights
plan
In August 2008, we announced that the board of directors of
Hovnanian adopted a shareholder rights plan designed to preserve
shareholder value and the value of certain tax assets primarily
associated with net loss carryforwards and built-in losses under
Section 382 of the Internal Revenue Code
(NOLs), and on December 5, 2008, our
stockholders approved the Boards decision to adopt the
shareholder rights plan. The rights plan is intended to act as a
deterrent to any person or group acquiring 4.9% or more of our
outstanding Class A common stock (any such person an
Acquiring Person), without the approval of the
Companys board of directors. Subject to the terms,
provisions and conditions of the rights plan, if and when they
become exercisable, each right would entitle its holder to
purchase from the Company one ten-thousandth of a share of the
Companys Series B Junior Preferred Stock for a
purchase price of $35.00. The rights will not be exercisable
until the earlier of (i) 10 business days after a public
announcement by us that a person or group has become an
Acquiring Person and (ii) 10 business days after the
commencement of a tender or exchange offer by a person or group
for 4.9% of the Class A common stock. If issued, each
fractional share of Series B Junior Preferred Stock would
give the stockholder approximately the same dividend, voting and
liquidation rights as does one share of the Companys
Class A common stock. However, prior to exercise, a right
does not give its holder any rights as a stockholder of the
Company, including without limitation any dividend, voting or
liquidation rights. See Description of Capital
StockRights Plan in the accompanying prospectus for
more information.
Certificate of
incorporation
In addition, on December 5, 2008, our stockholders approved
an amendment to our Certificate of Incorporation to restrict
certain transfers of our stock in order to preserve the tax
treatment of our NOLs under the Code. Subject to certain
exceptions pertaining to pre-existing 5% stockholders and
Class B stockholders, the transfer restrictions in the
amended Certificate of Incorporation generally restrict any
direct or indirect transfer (such as transfers of the
Companys stock that result from the transfer of interests
in other entities that own the Companys stock) if the
effect would be to: (i) increase the direct or indirect
ownership of the Companys stock by any person (or public
group) from less than 5% to 5% or more of the Companys
stock; (ii) increase the percentage of the Companys stock
owned directly or indirectly by a person (or public group)
owning or deemed to own 5% or more of the Companys stock;
or (iii) create a new public group (as defined
in the applicable Treasury regulations).
Consequences of
prohibited transfers
In accordance with our amended Certificate of Incorporation, any
direct or indirect transfer attempted in violation of the
restrictions would be void as of the date of the purported
transfer as to the purported transferee (or, in the case of an
indirect transfer, the ownership of the direct
S-30
owner of Class A Common Stock would terminate
simultaneously with the transfer), and the purported transferee
(or in the case of any indirect transfer, the direct owner)
would not be recognized as the owner of the shares owned in
violation of the restrictions for any purpose, including for
purposes of voting and receiving dividends or other
distributions in respect of such Class A Common Stock, or
in the case of options, receiving Class A Common Stock in
respect of their exercise. In this prospectus supplement,
Class A Common Stock purportedly acquired in violation of
the transfer restrictions is referred to as excess
stock.
In addition to the purported transfer being void as of the date
of the purported transfer, upon demand, the purported transferee
must transfer the excess stock to our agent along with any
dividends or other distributions paid with respect to such
excess stock. Our agent is required to sell such excess stock in
an arms length transaction (or series of transactions)
that would not constitute a violation under the transfer
restrictions. The net proceeds of the sale, together with any
other distributions with respect to such excess stock received
by our agent, after deduction of all costs incurred by the
agent, will be distributed first to the purported transferee in
an amount, if any, up to the cost (or in the case of gift,
inheritance or similar transfer, the fair market value of the
excess stock on the date of the violative transfer) incurred by
the purported transferee to acquire such excess stock, and the
balance of the proceeds, if any, will be distributed to a
charitable beneficiary. If the excess stock is sold by the
purported transferee, such person will be treated as having sold
the excess stock on behalf of the agent, and will be required to
remit all proceeds to our agent (except to the extent we grant
written permission to the purported transferee to retain an
amount not to exceed the amount such person otherwise would have
been entitled to retain had our agent sold such shares).
To the extent permitted by law, any stockholder who knowingly
violates the transfer restrictions will be liable for any and
all damages suffered by us as a result of such violation,
including damages resulting from a reduction in or elimination
of the ability to utilize the NOLs and any professional fees
incurred in connection with addressing such violation.
With respect to any transfer of Class A Common Stock which
does not involve a transfer of securities of the
Company within the meaning of the General Corporation Law of the
State of Delaware but which would cause any 5-percent
stockholder to violate the transfer restrictions, the following
procedure will apply in lieu of those described above. In such
case, no such 5-percent stockholder shall be required to dispose
of any interest that is not a security of the Company, but such
5-percent stockholder
and/or any
person whose ownership of securities of the Company is
attributed to such 5-percent stockholder will be deemed to have
disposed of (and will be required to dispose of) sufficient
securities, simultaneously with the transfer, to cause such
5-percent stockholder not to be in violation of the transfer
restrictions, and such securities will be treated as excess
stock to be disposed of through the agent under the provisions
summarized above, with the maximum amount payable to such
5-percent stockholder or such other person that was the direct
holder of such excess stock from the proceeds of sale by the
agent being the fair market value of such excess stock at the
time of the prohibited transfer.
Exceptions
The Board of directors will have the discretion to approve
transfers that would otherwise be restricted by the amended
Certificate of Incorporation and may exempt any person or group
from triggering the dilutive effect of the Rights Plan.
S-31
Representation
Each purchaser of shares of Class A Common Stock, by accepting
such shares, agrees to the ownership and transfer restrictions
of the Rights Plan and our amended Certificate of Incorporation
and represents and warrants to the Company that it is in
compliance with such ownership and transfer restrictions. This
representation and warranty is part of the consideration for
issuance of the Class A Common Stock in this offering.
S-32
Certain United
States federal income
and estate tax consequences to
non-U.S.
holders
The following is a summary of certain United States federal
income and estate tax consequences of the purchase, ownership
and disposition of our Class A Common Stock as of the date
hereof. Except where noted, this summary deals only with
Class A Common Stock that is held as a capital asset by a
non-U.S. holder.
A
non-U.S. holder
means a person (other than a partnership) that is not for United
States federal income tax purposes any of the following:
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an individual citizen or resident of the United States;
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a corporation (or any other entity treated as a corporation for
United States federal income tax purposes) created or organized
in or under the laws of the United States, any state thereof or
the District of Columbia;
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an estate the income of which is subject to United States
federal income taxation regardless of its source; or
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a trust if it (1) is subject to the primary supervision of
a court within the United States and one or more United States
persons have the authority to control all substantial decisions
of the trust or (2) has a valid election in effect under
applicable United States Treasury regulations to be treated as a
United States person.
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This summary is based upon provisions of the Internal Revenue
Code of 1986, as amended (the Code), and
regulations, rulings and judicial decisions as of the date
hereof. Those authorities may be changed, perhaps retroactively,
so as to result in United States federal income and estate tax
consequences different from those summarized below. This summary
does not address all aspects of United States federal income and
estate taxes and does not deal with foreign, state, local or
other tax considerations that may be relevant to
non-U.S. holders
in light of their personal circumstances. In addition, it does
not represent a detailed description of the United States
federal income tax consequences applicable to you if you are
subject to special treatment under the United States federal
income tax laws (including if you are a United States
expatriate, controlled foreign corporation,
passive foreign investment company or a partnership
or other pass-through entity for United States federal income
tax purposes). We cannot assure you that a change in law will
not alter significantly the tax considerations that we describe
in this summary.
If a partnership holds our Class A Common Stock, the tax
treatment of a partner will generally depend upon the status of
the partner and the activities of the partnership. If you are a
partner of a partnership holding our Class A Common Stock,
you should consult your tax advisors.
If you are considering the purchase of our Class A Common
Stock, you should consult your own tax advisors concerning the
particular United States federal income and estate tax
consequences to you of the ownership of the Class A Common
Stock, as well as the consequences to you arising under the laws
of any other taxing jurisdiction.
Dividends
Dividends paid to a
non-U.S. holder
of our Class A Common Stock generally will be subject to
withholding of United States federal income tax at a 30% rate or
such lower rate as may be
S-33
specified by an applicable income tax treaty. However, dividends
that are effectively connected with the conduct of a trade or
business by the
non-U.S. holder
within the United States (and, if required by an applicable
income tax treaty, are attributable to a United States permanent
establishment) are not subject to the withholding tax, provided
certain certification and disclosure requirements are satisfied.
Instead, such dividends are subject to United States federal
income tax on a net income basis in the same manner as if the
non-U.S. holder
were a United States person as defined under the Code. Any
such effectively connected dividends received by a foreign
corporation may be subject to an additional branch profits
tax at a 30% rate or such lower rate as may be specified
by an applicable income tax treaty.
A
non-U.S. holder
of our Class A Common Stock who wishes to claim the benefit
of an applicable treaty rate and avoid backup withholding, as
discussed below, for dividends will be required (a) to
complete Internal Revenue Service
Form W-8BEN
(or other applicable form) and certify under penalty of perjury
that such holder is not a United States person as defined under
the Code and is eligible for treaty benefits or (b) if our
Class A Common Stock is held through certain foreign
intermediaries, to satisfy the relevant certification
requirements of applicable United States Treasury regulations.
Special certification and other requirements apply to certain
non-U.S. holders
that are pass-through entities rather than corporations or
individuals.
A
non-U.S. holder
of our Class A Common Stock eligible for a reduced rate of
United States withholding tax pursuant to an income tax treaty
may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund with the Internal Revenue Service.
Gain on
disposition of Class A common stock
Any gain realized by a
non-U.S. holder
on the disposition of our Class A Common Stock generally
will not be subject to United States federal income tax unless:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States (and, if required by an applicable income
tax treaty, is attributable to a United States permanent
establishment of the
non-U.S. holder);
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the
non-U.S. holder
is an individual who is present in the United States for
183 days or more in the taxable year of that disposition,
and certain other conditions are met; or
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we are or have been a United States real property holding
corporation for United States federal income tax purposes.
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An individual
non-U.S. holder
described in the first bullet point immediately above will be
subject to tax on the net gain derived from the sale under
regular graduated United States federal income tax rates. An
individual
non-U.S. holder
described in the second bullet point immediately above will be
subject to a flat 30% tax on the gain derived from the sale,
which may be offset by United States source capital losses, even
though the individual is not considered a resident of the United
States. If a
non-U.S. holder
that is a foreign corporation falls under the first bullet point
immediately above, it will be subject to tax on its net gain in
the same manner as if it were a United States person as defined
under the Code and, in addition, may be subject to the branch
profits tax equal to 30% of its effectively connected earnings
and profits or at such lower rate as may be specified by an
applicable income tax treaty.
We believe that we are currently a United States real
property holding corporation for United States federal
income tax purposes and that our Class A Common Stock is
currently regularly traded on an established securities market.
So long as our Class A Common Stock continues to
S-34
be regularly traded on an established securities market, only a
non-U.S. holder
who holds or has held actually or constructively (at any time
during the shorter of the five year period preceding the date of
disposition or the holders holding period) more than 5% of
our Class A Common Stock will be subject to United States
federal income tax on the disposition of our Class A Common
Stock. United States holders who hold or have held, actually or
constructively, more than 5% of our Class A Common Stock
are urged to consult their tax advisors regarding the United
States federal income tax consequences of disposing of their
Class A Common Stock.
Federal estate
tax
Class A Common Stock held by an individual
non-U.S. holder
at the time of death will be included in such holders
gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
Information
reporting and backup withholding
We must report annually to the Internal Revenue Service and to
each
non-U.S. holder
the amount of dividends paid to such holder and the tax withheld
with respect to such dividends, regardless of whether
withholding was required. Copies of the information returns
reporting such dividends and withholding may also be made
available to the tax authorities in the country in which the
non-U.S. holder
resides under the provisions of an applicable income tax treaty.
A
non-U.S. holder
will be subject to backup withholding for dividends paid to such
holder unless such holder certifies under penalty of perjury
that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that such holder is a United States person as defined under the
Code), or such holder otherwise establishes an exemption.
Information reporting and, depending on the circumstances,
backup withholding will apply to the proceeds of a sale of our
Class A Common Stock within the United States or conducted
through certain
U.S.-related
financial intermediaries, unless the beneficial owner certifies
under penalty of perjury that it is a
non-U.S. holder
(and the payor does not have actual knowledge or reason to know
that the beneficial owner is a United States person as defined
under the Code), or such owner otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules may be
allowed as a refund or a credit against a
non-U.S. holders
United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service.
Additional
withholding requirements
Under recently enacted legislation, the relevant withholding
agent may be required to withhold 30% of any dividends and the
proceeds of a sale of our Class A Common Stock paid after
December 31, 2012 to (i) a foreign financial
institution unless such foreign financial institution agrees to
verify, report and disclose its United States accountholders and
meets certain other specified requirements or (ii) a
non-financial foreign entity that is the beneficial owner of the
payment unless such entity certifies that it does not have any
substantial United States owners or provides the name, address
and taxpayer identification number of each substantial United
States owner and such entity meets certain other specified
requirements.
S-35
Certain ERISA
considerations
The following discussion is a summary of certain considerations
associated with the purchase of our Class A Common Stock by
(i) employee benefit plans that are subject to Title I
of the Employee Retirement Income Security Act of 1974, as
amended (ERISA), (ii) plans, individual
retirement accounts and other arrangements that are subject to
Section 4975 of the Code or provisions under any federal,
state, local,
non-U.S. or
other laws or regulations that are similar to such provisions of
ERISA or the Code, and (iii) entities whose underlying
assets are considered to include plan assets of any
such plan, account or arrangement (each, an ERISA
Plan).
Section 406 of ERISA and Section 4975 of the Code
prohibit ERISA Plans from engaging in specified transactions
involving plan assets with persons or entities who
are parties in interest, within the meaning of
ERISA, or disqualified persons, within the meaning
of Section 4975 of the Code, unless an exemption is
available. A party in interest or disqualified person who
engaged in a non-exempt prohibited transaction may be subject to
excise taxes and other penalties and liabilities under ERISA and
the Code. In addition, the fiduciary of the ERISA Plan that
engaged in such a non-exempt prohibited transaction may be
subject to penalties and liabilities under ERISA and the Code. A
prohibited transaction within the meaning of ERISA and the Code
may result if our Class A Common Stock is acquired by an
ERISA Plan to which we or an underwriter is a party in interest
and such acquisition is not entitled to an applicable exemption,
of which there are many.
The foregoing discussion is general in nature and is not
intended to be all-inclusive. Due to the complexity of these
rules and the penalties that may be imposed upon persons
involved in non-exempt prohibited transactions, it is
particularly important that fiduciaries, or other persons
considering purchasing our Class A Common Stock on behalf
of, or with the assets of, any ERISA Plan, consult with their
counsel regarding the matters described herein.
S-36
Underwriting
J.P. Morgan Securities LLC, Credit Suisse Securities (USA)
LLC, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Citigroup Global Markets Inc. are acting as the
representatives of the underwriters below. Subject to the terms
and conditions stated in the underwriting agreement dated the
date of this prospectus supplement, each underwriter named below
has agreed to purchase, and we have agreed to sell to that
underwriter, the number of shares of Class A Common Stock
set forth opposite the underwriters name.
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Underwriter
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Number of shares
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J.P. Morgan Securities LLC.
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Credit Suisse Securities (USA) LLC.
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Citigroup Global Markets Inc.
