def14a
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities
Exchange Act of 1934
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Filed by the
Registrant x
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Filed by a Party other than the
Registranto
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Check the appropriate box:
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o Preliminary
Proxy Statement
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o Confidential,
for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
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x Definitive
Proxy Statement
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o Definitive
Additional Materials
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o Soliciting
Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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NVR, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
x No
fee required.
o Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction
applies:
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(3) |
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11 (Set
forth the amount on which the filing fee is calculated and state
how it was determined): |
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
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o |
Fee paid previously with
preliminary materials.
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o |
Check box if any part of the fee
is offset as provided by Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its
filing. |
(1) Amount previously paid:
(2) Form, schedule or registration statement no.:
(3) Filing party:
(4) Date filed:
NVR, INC.
11700 Plaza America Drive
Reston, VA 20190
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be held on Friday, May 4, 2007
11:30 A.M. Eastern Standard Time
NVR, Inc. will hold its Annual Meeting of Shareholders at 11:30 A.M. (Eastern Time) on
Friday, May 4, 2007. We will hold the meeting at our corporate headquarters located at 11700
Plaza America Dr., Suite 500, Reston, Virginia.
We are holding the meeting for the following purposes:
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To elect four nominees for director to serve three year terms and until their
successors are duly elected and qualified; |
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To ratify the appointment of the accounting firm of KPMG LLP as our independent
auditor for the year ending December 31, 2007; |
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Approval of an amendment to our Restated Articles of Incorporation to
provide for majority voting of our directors in uncontested elections; and |
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To transact other business that may properly come before the Annual Meeting or
any adjournment or postponement of the Annual Meeting. |
The above items are fully described within the proxy statement, which is part of this notice.
We have not received notice of any other matters that may properly be presented at the meeting.
Only shareholders of record at the close of business on March 1, 2007 will be entitled to vote
at the meeting. Whether or not you plan to attend the meeting, you are urged to date and sign the
enclosed proxy card and return it promptly in the accompanying envelope. You are invited to attend
the meeting in person. If you do attend the meeting, you may withdraw your proxy and vote in
person.
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By order of the Board of Directors,
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/s/ James M. Sack |
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James M. Sack |
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Secretary and General Counsel |
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March 22, 2007 |
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NVR, INC.
11700 Plaza America Drive
Suite 500
Reston, VA 20190
PROXY STATEMENT
This Proxy Statement, Proxy Card and the Annual Report for the year ended December 31,
2006 are being mailed to our shareholders on or about March 22, 2007 in connection with the
solicitation on behalf of the Board of Directors of NVR, Inc., a Virginia corporation, of proxies
for use at our Annual Meeting of Shareholders. The Annual Meeting will be held on Friday, May 4,
2007, at our headquarters at 11700 Plaza America Dr., Suite 500, Reston, Virginia, 20190, at 11:30
A.M., Eastern Time, and at any and all postponements and adjournments thereof.
We bear the cost of proxy solicitation, including expenses in connection with preparing,
assembling and mailing the proxy solicitation materials and all papers accompanying them. We may
reimburse brokers or persons holding shares in their names or in the names of their nominees for
their expenses in sending proxies and proxy material to beneficial owners. In addition to
solicitation by mail, certain of our officers, directors and regular employees, who will receive no
extra compensation for their services, may solicit proxies by telephone, facsimile transmission,
internet or personally. We have retained Georgeson Inc. to assist in the solicitation of brokers,
bank nominees and institutional holders for a fee of approximately $4,000 plus out-of-pocket
expenses.
All voting rights are vested exclusively in the holders of our common stock, par value $.01
per share (the Common Stock). Only shareholders of record as of the close of business on
March 1, 2007 (the Record Date) are entitled to receive notice of and to vote at the Annual
Meeting. Shareholders include holders (the Participants) owning stock in our Profit Sharing
Trust Plan and Employee Stock Ownership Plan (the Plans).
The accompanying proxy card should be used to instruct the person named as the proxy to vote
the shareholders shares in accordance with the shareholders directions. The persons named in the
accompanying proxy card will vote shares of Common Stock represented by all valid proxies in
accordance with the instructions contained thereon. In the absence of instructions, shares
represented by properly executed proxies will be voted FOR the election of those four persons
designated hereinafter as nominees for Class II of our directors, FOR the ratification of KPMG LLP
as our Independent Auditor for 2007, FOR approval of an amendment to our Restated Articles of
Incorporation to provide for majority voting of our directors in uncontested elections
and in the discretion of the named proxies with respect to any other matters presented at the
Annual Meeting.
With respect to the tabulation of proxies, for the election of directors, the ratification of
the appointment of KPMG LLP as our independent auditor, and approval of an amendment to our
Restated Articles of Incorporation, abstentions and broker non-votes are counted for the purpose of
establishing a quorum, but are not counted in the number of votes cast and will have no effect on
the result of the vote on any matter other than the proposed amendment to our Restated Articles of
Incorporation, on which they will be the equivalent of a vote against.
Any shareholder may revoke his or her proxy at any time prior to its use by 1) filing with our
Secretary, at 11700 Plaza America Drive, Suite 500, Reston, Virginia 20190, written notice of
revocation, 2) duly executing a proxy bearing a later date than the date of the previously duly
executed proxy, or 3) by attending the Annual Meeting and voting in person. Execution of the
enclosed proxy will not affect your right to vote in person if you should later decide to attend
the Annual Meeting.
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The proxy card also should be used by Participants to instruct the trustee of the Plans how to
vote shares of Common Stock held on their behalf. The trustee is required under the applicable
trust agreement to establish procedures to ensure that the instructions received from Participants
are held in confidence and not divulged, released or otherwise utilized in a manner that might
influence the Participants free exercise of their voting rights. Proxy cards