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Wells Fargo Securities, LLC
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Total
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Under the terms and conditions of the underwriting agreement,
the underwriters must buy all of the shares of offered
Class A Common Stock if they buy any of them. The
underwriting agreement provides that the obligations of the
underwriters are subject to approval of legal matters by their
counsel, including the validity of the Class A Common
Stock, and other conditions, such as the receipt by the
underwriters of officers certificates and legal opinions.
If an underwriter defaults, the underwriting agreement provides
that, in certain circumstances, the purchase commitments of the
nondefaulting underwriters may be increased or the underwriting
agreement may be terminated. The underwriters will sell the
Class A Common Stock to the public when and if the
underwriters buy the Class A Common Stock from Hovnanian.
We have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act of
1933, or to contribute to payments the underwriters may be
required to make in respect to those liabilities.
We have granted to the underwriters an option to purchase up
to
additional shares of Class A Common Stock at the public
offering price, less the underwriting discounts and commissions
set forth on the cover page of the prospectus supplement, to
cover over-allotments, if any. This option is exercisable for a
period of 30 days. If the underwriters exercise their
over-allotment option, the underwriters have severally agreed,
subject to conditions, to purchase from us shares in
approximately the same proportion as set forth in the table
above.
The underwriters propose to offer the Class A Common Stock
directly to the public initially at the offering price set forth
on the cover page of this prospectus supplement. The
underwriters may offer the Class A Common Stock to
securities dealers at that price less a concession not in excess
of $ per share. The underwriters
reserve the right to reject any order for the purchase of
shares. If all of the shares are not sold at the public offering
price, the underwriters may change the offering price and other
selling terms.
We, our executive officers and directors have agreed that, for a
period of 90 days from the date of this prospectus
supplement, we and they will not, without the prior written
consent of J.P. Morgan Securities LLC and Credit Suisse
Securities (USA) LLC, offer, sell, contract to sell,
S-37
pledge or otherwise dispose of or hedge any shares of our
Class A Common Stock or any securities convertible into or
exchangeable for our Class A Common Stock, subject to
certain specified exceptions. J.P. Morgan Securities LLC and
Credit Suisse Securities (USA) LLC in their sole discretion may
release any of the securities subject to these
lock-up
provisions at any time without notice.
The following table provides information regarding the per share
and total underwriting discounts and commissions to be paid by
us to the underwriters. These amounts are shown assuming both no
exercise and full exercise of the underwriters option to
purchase up to additional shares.
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No exercise of
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Full exercise of
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over-allotment
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over-allotment
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option
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option
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Per share
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$
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$
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Total
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$
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$
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We estimate that our expenses in connection with the sale of the
Class A Common Stock, other than underwriting discounts,
will be approximately $300,000. This estimate includes expenses
related to the printing, transfer agent fees, and legal and
accounting fees, among other expenses.
In connection with the offering, the underwriters may purchase
and sell shares of Class A Common Stock in the open market.
These transactions may include short sales, syndicate covering
transactions and stabilizing transactions. Short sales involve
syndicate sales of shares of our Class A Common Stock in
excess of the number of shares to be purchased by the
underwriters in this offering, which creates a syndicate short
position. Covered short sales are sales of shares
made in an amount up to the number of shares represented by the
underwriters over-allotment option. In determining the
source of shares to close out the covered syndicate short
position, the underwriters will consider, among other things,
the price of shares available for purchase in the open market as
compared to the price at which they may purchase shares through
the over-allotment option. Transactions to close out the covered
syndicate short positions involve either purchases of the
Class A Common Stock in the open market after the
distribution has been completed or the exercise of the
over-allotment option. The underwriters may also make
naked short sales of shares in excess of the
over-allotment option. The underwriters must close out any naked
short position by purchasing shares of Class A Common Stock
in the open market. A naked short position is more likely to be
created if the underwriters are concerned that there may be
downward pressure on the price of the shares in the open market
after pricing that could adversely affect investors who purchase
in this offering. Stabilizing transactions consist of bids for
or purchases of shares in the open market while the offering is
in progress.
The underwriters also may impose a penalty bid. Penalty bids
permit the underwriters to reclaim a selling concession from a
syndicate member when the underwriters repurchase shares
originally sold by that syndicate member in order to cover
syndicate short positions or make stabilizing purchases.
Any of these activities may have the effect of preventing or
retarding a decline in the market price of the Class A
Common Stock. They may also cause the price of the Class A
Common Stock to be higher than the price that would otherwise
exist in the open market in the absence of
S-38
these transactions. The underwriters may conduct these
transactions on the exchange on which we are listed or in the
over-the-counter
market, or otherwise. If the underwriters commence any of these
transactions, they may discontinue them at any time.
The underwriters and their affiliates have performed investment
banking, commercial banking and advisory services for us from
time to time for which they have received customary fees and
expenses. The underwriters may, from time to time, engage in
transactions with and perform services for us in the ordinary
course of their business. An affiliate of Merrill Lynch, Pierce,
Fenner & Smith Incorporated has purchased, and may in
the future purchase, mortgage loans from us or in the secondary
mortgage market in the ordinary course of business. Disputes,
which could include litigation, may arise in connection with
requests for loan repurchases
and/or make
whole payments with respect to such mortgage loans. In addition,
Credit Suisse Securities (USA) LLC is acting as the dealer
manager in connection with the Tender Offers and certain of the
underwriters or their affiliates may hold Tender Offer Notes and
tender such notes in the Tender Offers or we may redeem them in
the Redemptions. Certain of the underwriters in this offering
are also underwriters in the Concurrent Offerings.
A prospectus supplement in electronic format may be made
available on the websites maintained by one or more of the
underwriters. The representatives may agree to allocate a number
of shares to underwriters for sale to their online brokerage
account holders. The representatives will allocate shares to
underwriters that may make Internet distributions on the same
basis as other allocations. In addition, shares may be sold by
the underwriters to securities dealers who resell shares to
online brokerage account holders. Other than the prospectus
supplement in electronic format, the information on any
underwriters web site and any information contained in any
other web site maintained by an underwriter is not part of the
prospectus supplement or the registration statement of which
this prospectus supplement forms a part, has not been approved
and/or
endorsed by us or any underwriter in its capacity as underwriter
and should not be relied upon by investors.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
Class A Common Stock described by this prospectus
supplement may not be made in that Relevant Member State, except
that an offer to the public in that Relevant Member State of any
Class A Common Stock offered by this prospectus supplement
may be made at any time under the following exemptions under the
Prospectus Directive, if they have been implemented in that
Relevant Member State:
(a) to any legal entity which is a qualified investor as
defined in the Prospectus Directive;
(b) to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors as defined in the Prospectus Directive), as permitted
under the Prospectus Directive, subject to obtaining the prior
consent of the representatives for any such offer; or
(c) in any other circumstances falling within
Article 3(2) of the Prospectus Directive, provided
that no such offer of Class A Common Stock shall result in
a requirement for the publication by us or any underwriter of a
prospectus pursuant to Article 3 of the Prospectus
Directive.
For the purposes of this provision, the expression an
offer to the public in relation to any Class A
Common Stock in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any Class A
Common
S-39
Stock to be offered so as to enable an investor to decide to
purchase any Class A Common Stock, as the same may be
varied in that Member State by any measure implementing the
Prospectus Directive in that Member State, the expression
Prospectus Directive means Directive 2003/71/EC (and
amendments thereto, including the 2010 PD Amending Directive, to
the extent implemented in the Relevant Member State), and
includes any relevant implementing measure in the Relevant
Member State, and the expression 2010 PD Amending
Directive means Directive 2010/73/EU.
Each underwriter has represented and agreed that:
(a) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of Section 21 of the Financial Services
and Markets Act 2000 (the FSMA)) received by it in
connection with the issue or sale of the Class A Common
Stock in circumstances in which Section 21(1) of the FSMA
does not apply to us; and
(b) it has complied and will comply with all applicable
provisions of the FSMA with respect to anything done by it in
relation to the Class A Common Stock in, from or otherwise
involving the United Kingdom.
Neither this prospectus supplement nor any other offering
material relating to the Class A Common Stock described in
this prospectus supplement has been submitted to the clearance
procedures of the Autorité des Marchés Financiers or
by the competent authority of another member state of the
European Economic Area and notified to the Autorité des
Marchés Financiers. The shares of Class A Common Stock
have not been offered or sold and will not be offered or sold,
directly or indirectly, to the public in France. Neither this
prospectus supplement nor any other offering material relating
to the Class A Common Stock has been or will be
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released, issued, distributed or caused to be released, issued
or distributed to the public in France or
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used in connection with any offer for subscription or sale of
the Class A Common Stock to the public in France.
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Such offers, sales and distributions will be made in France only
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to qualified investors (investisseurs qualifiés)
and/or to a
restricted circle of investors (cercle restreint
dinvestisseurs), in each case investing for their own
account, all as defined in, and in accordance with,
Article L.411-2,
D.411-1, D.411-2, D.734-1, D.744-1, D.754-1 and D.764-1 of the
French Code monétaire et financier or
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to investment services providers authorized to engage in
portfolio management on behalf of third parties or
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in a transaction that, in accordance with
article L.411-2-II-1°-or-2°-or
3° of the French Code monétaire et financier
and
article 211-2
of the General Regulations (Règlement
Général) of the Autorité des Marchés
Financiers, does not constitute a public offer (appel public
à lépargne).
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The Class A Common Stock may be resold directly or
indirectly, only in compliance with
Articles L.411-1,
L.411-2, L.412-1 and L.621-8 through L.621-8-3 of the French
Code monétaire et financier.
S-40
Other than in the United States, no action has been taken by us
or the underwriters that would permit a public offering of the
Class A Common Stock offered by this prospectus supplement
in any jurisdiction where action for that purpose is required.
The Class A Common Stock offered by this prospectus
supplement may not be offered or sold, directly or indirectly,
nor may this prospectus supplement or any other offering
material or advertisements in connection with the offer and sale
of any such shares be distributed or published in any
jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that
jurisdiction. Persons into whose possession this prospectus
supplement comes are advised to inform themselves about and to
observe any restrictions relating to the offering and the
distribution of this prospectus supplement.
Our shares of Class A Common Stock are traded on the New
York Stock Exchange under the symbol HOV.
S-41
Legal
matters
The validity of the shares of Class A Common Stock being
offered hereby is being passed upon for us by Simpson
Thacher & Bartlett LLP, New York, New York. Certain
legal matters relating to the offering of the Class A
Common Stock will be passed upon for the Underwriters by Davis
Polk & Wardwell LLP, New York, New York.
Experts
The consolidated financial statements as of October 31,
2010 and 2009, and for the years then ended incorporated by
reference in this prospectus supplement from the Companys
Amendment No. 1 to the Annual Report on
Form 10-K/A
for the year ended October 31, 2010 and the effectiveness
of Hovnanians internal control over financial reporting as
of October 31, 2010, have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon
the reports of such firm given on their authority as experts in
accounting and auditing.
The consolidated financial statements of Hovnanian for the year
ended October 31, 2008 appearing in Hovnanians
Amendment No. 1 to the Annual Report
(Form 10-K/A) for
the year ended October 31, 2010 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
Available
information
We are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and file reports,
proxy statements and other information with the SEC. You may
read, free of charge, and copy, at the prescribed rates, any
reports, proxy statements and other information at the
SECs public reference room at 100 F Street,
N.E., Washington, D.C. 20549. You may obtain information on
the operation of the public reference room by calling the SEC at
1-800-SEC-0330.
Copies of such material also can be obtained by mail from the
Public Reference Section of the SEC, at 100 F Street,
N.E., Washington, D.C. 20549, at the prescribed rates. The
SEC also maintains a website that contains reports, proxy and
information statements and other information. The website
address is:
http://www.sec.gov.
Hovnanians Class A common stock is listed on the New
York Stock Exchange, and reports, proxy statements and other
information also can be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
Incorporation of
certain documents by reference
We incorporate by reference the document listed below filed
under Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act. Information furnished under Item 2.02 or
Item 7.01 of our Current Reports on
Form 8-K
is not incorporated by reference in this prospectus.
S-42
Hovnanian has filed the following document with the SEC and this
document is incorporated herein by reference:
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Amendment No. 1 to Annual Report on
Form 10-K/A
for fiscal year ended October 31, 2010, Registration File
No. 1-8551.
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All documents filed by Hovnanian pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
this prospectus supplement and prior to the termination of the
offering made by this prospectus supplement are to be
incorporated herein by reference. Any statement contained in a
document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes
of this prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this prospectus.
Hovnanian will provide without charge to each person, including
any beneficial owner, to whom a copy of this prospectus
supplement is delivered, upon the written or oral request of
such person, a copy of any or all of the information
incorporated by reference in this prospectus supplement, other
than exhibits to such information (unless such exhibits are
specifically incorporated by reference into the information that
this prospectus incorporates). Requests for such copies should
be directed to Brad OConnor, Vice President and Corporate
Controller, Hovnanian Enterprises, Inc., 110 West Front
Street, P.O. Box 500, Red Bank, New Jersey 07701
(telephone:
(732) 747-7800).
S-43
PROSPECTUS
$500,000,000
Hovnanian Enterprises,
Inc.
Preferred Stock
Class A Common Stock
Depositary Shares
Warrants to Purchase Preferred Stock
Warrants to Purchase Class A Common Stock
Warrants to Purchase Depositary Shares
Debt Securities
Warrants to Purchase Debt Securities
Stock Purchase Contracts
Stock Purchase Units
Units
K. Hovnanian Enterprises,
Inc.
Debt Securities
Warrants to Purchase Debt Securities
Units
We, Hovnanian Enterprises, Inc., may offer and sell from time to
time, in one or more series:
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Preferred Stock,
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Class A Common Stock (along with Preferred Stock Purchase
Rights),
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Depositary Shares,
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debt securities consisting of notes, debentures or other
evidences of indebtedness, which may be senior debt securities,
senior subordinated debt securities or subordinated debt
securities, and which may be convertible into, or exchangeable
or exercisable for, any of the securities referred to herein,
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warrants to purchase our Preferred Stock, our Class A
Common Stock, our Depositary Shares or our debt securities,
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Stock Purchase Contracts,
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Stock Purchase Units, and
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Units, comprised of two or more of any of the securities
referred to herein, in any combination;
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together or separately, in amounts, at prices and on terms that
will be determined at the time of the offering.
Our wholly-owned subsidiary, K. Hovnanian Enterprises, Inc., may
offer and sell from time to time, in one or more series:
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debt securities, consisting of notes, debentures or other
evidences of indebtedness, which may be senior debt securities,
senior subordinated debt securities or subordinated debt
securities, which in each case will be fully and unconditionally
guaranteed by Hovnanian Enterprises, Inc., and which may be
convertible into, or exchangeable or exercisable for, any of the
other securities referred to herein,
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warrants to purchase K. Hovnanian Enterprises, Inc. debt
securities, which will be fully and unconditionally guaranteed
by Hovnanian Enterprises, Inc., and
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Units, comprised of two or more of any of the securities
referred to herein, in any combination;
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together or separately, in amounts, at prices and on terms that
will be determined at the time of the offering.
Hovnanian Enterprises, Inc. debt securities or warrants or the
debt securities or warrants issued by K. Hovnanian Enterprises,
Inc. may be guaranteed by substantially all of our wholly-owned
subsidiaries and may be issued either separately, or together
with, upon conversion of, or in exchange for, other securities.
We may offer and sell the securities directly to you, through
agents, underwriters or dealers. The prospectus supplement for
each offering will describe in detail the plan of distribution
for that offering and will set forth the names of any agents,
dealers or underwriters involved in the offering and any
applicable fees, commissions or discount arrangements. The net
proceeds we expect to receive from sales will be set forth in
the prospectus supplement.
This prospectus describes some of the general terms that may
apply to these securities. The specific terms of the securities
to be offered, and any other information relating to a specific
offering, will be set forth in a post-effective amendment to the
registration statement of which this prospectus is a part or in
a supplement to this prospectus.
Investing in our securities involves risks. See Risk
Factors beginning on page 4 of this prospectus and in
the documents that we incorporate by reference.
Our common stock is traded on the New York Stock Exchange under
the symbol HOV.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
The date of the prospectus is January 28, 2011.
TABLE OF
CONTENTS
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ABOUT
THIS PROSPECTUS
This prospectus is part of a registration statement we filed
with the Securities and Exchange Commission, or the
Commission, using the shelf registration
process. Under the shelf registration process, using this
prospectus, together with a prospectus supplement, we may sell
from time to time any combination of the securities described in
this prospectus in one or more offerings. This prospectus
provides you with a general description of the securities that
may be offered. Each time we sell securities pursuant to this
prospectus, we will provide a prospectus supplement that will
contain specific information about the terms of the securities
being offered. A prospectus supplement may include a discussion
of any risk factors or other special considerations applicable
to those securities or to us. The prospectus supplement may also
add to, update or change information contained in this
prospectus and, accordingly, to the extent inconsistent, the
information in this prospectus is superseded by the information
in the prospectus supplement. You should read this prospectus,
any applicable prospectus supplement and the additional
information incorporated by reference in this prospectus
described below under Available Information and
Incorporation of Certain Documents by Reference
before making an investment in our securities.
This prospectus contains summaries of certain provisions
contained in some of the documents described herein, but
reference is made to the actual documents for complete
information. All of the summaries are qualified in their
entirety by the actual documents. Copies of the documents
referred to herein have been filed, or will be filed or
incorporated by reference as exhibits to the registration
statement of which this prospectus is a part, and you may obtain
copies of those documents as described below under
Available Information.
Neither the delivery of this prospectus nor any sale made
under it implies that there has been no change in our affairs or
that the information in this prospectus is correct as of any
date after the date of this prospectus. You should not assume
that the information in this prospectus, including any
information incorporated in this prospectus by reference, the
accompanying prospectus supplement or any free writing
prospectus prepared by us, is accurate as of any date other than
the date on the front of those documents. Our business,
financial condition, results of operations and prospects may
have changed since that date.
We have not authorized anyone to provide any information other
than that contained or incorporated by reference in this
prospectus, a prospectus supplement or in any free writing
prospectus prepared by or on behalf of us or to which we have
referred you. We take no responsibility for, and can provide no
assurance as to the reliability of, any other information that
others may give you. We are not making an offer to sell
securities in any jurisdiction where the offer or sale of such
securities is not permitted.
Unless otherwise stated or context otherwise requires, all
references in this prospectus to:
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K. Hovnanian are to K. Hovnanian Enterprises, Inc.,
a California corporation; and
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Hovnanian, us, we,
our or Company are to Hovnanian
Enterprises, Inc., a Delaware corporation, together with its
consolidated subsidiaries, including K. Hovnanian.
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FORWARD-LOOKING
STATEMENTS
All statements in this prospectus that are not historical facts
should be considered as Forward Looking Statements
within the meaning of the Safe Harbor provisions of
the Private Securities Litigation Reform Act of 1995. Such
statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or
achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied
by the forward-looking statements. Although we believe that our
plans, intentions and expectations reflected in, or suggested
by, such forward-looking statements are reasonable, we can give
no assurance that such plans, intentions, or expectations will
be achieved. Such risks, uncertainties and other factors
include, but are not limited to:
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Changes in general and local economic and industry and business
conditions and impacts of the sustained homebuilding downturn;
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Adverse weather and other environmental conditions and natural
disasters;
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Changes in market conditions and seasonality of the
Companys business;
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Changes in home prices and sales activity in the markets where
the Company builds homes;
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Government regulation, including regulations concerning
development of land, the home building, sales and customer
financing processes, and the environment;
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Fluctuations in interest rates and the availability of mortgage
financing;
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Shortages in, and price fluctuations of, raw materials and labor;
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The availability and cost of suitable land and improved lots;
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Levels of competition;
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Availability of financing to the Company;
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Utility shortages and outages or rate fluctuations;
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Levels of indebtedness and restrictions on the Companys
operations and activities imposed by the agreements governing
the Companys outstanding indebtedness;
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The Companys sources of liquidity;
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Changes in credit ratings;
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Availability of net operating loss carryforwards;
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Operations through joint ventures with third parties;
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Product liability litigation and warranty claims;
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Successful identification and integration of acquisitions;
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Significant influence of the Companys controlling
stockholders; and
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Geopolitical risks, terrorist acts and other acts of war.
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Certain risks, uncertainties, and other factors are incorporated
herein by reference to our most recent Annual Report on
Form 10-K
and our subsequent Quarterly Reports on
Form 10-Q,
along with the other information contained in this prospectus,
as updated by our subsequent filings under the Securities
Exchange Act of 1934, as amended (the Exchange Act).
Except as otherwise required by applicable securities laws, we
undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new
information, future events, changed circumstances, or any other
reason, after the date of this prospectus.
AVAILABLE
INFORMATION
We are subject to the informational requirements of the Exchange
Act, and file reports, proxy statements and other information
with the Commission. We have also filed a registration statement
on
Form S-3
with the Commission. This prospectus, which forms part of the
registration statement, does not have all of the information
contained in the registration statement. You may read, free of
charge, and copy, at the prescribed rates, any reports, proxy
statements and other information, including the registration
statement, at the Commissions Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. The
public may obtain information concerning the operation of the
Public Reference Room by calling the Commission at
1-800-SEC-0330.
The Commission also maintains a website that contains reports,
proxy statements and other information, including the
registration statement. The website address is:
http://www.sec.gov.
Hovnanians Class A Common Stock is listed on the New
York Stock Exchange, and reports, proxy statements and other
information also can be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005.
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INCORPORATION
OF CERTAIN DOCUMENTS BY REFERENCE
This prospectus is part of a registration statement filed with
the Commission. The Commission allows us to incorporate by
reference selected documents we file with it, which means
that we can disclose important information to you by referring
you to those documents. The information in the documents
incorporated by reference is considered to be part of this
prospectus, and information in documents that we file later with
the Commission will automatically update and supersede this
information.
We incorporate by reference the documents listed below filed
under Section 13(a), 13(c), 14 or 15(d) of the Exchange
Act. Information furnished under Item 2.02 or
Item 7.01 of our Current Reports on
Form 8-K
is not incorporated by reference in this prospectus.
Hovnanian has filed the following documents with the Commission
and these documents are incorporated herein by reference:
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Annual Report on
Form 10-K
for the fiscal year ended October 31, 2010, Registration
File
No. 1-8551
(including information specifically incorporated by reference
into the Annual Report on
Form 10-K
from Hovnanians definitive proxy statement for the 2011
Annual Meeting of shareholders);
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The description of the Companys Class A Common Stock
contained in the Registration Statement on
Form 8-A
filed on March 13, 2001, including any amendment or reports
filed for the purpose of updating such description, Registration
File
No. 1-8551;
and
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The description of the Companys Preferred Stock Purchase
Rights contained in the Registration Statement on
Form 8-A
filed on August 14, 2008, Registration File
No. 1-8551.
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All documents filed by Hovnanian pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act subsequent to the date of
the initial registration statement and prior to the
effectiveness of the registration statement, and all such
documents filed by Hovnanian subsequent to the date of this
prospectus and prior to the termination of the offerings made by
this prospectus are to be incorporated herein by reference. Any
statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this prospectus to the extent that
a statement contained herein or in any other subsequently filed
document which also is incorporated or deemed to be incorporated
by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of
this prospectus.
Hovnanian makes available through its website its annual report
on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to these reports filed or furnished pursuant to
Section 13(d) or 15(d) of the Exchange Act as soon as
reasonably practicable after they are filed with, or furnished
to, the Commission. In addition, Hovnanian will provide without
charge to each person, including any beneficial owner, to whom a
copy of this prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the information
incorporated by reference in this prospectus, other than
exhibits to such information (unless such exhibits are
specifically incorporated by reference into the information that
this prospectus incorporates). Requests for such copies should
be directed to Brad OConnor, Vice President and Corporate
Controller, Hovnanian Enterprises, Inc., 110 West Front
Street, P.O. Box 500, Red Bank, New Jersey 07701
(telephone:
(732) 747-7800).
THE
COMPANY
Overview
We design, construct, market, and sell single-family detached
homes, attached townhomes and condominiums, mid-rise
condominiums, urban infill and active adult homes in planned
residential developments and are one of the nations
largest builders of residential homes. Founded in 1959 by Kevork
Hovnanian, the Company was incorporated in New Jersey in 1967
and reincorporated in Delaware in 1983. Since the incorporation
of our predecessor company and including unconsolidated joint
ventures, we have delivered in excess of 291,000 homes,
including 5,009 homes in fiscal 2010. The Company consists of
two distinct operations: homebuilding and financial services.
Our homebuilding operations consist of six segments: Northeast,
Mid-Atlantic, Midwest, Southeast,
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Southwest and West. Our financial services operations provide
mortgage loans and title services to the customers of our
homebuilding operations.
We are currently, excluding unconsolidated joint ventures,
offering homes for sale in 192 communities in 40 markets in
18 states throughout the United States. We market and build
homes for first-time buyers, first-time and second-time
move-up
buyers, luxury buyers, active adult buyers, and empty nesters.
We offer a variety of home styles at base prices ranging from
$34,000 (low income housing) to $1,660,000 with an average sales
price, including options, of $281,000 nationwide in fiscal 2010.
Corporate
Information
Our principal executive offices are located at 110 West
Front Street, P.O. Box 500, Red Bank, New Jersey
07701, our telephone number is (732)747-7800, and our Internet
website address is www.khov.com. Information on or accessible
through our website is not a part of this prospectus.
RISK
FACTORS
An investment in our securities involves a high degree of risk.
Certain risks relating to us and our business are described
under the headings Business and Risk
Factors in our Annual Report on
Form 10-K
for the year ended October 31, 2010, filed with the
Commission on December 22, 2010, which is incorporated by
reference into this prospectus and which you should carefully
review and consider, along with the other information contained
in this prospectus or incorporated by reference herein, as
updated by our subsequent filings under the Exchange Act, before
making an investment in any of our securities. Additional risks,
as well as updates or changes to the risks described in the
documents incorporated by reference herein, may be included in
any applicable prospectus supplement. Our business, financial
condition or results of operations could be materially adversely
affected by any of these risks. The market or trading price of
our securities could decline due to any of these risks, and you
may lose all or part of your investment. In addition, please
read the section of this prospectus captioned
Forward-Looking Statements, in which we describe
additional uncertainties associated with our business and the
forward-looking statements included or incorporated by reference
in this prospectus. Please note that additional risks not
presently known to us or that we currently deem immaterial may
also impair our business and operations.
Investment in any securities offered pursuant to this prospectus
involves risks and uncertainties. If one or more of the events
discussed in the risk factors were to occur, our business,
financial condition, results of operations or liquidity, as well
as the value of an investment in our securities, could be
materially adversely affected.
RATIOS OF
EARNINGS TO FIXED CHARGES AND
EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK
DIVIDENDS
For purposes of computing the ratio of earnings to fixed charges
and the ratio of earnings to combined fixed charges and
preferred stock dividends, earnings consist of earnings from
continuing operations before income taxes and income or loss
from equity investees, plus fixed charges and distributed income
of equity investees, less interest capitalized. Fixed charges
consist of all interest incurred, plus that portion of operating
lease rental expense (33%) deemed to be representative of
interest, plus the amortization of debt issuance costs and bond
discounts. Combined fixed charges and preferred stock dividends
consist of fixed charges and preferred stock dividends declared.
The fourth quarter of fiscal year 2005 was the first period we
declared and paid preferred stock dividends, and due to covenant
restrictions, we have been prohibited from paying dividends
beginning with the first quarter of fiscal year 2008. The
following table sets forth the ratios of earnings to fixed
charges and the ratios of earnings to combined fixed charges and
preferred stock dividends for each of the periods indicated:
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Year Ended October 31,
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2010
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2009
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2008
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2007
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2006
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Ratio of earnings to fixed charges
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(a)
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(a)
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(a)
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(a)
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1.8
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Ratio of earnings to combined fixed charges and preferred stock
dividends
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(b)
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(b)
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(b)
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(b)
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1.7
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Earnings for the years ended October 31, 2010, 2009, 2008
and 2007 were insufficient to cover fixed charges for such
period by $273.8 million, $628.3 million,
$1,153.5 million and $684.6 million, respectively. |
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Earnings for the years ended October 31, 2010, 2009, 2008
and 2007 were insufficient to cover fixed charges and preferred
stock dividends for such period by $273.8 million,
$628.3 million, $1,153.5 million and
$695.6 million, respectively. Due to restrictions in our
indentures on our senior secured, senior, and senior
subordinated notes, we are currently prohibited from paying
dividends on our preferred stock and did not make any dividend
payments in fiscal 2010, 2009 and 2008. In fiscal 2007 and 2006,
we paid $10.7 million of dividends on our preferred stock. |
USE OF
PROCEEDS
Unless otherwise provided in the applicable prospectus
supplement, the net proceeds from the sale of the securities
offered by this prospectus and each prospectus supplement, the
offered securities, will be used for general
corporate purposes, which may include working capital needs, the
refinancing or repayment of existing indebtedness, capital
expenditures, expansion of the business and acquisitions. If any
of the net proceeds from the offered securities will be used for
acquisitions, we will identify the acquisition in the applicable
prospectus supplement. The net proceeds may be invested
temporarily in short-term securities or to repay short-term debt
until they are used for their stated purpose.
DESCRIPTION
OF DEBT SECURITIES
The following description of the terms of the debt securities
sets forth certain general terms that may apply to the debt
securities that may be offered from time to time pursuant to
this prospectus. The particular terms of any debt securities
will be described in the prospectus supplement relating to those
debt securities. Accordingly, for a description of the terms of
a particular issue of debt securities, reference must be made to
both the prospectus supplement relating thereto and the
following description. The specific terms of debt securities as
described in the applicable prospectus supplement will
supplement and, if applicable, may modify or replace the general
terms described in this prospectus.
In this section, references to Hovnanian mean
Hovnanian Enterprises, Inc. and do not include K. Hovnanian or
any of its subsidiaries and references to K.
Hovnanian mean K. Hovnanian Enterprises, Inc. and do not
include any of its subsidiaries.
The debt securities issued by K. Hovnanian, which we refer to as
the K. Hovnanian Debt Securities may be issued
either separately, or together with, upon conversion of or in
exchange for, other securities. The K. Hovnanian Debt Securities
will either be unsecured senior obligations, which we refer to
as the K Hovnanian Senior Debt Securities, unsecured
senior subordinated obligations, which we refer to as the
K. Hovnanian Senior Subordinated Debt Securities or
unsecured subordinated obligations, which we refer to as the
K. Hovnanian Subordinated Debt Securities, of K.
Hovnanian. The K. Hovnanian Debt Securities will be guaranteed
by Hovnanian, may be guaranteed by other subsidiaries of
Hovnanian and will be issued:
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in the case of K. Hovnanian Senior Debt Securities, under a
Senior Indenture, the K. Hovnanian Senior Debt
Indenture, among K. Hovnanian, Hovnanian and any
subsidiaries of Hovnanian, as guarantors, and the trustee
specified in the applicable prospectus supplement;
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in the case of K. Hovnanian Senior Subordinated Debt Securities,
under a Senior Subordinated Indenture, the K. Hovnanian
Senior Subordinated Debt Indenture, among K. Hovnanian,
Hovnanian and any subsidiaries of Hovnanian, as guarantors, and
the trustee specified in the applicable prospectus
supplement; and
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in the case of K. Hovnanian Subordinated Debt Securities, under
a Subordinated Indenture, the K. Hovnanian
Subordinated Debt Indenture, among K. Hovnanian, Hovnanian
and any subsidiaries of Hovnanian, as guarantors, and the
trustee specified in the applicable prospectus supplement.
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The K. Hovnanian Senior Debt Indenture, the K. Hovnanian Senior
Subordinated Debt Indenture and the K. Hovnanian Subordinated
Debt Indenture are sometimes referred to in this description
individually as a K. Hovnanian Indenture and
collectively as the K. Hovnanian Indentures.
The debt securities issued by Hovnanian, which we refer to as
the Hovnanian Debt Securities may be issued either
separately, or together with, upon conversion of or in exchange
for, other securities. The Hovnanian Debt Securities will either
be unsecured senior obligations, which we refer to as the
Hovnanian Senior Debt Securities and together with
the K. Hovnanian Senior Debt Securities, the Senior
Debt Securities, unsecured senior subordinated
obligations, which we refer to as the Hovnanian Senior
Subordinated Debt Securities and together with the
K. Hovnanian Senior Subordinated Debt Securities, the
Senior Subordinated Debt Securities, or unsecured
subordinated obligations, which we refer to as the
Hovnanian Subordinated Debt Securities and together
with the K. Hovnanian Subordinated Debt Securities, the
Subordinated Debt Securities, of Hovnanian. The
Hovnanian Debt Securities may be guaranteed by subsidiaries of
Hovnanian and will be issued:
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in the case of Hovnanian Senior Debt Securities, under a Senior
Indenture, the Hovnanian Senior Debt Indenture,
among Hovnanian, any subsidiaries of Hovnanian, as guarantors,
and the trustee specified in the applicable prospectus
supplement;
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in the case of Hovnanian Senior Subordinated Debt Securities,
under a Senior Subordinated Indenture, the Hovnanian
Senior Subordinated Debt Indenture, among Hovnanian, any
subsidiaries of Hovnanian, as guarantors, and the trustee
specified in the applicable prospectus supplement; and
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in the case of Hovnanian Subordinated Debt Securities, under a
Subordinated Indenture, the Hovnanian Subordinated Debt
Indenture, among Hovnanian, any subsidiaries of Hovnanian,
as guarantors, and the trustee specified in the applicable
prospectus supplement.
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The Hovnanian Senior Debt Indenture, The Hovnanian Senior
Subordinated Debt Indenture and the Hovnanian Subordinated Debt
Indenture are sometimes referred to in this description
individually as a Hovnanian Indenture and
collectively as the Hovnanian Indentures.
The K. Hovnanian Senior Indenture and the Hovnanian Senior
Indenture are sometimes referred to in this description
individually as a Senior Debt Indenture and
collectively as the Senior Debt Indentures. The
K. Hovnanian Senior Subordinated Debt Indenture and the
Hovnanian Senior Subordinated Debt Indenture are sometimes
referred to in this description individually as a Senior
Subordinated Debt Indenture and collectively as the
Senior Subordinated Debt Indentures. The K.
Hovnanian Subordinated Debt Indenture and the Hovnanian
Subordinated Debt Indenture are sometimes referred to
individually as a Subordinated Debt Indenture and
collectively as the Subordinated Debt Indentures.
The K. Hovnanian Indentures and the Hovnanian Indentures are
sometimes referred to in this description individually as an
Indenture and collectively as the
Indentures.
This summary of the terms and provisions of the debt securities
and the Indentures is not complete, and we refer you to the
copies of the Indentures, which will be filed as exhibits to the
registration statement of which this prospectus forms a part.
Whenever we refer to particular defined terms of the Indentures
in this section or in a prospectus supplement, we are
incorporating these definitions into this prospectus or the
prospectus supplement.
None of the Indentures limits the amount of debt securities that
may be issued thereunder, and the Indentures provide that the
debt securities may be issued from time to time in one or more
series. The Indentures permit the appointment of a different
trustee for each series of debt securities. Section references
below are to sections in each Indenture unless otherwise
indicated. Wherever particular sections or defined terms of the
applicable Indenture are referred to, those sections or defined
terms are incorporated herein by reference as part of the
statement made, and the statement is qualified in its entirety
by the reference. The Indentures are substantially identical,
except for certain covenants, provisions relating to
Hovnanians guarantee and to subordination. For purposes of
the summaries set forth below, issuer shall refer to
K. Hovnanian in the case of the K. Hovnanian Debt Securities and
the K. Hovnanian Indentures and to Hovnanian in the case of the
Hovnanian Debt Securities and the Hovnanian Indentures.
Obligors refers to Hovnanian and any subsidiaries of
Hovnanian, as guarantors, the guarantors, in the
case of the Hovnanian Debt Securities and the Hovnanian
Indentures, and to K. Hovnanian and Hovnanian and any
subsidiaries of Hovnanian, as guarantors, the
guarantors, in the case of the K. Hovnanian Debt
Securities and the K. Hovnanian Indentures.
6
Provisions
Applicable to Senior, Senior Subordinated and Subordinated Debt
Securities
General. The Hovnanian Debt Securities will be
unsecured senior, senior subordinated or subordinated
obligations of Hovnanian and the K. Hovnanian Debt Securities
will be unsecured senior, senior subordinated or subordinated
obligations of K. Hovnanian, except that, under specified
circumstances, K. Hovnanian may be released from these
obligations. See Conditions for Release of K.
Hovnanian. Unless otherwise specified in any prospectus
supplement, the Senior Debt Securities will rank equally in
right of payment with all of the other senior obligations of
Hovnanian or K. Hovnanian, as applicable, and the Senior
Subordinated Debt Securities and the Subordinated Debt
Securities will have such terms with respect to rank and
priority as described under Provisions Applicable Solely
to Senior Subordinated Debt Securities and Subordinated Debt
Securities Subordination. Except to the extent
described in any prospectus supplement, the Indentures do not,
and the debt securities will not, contain any covenants or other
provisions that are intended to afford holders of the debt
securities special protection in the event of either a change of
control of Hovnanian or a highly leveraged transaction by
Hovnanian.
We refer you to the applicable prospectus supplement for the
following terms of and information relating to the debt
securities being offered, the Offered Debt
Securities, to the extent these terms are applicable to
Offered Debt Securities:
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the title of the Offered Debt Securities;
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classification as K. Hovnanian Senior Debt Securities, K.
Hovnanian Senior Subordinated Debt Securities, K. Hovnanian
Subordinated Debt Securities, Hovnanian Senior Debt Securities,
Hovnanian Senior Subordinated Debt Securities or Hovnanian
Subordinated Debt Securities, aggregate principal amount,
purchase price and denomination, and whether the Offered Debt
Securities will be guaranteed by Hovnanian
and/or by
the subsidiary guarantors of Hovnanian as described under
Description of Guarantees below;
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the date or dates on which the principal of the Offered Debt
Securities is payable;
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the method by which amounts payable in respect of principal,
premium, if any, or interest, if any, on or upon the redemption
of the Offered Debt Securities may be calculated;
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the interest rate or rates, or the method by which it will be
determined, and the date or dates from which the interest, if
any, will accrue;
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the date or dates on which the interest, if any, will be payable;
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the place or places where and the manner in which the principal
of, premium, if any, and interest, if any, on the Offered Debt
Securities will be payable and the place or places where the
Offered Debt Securities may be presented for transfer;
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the right, if any, or obligation, if any, of Hovnanian or K.
Hovnanian to redeem, repay or purchase the Offered Debt
Securities pursuant to any sinking fund, amortization payments
or analogous provisions, at the option of Hovnanian or K.
Hovnanian or at the option of a holder thereof, and the period
or periods within which, the price or prices or the method by
which such price or prices will be determined, or both at which,
the form or method of payment therefor if other than in cash and
the terms and conditions upon which the Offered Debt Securities
will be redeemed, repaid or purchased pursuant to the obligation;
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the terms for conversion or exchange, if any, of the Offered
Debt Securities;
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any provision relating to the issuance of the Offered Debt
Securities at an original issue discount;
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if the amounts of payments of principal of, premium, if any, and
interest, if any, on the Offered Debt Securities are to be
determined with reference to an index, the manner in which those
amounts will be determined;
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any applicable United States federal income tax consequences;
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the currency or currencies for which the Offered Debt Securities
may be purchased and the currency or currencies in which
principal, premium, if any, and interest, if any, may be payable;
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the trustee with respect to the series of Offered Debt
Securities; and
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any other specific terms of the Offered Debt Securities,
including any deleted, modified or additional Events of Default
or remedies or additional covenants provided with respect to the
Offered Debt Securities, and any terms that may be required by
or advisable under applicable laws or regulations.
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Unless otherwise specified in any prospectus supplement, the
debt securities will be issuable in registered form and in
denominations of $2,000 and integral multiples of $1,000 in
excess thereof, see Section 2.7. No service charge will be
made for any transfer or exchange of any debt securities but the
issuer or trustee may require payment of a sum sufficient to
cover any tax or other governmental charge, payable in
connection therewith, see Section 2.8.
Debt securities may bear interest at a fixed rate or a floating
rate. Debt securities bearing no interest or interest at a rate
that at the time of issuance is below the prevailing market rate
may be issued at an initial offering price below their stated
principal amount. Special United States federal income tax
considerations applicable to discounted debt securities or to
some debt securities issued at par that are treated as having
been issued at a discount for United States federal income tax
purposes will be described in the applicable prospectus
supplement.
Unless otherwise specified in any prospectus supplement, in
determining whether the holders of the requisite aggregate
principal amount of outstanding debt securities of any series
have given any request, demand, authorization, direction,
notice, consent or waiver under the Indentures, the principal
amount of any series of debt securities originally issued at a
discount from their stated principal amount that will be deemed
to be outstanding for such purposes will be the amount of the
principal thereof that would be due and payable as of the date
of the determination upon a declaration of acceleration of the
maturity thereof.
Description of Guarantees. Hovnanian will
fully and unconditionally guarantee, pursuant to the
K. Hovnanian Indentures, the due and prompt payment of the
principal of and premium, if any, and interest on the
K. Hovnanian Debt Securities any and all other obligations
of K. Hovnanian to the holders of the K. Hovnanian Debt
Securities and the trustee under the K. Hovnanian Indentures
when and as the same shall become due and payable, whether at
the stated maturity, by declaration of acceleration, call for
redemption or otherwise. Any series of debt securities of
Hovnanian may be guaranteed by, and any series of debt
securities of K. Hovnanian may be further guaranteed by, certain
subsidiaries of Hovnanian, the subsidiary
guarantees, as provided in the applicable prospectus
supplement relating to such series. If debt securities are
guaranteed by subsidiary guarantors, that subsidiary guarantee
will be set forth in a supplemental indenture.
Payments with respect to the guarantee by Hovnanian of the K.
Hovnanian Senior Subordinated Debt Securities and K. Hovnanian
Subordinated Debt Securities will be subordinated in right of
payment to the prior payment in full of all Senior Indebtedness
of Hovnanian to the same extent and manner that payments with
respect to the K. Hovnanian Senior Subordinated Debt Securities
and K. Hovnanian Subordinated Debt Securities are subordinated
in right of payment to the prior payment in full of all Senior
Indebtedness of K. Hovnanian as described under Provisions
Applicable Solely to Senior Subordinated Debt Securities and
Subordinated Debt Securities below. Likewise, payments
with respect to subsidiary guarantees of Senior Subordinated
Debt Securities and Subordinated Debt Securities will be
subordinated in right of payment to the prior payment in full of
all Senior Indebtedness of each such subsidiary guarantor to the
same extent and manner that payments with respect to the Senior
Subordinated Debt Securities and Subordinated Debt Securities
are subordinated in right of payment to the prior payment in
full of all Senior Indebtedness of the issuer of such debt
securities as described under Provisions Applicable Solely
to Senior Subordinated Debt Securities and Subordinated Debt
Securities below.
Global Securities. The debt securities of a
series may be issued in whole or in part in the form of one or
more global securities, the global securities, that
will be deposited with or on behalf of a depositary, the
depositary, identified in the prospectus supplement
relating to such series. Global securities may be issued only in
fully registered form and in either temporary or permanent form.
Unless and until it is exchanged in whole or in part for the
individual debt securities represented thereby, a global
security:
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may not be transferred except as a whole; and
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may only be transferred
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by the depositary for the global security to its nominee,
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by a nominee of the depositary to the depositary or another
nominee of the depositary, or
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by the depositary or any nominee to a successor depositary or
nominee of the successor depositary, see Section 2.8.
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The specific terms of the depositary arrangement with respect to
a series of debt securities will be described in the prospectus
supplement relating to such series. Hovnanian and K. Hovnanian
anticipate that the following provisions generally will apply to
all depositary arrangements.
Upon the issuance of a global security, the depositary for that
global security or its nominee will credit, on its book-entry
registration and transfer system, the respective principal
amounts of the individual debt securities represented by that
global security to the accounts of persons that have accounts
with such depositary. Those accounts will be designated by the
dealers, underwriters or agents with respect to those debt
securities or by the issuer if the debt securities are offered
and sold directly by the issuer. Ownership of beneficial
interests in a global security will be limited to persons that
have accounts with the applicable depositary, participants, or
persons that may hold interests through participants. Ownership
of beneficial interests in a global security will be shown on,
and the transfer of that ownership will be effected only
through, records maintained by the applicable depositary or its
nominee, with respect to interests of participants, and the
records of participants, with respect to interests of persons
other than participants. The laws of some states require that
certain purchasers of securities take physical delivery of these
securities in definitive form. These limits and laws may impair
the ability to transfer beneficial interests in a global
security.
As long as the depositary for a global security or its nominee
is the registered owner of the global security, the depositary
or its nominee, as the case may be, will be considered the sole
owner or holder of the debt securities of the series represented
by that global security for all purposes under the Indenture
governing those debt securities. Except as provided below,
owners of beneficial interests in a global security will not be
entitled to have any of the individual debt securities of the
series represented by the global security registered in their
names, will not receive or be entitled to receive physical
delivery of any of those debt securities in definitive form and
will not be considered the owners or holders thereof under the
Indenture governing those debt securities.
Payment of principal of, premium, if any, and interest, if any,
on individual debt securities represented by a global security
registered in the name of a depositary or its nominee will be
made to the depositary or its nominee, as the case may be, as
the registered owner of the global security representing the
debt securities. Hovnanian and K. Hovnanian expect that the
depositary for a series of debt securities or its nominee, upon
receipt of any payment of principal, premium, if any, and
interest, if any, in respect of a global security representing
any of those debt securities, will immediately credit
participants accounts with payments in amounts
proportionate to their respective beneficial interests in the
principal amount of the global security for those securities as
shown on the records of such depositary or its nominee.
Hovnanian and K. Hovnanian also expect that payments by
participants to owners of beneficial interests in the global
security held through the participants will be governed by
standing instructions and customary practices, as is now the
case with securities held for the accounts of customers in
bearer form or registered in street name. These
payments will be the responsibility of the participants. Neither
Hovnanian, K. Hovnanian, the trustee for such debt securities,
any paying agent nor the registrar for the debt securities will
have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial
ownership interests of the global security for the debt
securities or for maintaining, supervising or reviewing any
records relating to beneficial ownership interests.
If the depositary for a series of debt securities is at any time
unwilling, unable or ineligible to continue as depositary and a
successor depositary is not appointed by the issuer within
90 days, the issuer will issue individual debt securities
of the applicable series in exchange for the global security
representing the applicable series of debt securities. In
addition, an issuer may at any time and in its sole discretion,
subject to any limitations described in the prospectus
supplement relating to such debt securities, determine not to
have any debt securities of a series represented by a global
security and, in such event, will issue individual debt
securities of the applicable series in exchange for the global
security representing the applicable series of debt securities.
Further, if an issuer so specifies with respect to the debt
securities of a series, an owner of a beneficial interest in a
global security representing debt securities of that series may,
on terms acceptable to the issuer, the trustee and the
depositary for the global security, receive individual debt
securities of the applicable series in exchange for beneficial
interests, subject to any
9
limitations described in the prospectus supplement relating to
the debt securities. In this instance, an owner of a beneficial
interest in a global security will be entitled to physical
delivery of individual debt securities of the series represented
by the applicable global security equal in principal amount to
the beneficial interest and to have the debt securities
registered in its name. Individual debt securities of the series
so issued will be issued in registered form and in
denominations, unless otherwise specified in the applicable
prospectus supplement relating to that series of debt
securities, of $2,000 and integral multiples of $1,000 in excess
thereof.
Events of Default. Unless otherwise specified
in the applicable prospectus supplement, an Event of Default is
defined under each Indenture with respect to the debt securities
of any series issued under the applicable Indenture as being:
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default in the payment of principal of or premium, if any, with
respect to debt securities of the applicable series when due;
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default in the payment of any installment of interest on any of
the debt securities of that series when due, continued for
30 days;
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default in the payment or satisfaction of any sinking fund or
other purchase obligation with respect to debt securities of
that series when due;
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default in the performance of any other covenant of any of the
obligors applicable to debt securities of that series,
continued for 90 days after written notice to the obligors
by the trustee or to the obligors and the trustee, by the
holders of at least 25% in aggregate principal amount of the
debt securities of that series then outstanding requiring the
same to be remedied; and
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specified events of bankruptcy, insolvency or reorganization of
the issuer, see Section 5.1.
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If any Event of Default shall occur and be continuing, the
trustee or the holders of not less than 25% in aggregate
principal amount of the debt securities of that series then
outstanding, by notice in writing to Hovnanian or K. Hovnanian,
as applicable, and to the trustee, if given by the holders, may
declare the principal, or, in the case of any series of debt
securities originally issued at a discount from their stated
principal amount, the portion of the principal amount as may be
specified in the terms of that series, of all of the debt
securities of that series and the interest, if any, accrued
thereon to be due and payable immediately. Subject to the
conditions set forth in each Indenture, the declaration
described in the preceding sentence may be rescinded by notice
in writing to Hovnanian or K. Hovnanian, as applicable, and the
trustee by holders of a majority in aggregate principal amount
of the debt securities of the series then outstanding. This
rescission will rescind and annul any declaration made pursuant
to the first sentence of this paragraph and its consequences if
all defaults under such Indenture are cured or waived, see
Section 5.1.
Each Indenture provides that no holder of any series of debt
securities then outstanding may institute any suit, action or
proceeding with respect to, or otherwise attempt to enforce,
that Indenture, unless:
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the holder previously gave the trustee written notice of default
and of the continuance thereof;
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the holders of not less than 25% in aggregate principal amount
of the applicable series of debt securities then outstanding
made written request to the trustee to institute the suit,
action or proceeding and offered to the trustee reasonable
indemnity as it may require with respect thereto; and
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the trustee, for 60 days after its receipt of the notice,
request and offer of indemnity, neglected or refused to
institute any action, suit or proceeding.
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Subject to the subordination provisions applicable to the Senior
Subordinated Debt Securities and the Subordinated Debt
Securities, the right, described in the above bullet points, of
any holder of any debt security to receive payment of the
principal of, premium, if any, or interest, if any, on that debt
security, on or after the respective due dates, or to institute
suit for the enforcement of any payment shall not be impaired or
affected without the consent of the holder, see Section 5.4.
The holders of a majority in aggregate principal amount of the
debt securities of the series then outstanding may direct the
time, method and place of conducting any proceeding for any
remedy available to the trustee or
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exercising any trust or power conferred on the trustee with
respect to the debt securities of that series, provided that the
trustee may decline to follow that direction if the trustee
determines that the action or proceeding is unlawful or would
involve the trustee in personal liability, see Section 5.7.
Hovnanian
and/or K.
Hovnanian, as applicable, are required to furnish annually to
the trustee a certificate as to compliance by Hovnanian
and/or K.
Hovnanian, as applicable, with all conditions and covenants
under each Indenture, see Section 4.3.
Covenants. The covenants, if any, that will
apply to a particular series of debt securities will be as
described in the applicable prospectus supplement relating to
such series of debt securities. Except as described herein and
as otherwise specified in the applicable prospectus supplement
with respect to any series of debt securities, Hovnanian
and/or K.
Hovnanian as applicable may remove or add covenants without the
consent of holders of the debt securities.
Discharge and Defeasance. Unless otherwise
specified in the applicable prospectus supplement, Hovnanian
and/or K.
Hovnanian, as applicable, can discharge or defease their
respective obligations with respect to any series of debt
securities as described below, see Article Ten.
Unless otherwise specified in any prospectus supplement,
Hovnanian or K. Hovnanian, as applicable, may discharge all of
its obligations, except those described below, to holders of any
series of debt securities issued under any Indenture that have
not already been delivered to the trustee for cancellation and
that have either become due and payable, or are by their terms
due and payable within one year or are to be called for
redemption within one year, by irrevocably depositing with the
trustee cash or U.S. Government Obligations, as defined in
the Indenture, or a combination thereof, as trust funds in an
amount to be sufficient to pay when due the principal of,
premium, if any, and interest, if any, on all outstanding debt
securities of that series and to make any mandatory sinking fund
payments, if any, thereon when due.
Unless otherwise provided in the applicable prospectus
supplement, Hovnanian or K. Hovnanian, as applicable, may also
elect at any time to defease and be discharged from all of its
obligations, except those described below, to holders of any
series of debt securities issued under each Indenture,
defeasance, or be released from all of their
obligations with respect to specified covenants and certain
events of default applicable to any series of debt securities
issued under each Indenture, covenant defeasance,
if, among other things:
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Hovnanian or K. Hovnanian, as applicable, irrevocably deposit
with the trustee cash or U.S. Government Obligations, or a
combination thereof, as trust funds in an amount to be
sufficient to pay when due the principal of, premium, if any,
and interest, if any, on all outstanding debt securities of the
applicable series and to make any mandatory sinking fund
payments, if any, thereon when due;
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the deposit will not result in a breach or violation of, or
cause a default under, any material agreement or instrument
(other than the Indenture) to which either Hovnanian or K.
Hovnanian, as applicable, is a party or by which it is
bound; and
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Hovnanian or K. Hovnanian, as applicable, deliver to the trustee
an opinion of counsel to the effect that the holders of the
applicable series of debt securities will not recognize income,
gain or loss for United States federal income tax purposes as a
result of the defeasance or covenant defeasance and that
defeasance will not otherwise alter the United States federal
income tax treatment of the holders principal of and
interest payments, if any, on that series of debt securities.
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In the case of defeasance, the opinion must be based on a ruling
of the Internal Revenue Service or a change in United States
federal income tax law occurring after the date of the Indenture
relating to the debt securities of such series, because this
result would not occur under current tax law, see
Section 10.4.
Notwithstanding the foregoing, no discharge, defeasance or
covenant defeasance described above will affect the following
obligations to, or rights of, the holders of any series of debt
securities:
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rights of registration of transfer and exchange of debt
securities of the applicable series;
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rights of substitution of mutilated, defaced, destroyed, lost or
stolen debt securities of the applicable series;
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rights of holders of debt securities of the applicable series to
receive payments of principal thereof, premium, if any, and
interest, if any, thereon, upon the original due dates
therefore, but not upon acceleration, and to receive mandatory
sinking fund payments thereon when due, if any;
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rights, obligations, duties and immunities of the trustee;
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rights of holders of debt securities of a series as
beneficiaries with respect to property so deposited with the
trustee payable to all or any of them; and
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obligations of Hovnanian or K. Hovnanian, as applicable, to
maintain an office or agency in respect of debt securities of
the series, see Section 10.2.
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Hovnanian or K. Hovnanian, as applicable, may exercise the
defeasance option with respect to any series of debt securities
notwithstanding the prior exercise of the covenant defeasance
option with respect to any series of debt securities. If
Hovnanian or K. Hovnanian, as applicable, exercises the
defeasance option with respect to any series of debt securities,
payment of that series of debt securities may not be accelerated
because of an Event of Default with respect to that series of
debt securities. If Hovnanian or K. Hovnanian, as applicable,
exercises the covenant defeasance option with respect to any
series of debt securities, payment of that series of debt
securities may not be accelerated by reason of an Event of
Default with respect to the covenants to which such covenant
defeasance is applicable. However, if acceleration were to occur
by reason of another Event of Default, the realizable value at
the acceleration date of the cash and U.S. Government
Obligations in the defeasance trust could be less than the
principal of, premium, if any, and interest, if any, and any
mandatory sinking fund payments, if any, then due on the series
of debt securities, in that the required deposit in the
defeasance trust is based upon scheduled cash flow rather than
market value, which will vary depending upon interest rates and
other factors.
Modification of the Indenture. Except as
otherwise provided in the applicable prospectus supplement, each
Indenture provides that the obligors and the trustee may enter
into supplemental indentures without the consent of the holders
of the debt securities to:
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evidence the assumption by a successor entity of the obligations
of any of the obligors under that Indenture;
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add covenants or new events of default for the protection of the
holders of the debt securities;
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cure any ambiguity or defect or correct any inconsistency in the
Indenture;
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establish the form and terms of debt securities of any series;
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evidence the acceptance of appointment by a successor trustee;
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secure the debt securities of the applicable series or provide
for guarantees of the debt securities of any series and evidence
the termination or discharge of any guarantee of or lien
securing the debt securities of such series when permitted under
the applicable Indenture;
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designate a bank or trust company other than the trustee
specified in the applicable prospectus supplement to act as
trustee for a series of debt securities;
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subject to the following paragraph, modify the existing
covenants and events of default solely in respect of, or add new
covenants and events of default that apply solely to, debt
securities not yet issued and outstanding on the date of the
supplemental indenture;
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provide for the issuance of debt securities of any series in
uncertificated form in addition to or in place of certificated
debt securities of any series and exchangeability of those debt
securities for fully registered debt securities;
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modify, eliminate or add to the provisions of the Indenture as
necessary to effect the qualification of the Indenture under the
Trust Indenture Act of 1939 and to add provisions expressly
permitted by that Act;
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modify the provisions to provide for the denomination of debt
securities in foreign currencies that will not adversely affect
the interests of the holders of the debt securities in any
material respect, see Section 8.1;
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to conform the text of the applicable Indenture, Offered Debt
Securities or guarantees to this Description of Debt
Securities or the comparable provisions in the applicable
prospectus supplement to the extent this Description of
Debt Securities or such comparable provision in a
prospectus supplement was intended to be a verbatim recitation
of a provision of such Indenture, Offered Debt Securities or
guarantees; and
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make any other change with respect to the debt securities of any
series that does not adversely affect the legal rights of
holders of the debt securities of such series.
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Each Indenture also contains provisions permitting the obligors
and the trustee, with the consent of the holders of not less
than a majority in aggregate principal amount of debt securities
of each series then outstanding and affected, to add any
provisions to, or change in any manner or eliminate any of the
provisions of, the applicable Indenture or any supplemental
indenture or modify in any manner the rights of the holders of
the debt securities of that series; provided that the obligors
and the trustee may not, without the consent of the holder of
each outstanding debt security affected thereby:
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change the stated final maturity of any debt security, reduce
the principal amount thereof, reduce the rate or extend the time
of payment of interest (including default interest), if any,
thereon, reduce or alter the method of computation of any amount
payable on redemption, repayment or purchase by the issuer,
change the coin or currency in which principal, premium, if any,
and interest, if any, are payable, reduce the amount of the
principal of any original issue discount security payable upon
acceleration or provable in bankruptcy, impair or affect the
right to institute suit for the enforcement of any payment or
repayment thereof or, if applicable, adversely affect any right
of prepayment at the option of the holder or make any change
adverse to the interests of the holders in the terms and
conditions of the guarantee by Hovnanian or by the subsidiary
guarantors or modify the ranking or priority of the debt
securities of any series or any guarantees of the debt
securities of such series; or
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reduce the stated percentage in aggregate principal amount of
debt securities of any series issued under the Indenture, see
Section 8.2.
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Consolidation, Merger, Sale or
Conveyance. Except as otherwise provided in the
applicable prospectus supplement, the K. Hovnanian Indentures
provide that K. Hovnanian or Hovnanian may, and the Hovnanian
Indentures provide that Hovnanian may, without the consent of
the holders of debt securities, consolidate with, merge into or
transfer, exchange or dispose of all of its properties to, any
other corporation or partnership organized under the laws of the
United States, any state thereof or the District of Columbia,
provided that:
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the successor corporation or partnership assumes all obligations
of K. Hovnanian or Hovnanian, as the case may be, by
supplemental indenture satisfactory in form to the applicable
trustee executed and delivered to that trustee, under the
Indentures and the debt securities;
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immediately after giving effect to the consolidation, merger,
exchange or other disposition, no Event of Default, and no event
which, after notice or lapse of time or both, would become an
Event of Default, will have occurred and be continuing; and
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certain other conditions are met, see Section 9.1.
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Conditions for Release of K. Hovnanian. Except
as otherwise provided in a prospectus supplement, each
K. Hovnanian Indenture provides that K. Hovnanian may be
released from its obligations under the K. Hovnanian Indenture
and the K. Hovnanian Debt Securities, without the consent of the
holders of the K. Hovnanian Debt Securities of any series,
provided that:
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Hovnanian or any successor to Hovnanian has assumed the
obligations of K. Hovnanian under the K. Hovnanian
Indenture and the K. Hovnanian Debt Securities by supplemental
indenture satisfactory in form to the applicable trustee
executed and delivered to that trustee;
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Hovnanian delivers to the trustee an opinion of counsel to the
effect that the holders of K. Hovnanian Debt Securities will not
recognize income, gain or loss for United States federal income
tax purposes as a result of the release of K. Hovnanian from its
obligations under the K. Hovnanian Indenture and the K.
Hovnanian
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Debt Securities and that such release will not otherwise alter
the United States federal income tax treatment of the holders of
the K. Hovnanian Debt Securities; and
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certain other conditions are met, see Section 14.1 of the
K. Hovnanian Indentures.
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Provisions
Applicable Solely to Senior Subordinated Debt Securities and
Subordinated Debt Securities
Subordination. The Subordinated Debt
Securities will be subordinate and junior in right of payment,
to the extent described in the Subordinated Debt Indentures, to
all Senior Indebtedness of the obligors. The Senior Subordinated
Debt Securities will be subordinate and junior in right of
payment, to the extent described in the Senior Subordinated Debt
Indentures, to all Senior Indebtedness of the obligors. The
Senior Subordinated Debt Securities will rank senior to all
existing and future Indebtedness of the obligors that is neither
Senior Indebtedness of the obligors nor Senior Subordinated
Indebtedness and only Indebtedness of the obligors that is
Senior Indebtedness of the obligors will rank senior to the
Senior Subordinated Debt Securities in accordance with the
subordination provisions of the Senior Subordinated Debt
Indentures.
Except as otherwise provided in the applicable prospectus
supplement:
Senior Indebtedness of the obligors is
defined in the Subordinated Debt Indentures and the Senior
Subordinated Debt Indentures as Indebtedness of the obligors
outstanding at any time, other than the Indebtedness evidenced
by such debt securities, except:
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any Indebtedness as to which, by the terms of the instrument
creating or evidencing the same, it is provided that the
Indebtedness is not senior or prior in right of payment to such
debt securities or is pari passu or subordinate by its
terms in right of payment to such debt securities;
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renewals, extensions and modifications of any such Indebtedness;
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any Indebtedness of the obligors to a wholly-owned Subsidiary of
the obligors;
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any liability for federal, state or local taxes;
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interest accruing after the filing of a petition initiating
certain events of bankruptcy or insolvency unless that interest
is an allowed claim enforceable against the obligor in a
proceeding under federal or state bankruptcy laws; and
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trade payables.
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Senior Subordinated Indebtedness of Hovnanian
or K. Hovnanian, as applicable, is defined in the Senior
Subordinated Debt Indentures as the applicable Senior
Subordinated Debt Securities and any other Indebtedness of
Hovnanian or K. Hovnanian, as applicable, that ranks pari
passu with such Senior Subordinated Debt Securities. Any
Indebtedness of Hovnanian or K. Hovnanian, as applicable, that
is subordinate or junior by its terms in right of payment to any
other Indebtedness of Hovnanian or K. Hovnanian, as applicable,
will be subordinate to Senior Subordinated Indebtedness of
Hovnanian or K. Hovnanian, as applicable, unless the instrument
creating or evidencing the same or pursuant to which the same is
outstanding specifically provides that this Indebtedness is to
rank pari passu with other Senior Subordinated
Indebtedness of Hovnanian or K. Hovnanian, as applicable, and is
not subordinated by its terms to any Indebtedness of Hovnanian
that is not Senior Indebtedness of Hovnanian or
K. Hovnanian, as applicable.
Senior Subordinated Indebtedness of Hovnanian as a guarantor of
K. Hovnanian Senior Subordinated Debt Securities or of a
subsidiary guarantor will have a similar meaning.
Except as otherwise provided in the applicable prospectus
supplement, the following subordination provisions will apply to
the Senior Subordinated Debt Securities and the Subordinated
Debt Securities:
If:
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Hovnanian or K. Hovnanian, as applicable, should default in the
payment of any principal of, premium, if any, or interest, if
any, on any Senior Indebtedness of Hovnanian or K. Hovnanian, as
applicable, when the
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same becomes due and payable, whether at maturity or at a date
fixed for prepayment or by declaration of acceleration or
otherwise, or
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any other default with respect to Senior Indebtedness of
Hovnanian or K. Hovnanian, as applicable, occurs and the
maturity of the Senior Indebtedness has been accelerated in
accordance with its terms, then, upon written notice of the
default to Hovnanian or K. Hovnanian, as applicable, by the
holders of the Senior Indebtedness or any trustee therefor,
unless and until the default is cured or waived or has ceased to
exist or the acceleration has been rescinded, no direct or
indirect payment, in cash, property or securities, by set-off or
otherwise, will be made or agreed to be made for principal of,
premium, if any, or interest, if any, on any of the Senior
Subordinated Debt Securities or the Subordinated Debt
Securities, or in respect of any redemption, retirement,
purchase or other acquisition of the Senior Subordinated Debt
Securities or the Subordinated Debt Securities other than those
made in capital stock of Hovnanian, or cash in lieu of
fractional shares thereof, see Section 13.1 of the Senior
Subordinated Debt Indentures and Section 13.1 of the
Subordinated Debt Indentures.
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If any default, other than a default described in the bullet
points directly above, occurs under the Senior Indebtedness of
Hovnanian or K. Hovnanian, as applicable, pursuant to which the
maturity thereof may be accelerated immediately or the
expiration of any applicable grace periods occurs, a
Senior Nonmonetary Default, then, upon the receipt
by Hovnanian or K. Hovnanian, as applicable, and the trustee of
written notice thereof, a payment notice, from or on
behalf of holders of 25% or more of the aggregate principal
amount of Senior Indebtedness specifying an election to prohibit
the payment and other action by Hovnanian or K. Hovnanian, as
applicable, in accordance with the following provisions of this
paragraph Hovnanian or K. Hovnanian, as applicable, may not
make any payment or take any other action that would be
prohibited by the bullet points directly above during the
period, the payment blockage period commencing on
the date of receipt of the payment notice and ending on the
earlier of:
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the date, if any, on which the holders of such Senior
Indebtedness or their representative notify the trustee that the
Senior Nonmonetary Default is cured, waived or ceases to exist
or the Senior Indebtedness to which the Senior Nonmonetary
Default relates is discharged, or
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the 120th day after the date of receipt of the payment
notice.
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Notwithstanding the provisions described in the immediately
preceding bullet points, Hovnanian or K. Hovnanian, as
applicable, may resume payments on the Senior Subordinated Debt
Securities and the Subordinated Debt Securities after the
payment blockage period. After the expiration of the initial
payment blockage period, no subsequent payment blockage period
may be commenced on the basis of a Senior Nonmonetary Default
which existed or was continuing on the date of the commencement
of the initial payment blockage period until at least 270
consecutive days have elapsed from the last day of the initial
payment blockage period.
If:
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without the consent of Hovnanian or K. Hovnanian, as applicable,
a receiver, conservator, liquidator or trustee of Hovnanian or
K. Hovnanian, as applicable, or of any of its property is
appointed by the order or decree of any court or agency or
supervisory authority having jurisdiction, and the decree or
order remains in effect for more than 60 days, Hovnanian or
K. Hovnanian, as applicable, is adjudicated bankrupt or
insolvent, any of its property is sequestered by court order and
that order remains in effect for more than 60 days, or a
petition is filed against Hovnanian or K. Hovnanian, as
applicable, under any state or federal bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution, liquidation or receivership law of any jurisdiction
whether now or hereafter in effect, and is not dismissed within
60 days after such filing;
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Hovnanian or K. Hovnanian, as applicable:
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commences a voluntary case or other proceeding seeking
liquidation, reorganization, arrangement, insolvency,
readjustment of debt, dissolution, liquidation or other relief
with respect to itself or its debt or other liabilities under
any bankruptcy, insolvency or other similar law now or hereafter
in effect or seeking
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the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its
property;
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consents to any such relief or to the appointment of or taking
possession by any of the above officials in an involuntary case
or other proceeding commenced against it;
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fails generally to, or cannot, pay its debts generally as they
become due;
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takes any corporate action to authorize or effect any of the
foregoing; or
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any Subsidiary of the obligor takes, suffers or permits to exist
any of the events or conditions referred to in any of the above
bullet points,
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then all Senior Indebtedness of Hovnanian or K. Hovnanian, as
applicable, including any interest thereon accruing after the
commencement of any proceedings, will first be paid in full
before any payment or distribution, whether in cash, securities
or other property, is made by the obligor to any holder of
Senior Subordinated Debt Securities or Subordinated Debt
Securities on account of the principal of, premium, if any, or
interest, if any, on the Senior Subordinated Debt Securities or
Subordinated Debt Securities, as the case may be.
Any payment or distribution, whether in cash, securities or
other property, other than securities of Hovnanian or K.
Hovnanian, as applicable, or any other corporation provided for
by a plan of reorganization or readjustment the payment of which
is subordinate, at least to the extent provided in the
subordination provisions with respect to the indebtedness
evidenced by the Senior Subordinated Debt Securities or the
Subordinated Debt Securities, to the payment of all Senior
Indebtedness of the obligor then outstanding and to any
securities issued in respect thereof under a plan of
reorganization or readjustment, that would otherwise, but for
the subordination provisions, be payable or deliverable in
respect of the Senior Subordinated Debt Securities or the
Subordinated Debt Securities of any series will be paid or
delivered directly to the holders of Senior Indebtedness of the
obligor in accordance with the priorities then existing among
such holders until all Senior Indebtedness of Hovnanian or K.
Hovnanian, as applicable, including any interest thereon
accruing after the commencement of proceedings, has been paid in
full. In the event of any proceeding, after payment in full of
all sums owing with respect to Senior Indebtedness of the
obligor, the holders of Senior Subordinated Debt Securities,
together with the holders of any obligations of the obligor
ranking on a parity with the Senior Subordinated Debt
Securities, will be entitled to be repaid from the remaining
assets of Hovnanian or K. Hovnanian, as applicable, the amounts
at that time due and owing on account of unpaid principal of,
premium, if any, or interest, if any, on the Senior Subordinated
Debt Securities and such other obligations before any payment or
other distribution, whether in cash, property or otherwise,
shall be made on account of any capital stock or obligations of
the obligor ranking junior to the Senior Subordinated Debt
Securities, including the Subordinated Debt Securities, and such
other obligations, see Section 13.1 of the Senior
Subordinated Debt Indentures and Section 13.1 of the
Subordinated Debt Indentures.
If any payment or distribution of any character, whether in
cash, securities or other property, other than securities of
Hovnanian or K. Hovnanian, as applicable, or any other
corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to
the extent provided in the subordination provisions with respect
to the Senior Subordinated Debt Securities or the Subordinated
Debt Securities, to the payment of all Senior Indebtedness of
Hovnanian or K. Hovnanian, as applicable, then outstanding and
to any securities issued in respect thereof under the plan of
reorganization or readjustment, will be received by the trustee,
or any holder of any Senior Subordinated Debt Securities or
Subordinated Debt Securities in contravention of any of the
terms of the Senior Subordinated Debt Indenture or the
Subordinated Debt Indenture, as the case may be, such payment or
distribution of securities will be received in trust for the
benefit of, and will be paid over or delivered and transferred
to, the holders of the Senior Indebtedness of Hovnanian or K.
Hovnanian, as applicable, then outstanding in accordance with
the priorities then existing among the holders for application
to the payment of all Senior Indebtedness of Hovnanian or K.
Hovnanian, as applicable, remaining unpaid to the extent
necessary to pay all the Senior Indebtedness of Hovnanian or K.
Hovnanian, as applicable, in full, see Section 13.1 of the
Senior Subordinated Debt Indentures and Section 13.1 of the
Subordinated Debt Indentures.
By reason of the subordination, in the event of the insolvency
of Hovnanian or K. Hovnanian, as applicable, holders of Senior
Indebtedness of Hovnanian or K. Hovnanian, as applicable, may
receive more, ratably, than holders of the Senior Subordinated
Debt Securities or Subordinated Debt Securities of Hovnanian or
K. Hovnanian,
16
as applicable. Subordination will not prevent the occurrence of
any Event of Default, as defined in the Indentures, or limit the
right of acceleration in respect of the Senior Subordinated Debt
Securities or Subordinated Debt Securities.
Concerning
the Trustee
Information concerning the trustee for a series of debt
securities will be set forth in the prospectus supplement
relating to that series of debt securities. Hovnanian, K.
Hovnanian and certain of Hovnanians other subsidiaries may
maintain bank accounts, borrow money and have other commercial
banking, investment banking and other business relationships
with the trustee under an Indenture and its affiliates in the
ordinary course of business. The trustee under an Indenture or
its affiliates may participate as underwriters, agents or
dealers in any offering of K. Hovnanian debt securities
and/or
Hovnanian debt securities.
DESCRIPTION
OF CAPITAL STOCK
The following description of our common stock and preferred
stock, together with the additional information we include in
any applicable prospectus supplement, summarizes the material
terms and provisions of the common stock and the preferred stock
that may be offered from time to time pursuant to this
prospectus. While the terms we have summarized below will apply
generally to any future common stock or preferred stock that we
may offer, we will describe the particular terms of any class or
series of these securities in more detail in the applicable
prospectus supplement. For the complete terms of our common
stock and preferred stock, please refer to Hovnanians
amended certificate of incorporation, the Certificate of
Incorporation and restated bylaws, the Restated
By-Laws that are incorporated by reference as exhibits to
the registration statement of which this prospectus is a part.
The terms of these securities may also be affected by the
General Corporation Law of the State of Delaware. The summary
below and that contained in any prospectus supplement is
qualified in its entirety by reference to the Certificate of
Incorporation and Restated By-laws.
The authorized capital stock of Hovnanian is
230,100,000 shares consisting of 200,000,000 shares of
Class A Common Stock, par value $.01 per share, the
Class A Common Stock, 30,000,000 shares of
Class B Common Stock, par value $.01 per share, the
Class B Common Stock, and 100,000 shares
of preferred stock, par value $.01 per share, in the series and
with the voting powers, designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as may be
fixed from time to time by the Board of Directors of Hovnanian
for each series.
Common
Stock
As of December 17, 63,277,710 shares of Class A
Common Stock and 14,564,595 shares of Class B Common
Stock were issued and outstanding. The Class A Common Stock
is traded on the New York Stock Exchange under the symbol
HOV. There is no established public trading market
for the Class B Common Stock. In order to trade
Class B Common Stock, the shares must be converted into
Class A Common Stock on a
one-for-one
basis. Any offering of common stock made hereby will consist
only of Class A Common Stock. The outstanding Class A
Common Stock is, and any Class A Common Stock offered
pursuant to this prospectus and any prospectus supplement when
issued and paid for will be, fully paid and non-assessable.
Dividends. Dividends on the Class A
Common Stock will be paid if, when and as determined by the
Board of Directors of Hovnanian out of funds legally available
for this purpose. Certain debt instruments to which Hovnanian is
a party contain restrictions on the payment of cash dividends.
As a result of the most restrictive of these provisions,
Hovnanian is not currently able to pay any cash dividends and
anticipates that it will be prohibited from doing so for the
foreseeable future. Hovnanian has never paid cash dividends on
its Class A Common Stock nor does it currently intend to
pay cash dividends on its Class A Common Stock. If and when
declared, the amount of any regular cash dividend payable on a
share of Class A Common Stock will be an amount equal to
110% of the corresponding regular cash dividend payable on a
share of Class B Common Stock.
Voting Rights. Holders of Class A Common
Stock are entitled to one vote for each share held by them on
all matters presented to shareholders. Holders of Class B
Common Stock are generally entitled to ten votes per share.
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Liquidation Rights. After satisfaction of the
preferential liquidation rights of any preferred stock, the
holders of the Class A Common Stock and Class B Common
Stock are entitled to share ratably as a single class in the
distribution of all remaining net assets.
Preemptive and Other Rights. The holders of
Class A Common Stock do not have preemptive rights as to
additional issues of common stock or conversion rights. The
shares of Class A Common Stock are not subject to
redemption or to any further calls or assessments and are not
entitled to the benefit of any sinking fund provisions. The
rights, preferences and privileges of holders of Class A
Common Stock are subject to, and may be adversely affected by,
the rights of the holder of shares of any series of preferred
stock that Hovnanian may designate and issue in the future.
Preferred
Stock
The Certificate of Incorporation authorizes the Board of
Directors of Hovnanian to issue from time to time up to
100,000 shares of preferred stock, in one or more series,
and with the voting powers, designations, preferences and
relative, participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as may be
fixed from time to time by the Board of Directors of Hovnanian
for each series. The preferred stock may be used by the Board of
Directors of Hovnanian without further action by
Hovnanians stockholders as an anti-takeover device. As of
December 17, 2010, 5,600 shares of Hovnanians
preferred stock were issued and outstanding, consisting of
entirely of Hovnanians 7.625% Series A Preferred
Stock (liquidation preference $25,000.00 per share) par value
$.01 per share, the Series A Preferred Stock.
The applicable prospectus supplement will describe the terms of
any preferred stock that may be offered, including the number of
shares, dividend rate and dividend period, liquidation value,
voting rights, conversion rights (if any), dividend and
liquidation preferences, redemption terms, whether depositary
shares representing fractional interests will be offered, and
any other rights, privileges and limitations thereof.
7.625%
Series A Preferred Stock
Dividends on the Series A Preferred Stock are not
cumulative. The Series A Preferred Stock ranks senior to
Hovnanians common stock with respect to the payment of
dividends to the extent provided in the Certificate of
Designations, Powers, Preferences and Rights of the 7.625%
Series A Preferred Stock (the Certificate). The
Certificate provides that unless dividends have been declared
and paid or set apart for payment on the Series A Preferred
Stock for the then-currently quarterly dividend period, no
dividend may be declared or paid or set apart for payment on
Hovnanians common stock for that period, other than
dividends or distributions paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, the
common stock of Hovnanian or any other stock of Hovnanian
ranking, as to the payment of dividends and the distribution of
assets upon dissolution, liquidation or winding up of Hovnanian,
junior to the Series A Preferred Stock.
The Series A Preferred Stock is traded as depositary
shares, with each depositary share representing
1/1000th of
a share of Series A Preferred Stock, and is listed on the
NASDAQ Global Market under the symbol HOVNP.
The Series A Preferred Stock has no voting rights except as
provided for in the Certificate or as otherwise required by law.
However, so long as any shares of Series A Preferred Stock
are outstanding, Hovnanian will not, without the vote of the
holders of at least a majority of the shares of the
Series A Preferred Stock, (1) authorize, create or
issue any capital stock of Hovnanian ranking, as to dividends or
upon liquidation, dissolution or winding up, senior to the
Series A Preferred Stock, or reclassify any authorized
capital stock of Hovnanian into any such shares of such capital
stock, or issue any obligation or security convertible into or
evidencing the right to purchase any such shares, or
(2) amend, alter or repeal the Certificate, or the
certificate of incorporation of Hovnanian, whether by merger,
consolidation or otherwise, in a way that adversely affects the
powers, preferences or special rights of the Series A
Preferred Stock. Any increase in the amount of authorized common
stock or preferred stock or any increase or decrease in the
number of shares of any series of preferred stock or the
authorization, creation and issuance of other classes or series
of stock, in each case ranking equally with or junior to the
Series A Preferred Stock will not be deemed to adversely
affect such powers, preferences or special rights.
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The Series A Preferred Stock has liquidation preferences
over Hovnanians common stock. Upon any liquidation,
dissolution or winding up of Hovnanian, the holders of the
Series A Preferred Stock will be entitled to receive out of
the assets of Hovnanian available for distribution to its
stockholders, an amount equal to the liquidation preference of
$25,000.00 per share plus all accrued and unpaid dividends
before any payment or distribution out of Hovnanians
assets may be made to or set apart for the holders of
Hovnanians common stock or other junior equity. If, upon
any liquidation, dissolution or winding up of Hovnanian, the
assets of Hovnanian, or proceeds thereof, distributable among
the holders of shares Series A Preferred Stock and any
stock ranking equally with the Series A Preferred Stock
shall be insufficient to pay in full the preferential amounts to
which such stock would be entitled, then such assets, or the
proceeds thereof, shall be distributable among such holders
ratably in accordance with the respective amounts which would be
payable on such shares if all amounts payable thereon were paid
in full. Neither a consolidation nor merger of Hovnanian, nor a
sale, lease, exchange or transfer of all or substantially all of
Hovnanians assets will be deemed to be a liquidation,
dissolution or winding up of Hovnanian.
Rights
Plan
On July 29, 2008, the Board of Directors of Hovnanian
adopted a rights plan, the Rights Plan, and declared
a dividend of one preferred share purchase right for each
outstanding share of Class A Common Stock and Class B
Common Stock, which was subsequently paid to stockholders of
record as of August 15, 2008. Subject to the terms,
provisions and conditions of the rights plan, if and when they
become exercisable, each right would entitle its holder to
purchase from Hovnanian one ten-thousandth of a share of
Hovnanians Series B Junior Preferred Stock for a
purchase price of $35.00, the Purchase Price. If
issued, each fractional share of Preferred Stock would give the
stockholder approximately the same dividend, voting and
liquidation rights as does one share of Hovnanians
Class A Common Stock. However, prior to exercise, a right
does not give its holder any rights as a stockholder of
Hovnanian, including without limitation any dividend, voting or
liquidation rights.
The Board of Directors of Hovnanian adopted the Rights Plan in
an effort to protect stockholder value by attempting to protect
against a possible limitation on Hovnanians ability to use
our net operating loss carryforwards, NOLs, to
reduce potential future federal income tax obligations.
Hovnanian has experienced and continues to experience
substantial operating losses, and under the Internal Revenue
Code and rules promulgated by the Internal Revenue Service,
Hovnanian may carry forward these losses in certain
circumstances to offset any current and future earnings and thus
reduce its federal income tax liability, subject to certain
requirements and restrictions. To the extent that the NOLs do
not otherwise become limited, Hovnanian believes that it will be
able to carry forward a significant amount of NOLs, and
therefore these NOLs could be a substantial asset to Hovnanian.
However, if Hovnanian experiences an Ownership
Change, as defined in Section 382 of the Internal
Revenue Code, Hovnanians ability to use the NOLs will be
substantially limited, and the timing of the usage of the NOLs
could be substantially delayed, which could therefore
significantly impair the value of that asset. The Rights Plan is
intended to act as a deterrent to any person or group acquiring
4.9% or more of our outstanding Class A Common Stock, an
Acquiring Person, without the approval of
Hovnanians Board.
Exercisability. The rights will not be
exercisable until the earlier of (i) 10 business days after
a public announcement by us that a person or group has become an
Acquiring Person and (ii) 10 business days after the
commencement of a tender or exchange offer by a person or group
for 4.9% of the Class A Common Stock.
Until the date that the rights become exercisable, the
Distribution Date, the rights are evidenced by
Hovnanians Class A Common Stock and Class B
Common Stock certificates which contain a notation to that
effect. Any transfer of shares of Class A Common Stock
and/or
Class B Common Stock prior to the Distribution Date
constitutes a transfer of the associated rights. After the
Distribution Date, the rights may be transferred separately from
the transfer of the underlying shares of Class A Common
Stock or Class B Common Stock. After the Distribution Date,
each holder of a right, other than rights beneficially owned by
the Acquiring Person (which will thereupon become void), will
thereafter have the right to receive upon exercise of a right
and payment of the Purchase Price, that number of shares of
Class A Common Stock or Class B Common Stock, as the
case may be, having a market value of two times the Purchase
Price.
Exchange. After the Distribution Date, the
Board of Directors may exchange the rights (other than rights
owned by an Acquiring Person which will have become void), in
whole or in part, at an exchange ratio of one share
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of Common Stock, or a fractional share of Series B
Preferred Stock (or of a share of a similar class or series of
Hovnanians preferred stock having similar rights,
preferences and privileges) of equivalent value, per right
(subject to adjustment).
Expiration. The rights and the Rights Plan
will expire on the earliest of (i) August 14, 2018,
(ii) the time at which the rights are redeemed pursuant to
the Rights Agreement, (iii) the time at which the rights
are exchanged pursuant to the Rights Agreement, (iv) the
repeal of Section 382 of the Internal Revenue Code or any
successor statute if the Board of Directors determines that the
Rights Agreement is no longer necessary for the preservation of
tax benefits, and (v) the beginning of a taxable year of
Hovnanian to which the Board of Directors determines that no tax
benefits may be carried forward.
Redemption. At any time prior to the time an
Acquiring Person becomes such, the Board of Directors may redeem
the rights in whole, but not in part, at a price of $0.01 per
right, the Redemption Price. The redemption of
the rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the
rights, the right to exercise the rights will terminate and the
only right of the holders of rights will be to receive the
Redemption Price.
Anti-Dilution Provisions. The Board of
Directors may adjust the purchase price of the preferred shares,
the number of preferred shares issuable and the number of
outstanding rights to prevent dilution that may occur as a
result of certain events, including among others, a stock
dividend, a stock split or a reclassification of the preferred
shares or Hovnanians Class A Common Stock or
Class B Common Stock. No adjustments to the purchase price
of less than 1% will be made.
Amendments. Before the Distribution Date, the
Board of Directors may amend or supplement the Rights Plan
without the consent of the holders of the rights. After the
Distribution Date, the Board of Directors may amend or
supplement the rights Plan only to cure an ambiguity, to alter
time period provisions, to correct inconsistent provisions, or
to make any additional changes to the Rights Plan, but only to
the extent that those changes do not impair or adversely affect
any rights holder.
Transfer
Restrictions in the Certificate of Incorporation
At a special meeting of stockholders held on December 5,
2008, Hovnanians stockholders approved an amendment to its
Certificate of Incorporation to restrict certain transfers of
Class A Common Stock in order to preserve the tax treatment
of Hovnanians NOLs under Section 382 of the Internal
Revenue Code. Subject to certain exceptions pertaining to
pre-existing 5% stockholders and Class B stockholders, the
transfer restrictions in the amended Certificate of
Incorporation generally restrict any direct or indirect transfer
(such as transfers of Hovnanians stock that result from
the transfer of interests in other entities that own
Hovnanians stock) if the effect would be to:
(i) increase the direct or indirect ownership of
Hovnanians stock by any person (or public group) from less
than 5% to 5% or more of Hovnanians common stock;
(ii) increase the percentage of Hovnanians common
stock owned directly or indirectly by a person (or public group)
owning or deemed to own 5% or more of Hovnanians common
stock; or (iii) create a new public group. Transfers
included under the transfer restrictions include sales to
persons (or public groups) whose resulting percentage ownership
(direct or indirect) of common stock would exceed the 5%
thresholds discussed above, or to persons whose direct or
indirect ownership of common stock would by attribution cause
another person (or public group) to exceed such threshold.
DESCRIPTION
OF DEPOSITARY SHARES
The following description of depositary shares representing
shares of our preferred stock sets forth certain general terms
and provisions of depositary agreements, depositary shares and
depositary receipts. The particular terms of the depositary
shares and related agreements and receipts will be described in
the prospectus supplement relating to those depositary shares.
The description set forth below and in any prospectus supplement
is not complete, and is subject to, and qualified in its
entirety by reference to, the applicable depositary agreement, a
form of which has been incorporated by reference as an exhibit
to the Registration Statement of which this prospectus forms a
part, and the depositary receipts, which will be filed as
exhibits to the Registration Statement or filed as exhibits to
one or more current reports on
Form 8-K
and incorporated by reference herein. The specific terms of the
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depositary shares as described in the applicable prospectus
supplement will supplement and, if applicable, may modify or
replace the general terms described in this prospectus.
General
Hovnanian may, at its option, elect to offer fractional shares
of preferred stock, rather than full shares of preferred stock.
In such event, Hovnanian will issue receipts for depositary
shares, each of which will represent a fraction of a share of a
particular series of preferred stock.
The shares of any series of preferred stock represented by
depositary shares will be deposited under a deposit agreement
between Hovnanian and a bank or trust company selected by
Hovnanian having its principal office in the United States and
having a combined capital and surplus of at least $50,000,000,
as preferred stock depositary. Each owner of a depositary share
will be entitled to all the rights and preferences of the
underlying preferred stock, including dividend, voting,
redemption, conversion and liquidation rights, in proportion to
the applicable fraction of a share of preferred stock
represented by such depositary share.
The depositary shares will be evidenced by depositary receipts
issued pursuant to the deposit agreement. Depositary receipts
will be distributed to the registered holder purchasing the
fractional shares of preferred stock in accordance with the
terms of the applicable prospectus supplement.
Shares of preferred stock represented by depositary shares may
be withdrawn from the depositary arrangement upon surrender of
depositary receipts at the principal office of the preferred
stock depositary and upon payment of the taxes, charges and fees
provided for in the deposit agreement. Subject to the terms of
the deposit agreement, the holder of depositary receipts will
receive the appropriate number of shares of preferred stock and
any money or property represented by such depositary shares.
Only whole shares of preferred stock may be withdrawn; if a
holder holds an amount of depositary shares in excess of whole
shares of preferred stock, the preferred stock depositary will
deliver along with the withdrawn shares of preferred stock a new
depositary receipt evidencing the excess number of depositary
shares. Except as described in the deposit agreement, holders of
withdrawn shares of preferred stock will not be entitled to
redeposit such shares or to receive depositary shares.
Dividends
and Other Distributions
The preferred stock depositary will distribute all cash
dividends or other cash distributions received in respect of the
deposited preferred stock to the record holders of depositary
shares relating to such preferred stock in proportion to the
number of such depositary shares owned by such holders.
The preferred stock depositary will distribute any property
received by it other than cash to the record holders of
depositary shares entitled thereto. If the preferred stock
depositary determines that it is not feasible to make such
distribution, it may, with Hovnanians approval, sell such
property and distribute the net proceeds from such sale to such
holders.
If Hovnanian offers to the holders of a series of preferred
stock represented by the depositary shares any rights,
preferences or privileges to subscribe for or to purchase any
securities or of any other nature, the preferred stock
depositary will make such rights, preferences or privileges
available to the record holders of depositary shares either by
the issue of warrants representing such rights, preferences or
privileges or by such other method as approved by the preferred
stock depositary and Hovnanian. If the preferred stock
depositary determines that this is not lawful or feasible or if
it is instructed by a holder that such holder does not want to
exercise such rights, preferences or privileges, it may, with
Hovnanians approval, sell such rights, preferences or
privileges and distribute the net proceeds from such sale to the
holders of depositary shares entitled thereto.
Redemption
of Preferred Stock
If a series of preferred stock represented by depositary shares
is to be redeemed, the depositary shares will be redeemed from
the proceeds received by the preferred stock depositary
resulting from the redemption, in whole or in part, of such
series of preferred stock. The depositary shares will be
redeemed by the preferred stock depositary at a price per
depositary share equal to the applicable fraction of the
redemption price per share payable in respect of the shares of
preferred stock so redeemed.
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Whenever Hovnanian redeems shares of preferred stock held by the
preferred stock depositary, the preferred stock depositary will
redeem as of the same date the number of depositary shares
representing shares of preferred stock so redeemed. If fewer
than all the depositary shares are to be redeemed, the
depositary shares to be redeemed will be selected by the
preferred stock depositary by lot or ratably or by such other
equitable method as the preferred stock depositary may decide.
Voting
Deposited Preferred Stock
Upon receipt of notice of any meeting at which the holders of
any series of deposited preferred stock are entitled to vote,
the preferred stock depositary will mail the information
contained in such notice of meeting to the record holders of the
depositary shares relating to such series of preferred stock.
Each record holder of such depositary shares on the record date
will be entitled to instruct the preferred stock depositary to
vote the amount of the preferred stock represented by such
holders depositary shares. The preferred stock depositary
will endeavor, as practicable, to vote the amount of such series
of preferred stock represented by such depositary shares in
accordance with such instructions.
Hovnanian will agree to take all actions that the preferred
stock depositary may deem necessary to enable the preferred
stock depositary to vote as instructed. The preferred stock
depositary will abstain from voting shares of any series of
preferred stock held by it for which it does not receive
specific instructions from the holders of depositary shares
representing such shares.
Changes
Affecting Preferred Stock
Upon any change in par or stated value,
split-up,
combination or any other reclassification of the series of
preferred stock represented by the depositary shares, or upon
any recapitalization, reorganization, merger, amalgamation or
consolidation affecting Hovnanian or to which it is a party, the
preferred stock depositary may in its discretion, with the
approval and instructions of Hovnanian, and in such manner as
the preferred stock depositary may deem equitable, treat any
securities which shall be received by the preferred stock
depositary in exchange for or upon conversion of or in respect
of such preferred stock as new deposited securities received in
exchange for or upon conversion or in respect of such preferred
stock and make such adjustments in:
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the fraction of an interest represented by one depositary share
in one share of such preferred stock; and
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the ratio of the redemption price per depositary share to the
redemption price of a share of such preferred stock,
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in each case as may be necessary to fully reflect the effects of
such change.
With the approval of Hovnanian, the preferred stock depositary
may execute and deliver additional depositary receipts, or may
call for the surrender of all outstanding depositary receipts to
be exchanged for new depositary receipts specifically describing
such new deposited securities.
Amendment
and Termination of the Deposit Agreement
The form of depositary receipt evidencing the depositary shares
and any provision of the deposit agreement may at any time be
amended by agreement between Hovnanian and the preferred stock
depositary. However, any amendment that materially and adversely
alters any existing right of the holders of depositary shares
will not be effective unless such amendment has been approved by
the holders of at least a majority of the depositary shares then
outstanding. Every holder of an outstanding depositary receipt
at the time any such amendment becomes effective shall be
deemed, by continuing to hold such depositary receipt, to
consent and agree to such amendment and to be bound by the
deposit agreement, which has been amended thereby. The deposit
agreement may be terminated only if
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all outstanding depositary shares have been redeemed; or
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a final distribution in respect of the preferred stock has been
made to the holders of depositary shares in connection with any
liquidation, dissolution or winding up of Hovnanian.
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Charges
of Preferred Stock Depositary; Taxes and Other Governmental
Charges
Hovnanian will pay all transfer and other taxes and governmental
charges arising solely from the existence of the depositary
arrangements. Hovnanian also will pay charges of the depositary
in connection with the deposit of preferred stock and any
redemption of preferred stock. The amount paid as dividends or
otherwise distributable by the preferred stock depositary with
respect to the depositary shares or the underlying preferred
stock will be reduced by any amounts required to be withheld by
Hovnanian or the preferred stock depositary on account of taxes
or other governmental charges. Holders of depositary receipts
will pay other transfer and other taxes and governmental charges
and such other charges, including a fee for the withdrawal of
shares of preferred stock upon surrender of depositary receipts,
as are expressly provided in the deposit agreement to be for
their accounts. The preferred stock depositary may refuse to
make any payment or distribution, or any transfer, exchange or
withdrawal of any depositary shares or shares of preferred
stock, until such taxes or other governmental charges are paid.
Transfer,
Surrender and Exchange
Depositary receipts may be transferred, surrendered or exchanged
in accordance with the deposit agreement. The preferred stock
depositary, its agents or Hovnanian may require a holder, among
other things, to furnish appropriate endorsements and transfer
documents. The preferred stock depositary is not required to
accept deposits of preferred stock or to register transfers,
surrenders or exchanges of depositary shares during any period
when the register of stockholders of Hovnanian is closed or in
order to comply with any requirement of law, government or
governmental body, commission or the deposit agreement.
Resignation
and Removal of Depositary
The preferred stock depositary may resign at any time by
delivering to Hovnanian notice of its intent to do so, and
Hovnanian may at any time remove the preferred stock depositary,
any such resignation or removal to take effect upon the
appointment of a successor preferred stock depositary and its
acceptance of such appointment. Such successor preferred stock
depositary must be appointed within 60 days after delivery
of the notice of resignation or removal and must be a bank or
trust company having its principal office in the United States
and having a combined capital and surplus of at least
$50,000,000.
Miscellaneous
The preferred stock depositary will forward all reports and
communications from Hovnanian which are delivered to the
preferred stock depositary and which Hovnanian is required to
furnish to the holders of the deposited preferred stock.
Neither the preferred stock depositary nor Hovnanian will be
liable if it or Hovnanian are prevented or delayed by law or any
circumstances beyond its or Hovnanians control in
performing its or Hovnanians obligations under the deposit
agreement. Hovnanians obligations and the obligations of
the preferred stock depositary under the deposit agreement will
be limited to performance in good faith of Hovnanians and
their duties thereunder, and neither Hovnanian nor they will be
obligated to prosecute or defend any legal proceeding in respect
of any depositary shares, depositary receipts or shares of
preferred stock unless satisfactory indemnity is furnished.
Hovnanian and the preferred stock depositary may rely upon
written advice of counsel or accountants, or upon information
provided by holders of depositary receipts or other persons
believed to be competent and on documents believed to be genuine.
Concerning
the Preferred Stock Depositary
Information concerning the preferred stock depositary for a
series of preferred stock represented by depositary shares will
be set forth in the prospectus supplement relating to that
series of preferred stock. Hovnanian and certain of its
subsidiaries may maintain bank accounts, borrow money and have
other commercial banking, investment banking and other business
relationships with the preferred stock depositary and its
affiliates in the ordinary course of business. The preferred
stock depositary or its affiliates may participate as
underwriters, agents or dealers in any offering of depositary
shares.
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DESCRIPTION
OF STOCK PURCHASE CONTRACTS AND STOCK PURCHASE UNITS
The following description of stock purchase contracts and stock
purchase units sets forth certain general terms of the stock
purchase contracts
and/or stock
purchase units that Hovnanian may issue. The particular terms of
any stock purchase contracts or stock purchase units will be
described in the prospectus supplement relating to the stock
purchase contracts or stock purchase units. The description set
forth below and in any prospectus supplement is not complete,
and is subject to, and qualified in its entirety by reference
to, the stock purchase contracts, the collateral arrangements
and any depositary arrangements relating to such stock purchase
contracts or stock purchase units and, if applicable, the
prepaid securities and the document pursuant to which the
prepaid securities will be issued which will be filed with the
Commission promptly after the offering of such stock purchase
contracts or stock purchase units and, if applicable, prepaid
securities.
Hovnanian may issue stock purchase contracts representing
contracts obligating holders to purchase from Hovnanian and
Hovnanian to sell to the holders shares of Class A Common
Stock, shares of preferred stock or depositary shares at a
future date or dates. The price per share of Class A Common
Stock, preferred stock or depositary shares may be fixed at the
time the stock purchase contracts are issued or may be
determined by reference to a specific formula set forth in the
stock purchase contracts.
The stock purchase contracts may be issued separately or as a
part of units, often known as stock purchase units, consisting
of a stock purchase contract and either:
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debt securities issued by either Hovnanian or K.
Hovnanian, or
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debt obligations of third parties, including U.S. Treasury
securities,
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securing the holders obligations to purchase the
Class A Common Stock, preferred stock or depositary shares
under the stock purchase contracts. The stock purchase contracts
may require us to make periodic payments to the holders of the
stock purchase units or vice versa, and such payments may be
unsecured or prefunded on some basis. The stock purchase
contracts may require holders to secure their obligations in a
specified manner and in certain circumstances we may deliver
newly issued prepaid stock purchase contracts, often known as
prepaid securities, upon release to a holder of any collateral
securing each holders obligations under the original stock
purchase contract.
DESCRIPTION
OF UNITS
As specified in the applicable prospectus supplement, Hovnanian
or K. Hovnanian may issue units consisting of one or more
warrants, debt securities, shares of Class A Common Stock
or preferred stock, depositary shares or any combination of such
securities. The applicable prospectus supplement will describe:
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the terms of the Units and of the warrants, debt securities,
common stock, depository shares and preferred stock comprising
the units, including whether and under what circumstances the
securities comprising the units may be traded separately;
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a description of the terms of any unit agreement governing the
units; and
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a description of the provisions for the payment, settlement,
transfer or exchange or the units.
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DESCRIPTION
OF WARRANTS
The following description of the terms of the warrants sets
forth certain general terms that may apply to the warrants that
Hovnanian or K. Hovnanian may offer. The particular terms of any
warrants will be described in the applicable prospectus
supplement accompanying this prospectus. The description set
forth below and in any prospectus supplement is not complete,
and is subject to, and qualified in its entirety by reference
to, the applicable warrant agreement, a form of which has been
incorporated by reference as an exhibit to the Registration
Statement of which this prospectus forms a part. The specific
terms of warrants as described in the applicable prospectus
supplement will supplement and, if applicable, may modify or
replace the general terms described in this prospectus.
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Hovnanian may issue warrants, including warrants to purchase
Class A Common Stock, preferred stock or Depositary Shares
and warrants to purchase Hovnanian Debt Securities. K. Hovnanian
may issue warrants to purchase K. Hovnanian Debt Securities. All
obligations of K. Hovnanian under the K. Hovnanian warrants will
be fully and unconditionally guaranteed by Hovnanian. Warrants
may be issued independently of or together with any other
securities and may be attached to or separate from such
securities. Obligations of Hovnanian and K. Hovnanian under
the warrants may be guaranteed by the subsidiary guarantors.
Each series of warrants will be issued under a separate warrant
agreement, each a warrant agreement to be entered
into among Hovnanian
and/or K.
Hovnanian and any subsidiary guarantors and a warrant agent, the
warrant agent. The warrant agent will act solely as
an agent of Hovnanian
and/or K.
Hovnanian in connection with the warrants of that series and
will not assume any obligation or relationship of agency or
trust for or with holders or beneficial owners of warrants. The
following describes some general terms and provisions of the
warrants offered hereby. Further terms of the warrants and the
applicable warrant agreement will be described in the applicable
prospectus supplement.
The applicable prospectus supplement will describe the following
terms, where applicable, of the warrants in respect of which
this prospectus is being delivered:
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the title of the warrants;
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the aggregate number of the warrants;
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the price or prices at which the warrants will be issued;
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the designation, aggregate principal amount and terms of the
securities purchasable upon exercise of the warrants;
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the designation and terms of the securities with which the
warrants are issued and the number of the warrants issued with
each such security;
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if applicable, the date on and after which the warrants and the
related securities will be separately transferable;
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the price at which the securities purchasable upon exercise of
the warrants may be purchased, and any provisions for changes to
or adjustments in such exercise price;
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the date on which the right to exercise the warrants will
commence and the date on which the right will expire;
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the minimum or maximum amount of the warrants that may be
exercised at any one time;
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information with respect to book-entry procedures, if any;
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a discussion of certain United States Federal income tax
considerations; and
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any other terms of the warrants, including terms, procedures and
limitations relating to the exercise of the warrants.
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PLAN OF
DISTRIBUTION
Hovnanian and K. Hovnanian may sell the securities to or through
underwriters or dealers, and also may sell the offered
securities directly to one or more other purchasers or through
agents. The applicable prospectus supplement will list the names
of any underwriters or agents involved in the sale of the
offered securities and any applicable commissions or discounts,
and will also describe the method of distribution of the
securities offered thereby, the purchase price and the proceeds
to be received from the sale, and any securities exchanges on
which the securities of such series may be listed.
Hovnanian, K. Hovnanian or any of their agents may directly
solicit offers to purchase these securities. The applicable
prospectus supplement will name any agent, who may be deemed to
be an underwriter as that term is defined in the Securities Act,
involved in the offer or sale of the securities in respect of
which this prospectus is delivered, and will set forth any
commissions payable to that agent by Hovnanian or K. Hovnanian,
as the case may be. Unless otherwise indicated in the prospectus
supplement, any such agency will be acting in a best efforts
basis for the
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period of its appointment (ordinarily five business days or
less). Agents, dealers and underwriters may be customers of,
engage in transactions with, or perform services for Hovnanian
or K. Hovnanian in the ordinary course of business.
If Hovnanian or K. Hovnanian utilizes an underwriter or
underwriters in the sale, they will execute an underwriting
agreement with such underwriters at the time of sale to them and
will set forth in the applicable prospectus supplement the names
of the underwriters and the terms of the transaction. The
underwriters will use the prospectus supplement to make releases
of the securities in respect of which this prospectus is
delivered to the public.
If Hovnanian or K. Hovnanian utilizes a dealer in the sale of
the securities in respect of which this prospectus is delivered,
Hovnanian or K. Hovnanian, as the case may be, will sell the
securities to the dealer, as principal. The dealer may then
resell the securities to the public at varying prices to be
determined by the dealer at the time of resale. The prospectus
supplement will set forth the name of the dealer and the terms
of the transaction.
Underwriters, dealers or agents may offer and sell the offered
securities at a fixed price or prices, which may be changed, or
from time to time at market prices prevailing at the time of
sale, at prices related to the prevailing market prices or at
negotiated prices. In connection with the sale of the
securities, underwriters or agents may be deemed to have
received compensation from Hovnanian or K. Hovnanian in the form
of underwriting discounts or commissions and may also receive
commissions from purchasers of the securities for whom they may
act as agent. Underwriters or agents may sell the securities to
or through dealers, and such dealers may receive compensation in
the form of discounts, concessions or commissions from the
underwriters or commissions from the purchasers for whom they
may act as agent.
The preferred stock, depositary shares, debt securities, stock
purchase contracts, stock purchase units, units and warrants,
when first issued, will have no established trading market. Any
underwriters or agents to or through whom offered securities are
sold by Hovnanian or K. Hovnanian for public offering and sale
may make a market in such offered securities, but the
underwriters or agents will not be obligated to do so and may
discontinue any market making at any time without notice. No
assurance can be given as to the liquidity of the trading market
for any offered securities. The applicable prospectus supplement
set forth whether or not underwriters or agents may over-allot
or effect transactions that stabilize, maintain or otherwise
affect the market price of debt securities offered thereby at
levels above those that might otherwise prevail in the open
market, including, for example, by entering stabilizing bids,
effecting syndicate covering transactions or imposing penalty
bids.
Any underwriters, dealers or agents participating in the
distribution of the offered securities may be deemed to be
underwriters, and any discounts and commissions received by them
and any profit realized by them on resale of the offered
securities may be deemed to be underwriting discounts and
commissions under the Securities Act. Underwriters, dealers or
agents may be entitled, under agreements entered into with
Hovnanian or K. Hovnanian, to indemnification against or
contribution toward certain civil liabilities, including
liabilities under the Securities Act.
If so indicated in the prospectus supplement, Hovnanian or K.
Hovnanian will authorize underwriters or other persons acting as
its or their agents to solicit offers by certain institutions to
purchase securities from it or them pursuant to contracts
providing for payment and delivery on a future date.
Institutions with which contracts may be made include commercial
and savings banks, insurance companies, pension funds,
investment companies, educational and charitable institutions
and others, but in all cases will be subject to the condition
that the purchase of the securities will not at the time of
delivery be prohibited under the laws of the jurisdiction to
which such purchaser is subject. The underwriters and agents
will not have any responsibility in respect of the validity or
performance of such contracts.
The applicable prospectus supplement will set forth the place
and time of delivery for the securities in respect of which this
prospectus is delivered.
LEGAL
MATTERS
Certain legal matters with respect to the validity of the
offered securities will be passed upon for Hovnanian and K.
Hovnanian by Simpson Thacher & Bartlett LLP, New York,
New York. Simpson Thacher & Bartlett LLP will rely, as
to matters of California law, on the opinion of Peter S.
Reinhart, Esq., Senior Vice-President and General Counsel
for Hovnanian and K. Hovnanian. Peter S. Reinhart, Esq.,
beneficially owns, directly and
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indirectly, less than 1% of the common stock of Hovnanian, which
does not include any shares of common stock over which
Mr. Reinhart may have investment or voting power in his
capacity as trustee of a trust in which he has no financial
interest. Certain legal matters in connection with the offered
securities may also be passed upon for any agents or
underwriters by counsel specified in the prospectus supplement.
EXPERTS
The consolidated financial statements as of October 31,
2010 and 2009, and for the years then ended incorporated by
reference in this prospectus from the Companys Annual
Report on
Form 10-K
for the year ended October 31, 2010 and the effectiveness
of Hovnanians internal control over financial reporting as
of October 31, 2010, have been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their reports, which are
incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon
the reports of such firm given on their authority as experts in
accounting and auditing.
The consolidated financial statements of Hovnanian for the year
ended October 31, 2008 appearing in Hovnanians Annual
Report
(Form 10-K)
for the year ended October 31, 2010 have been audited by
Ernst & Young LLP, independent registered public
accounting firm, as set forth in their report thereon, included
therein, and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as
experts in accounting and auditing.
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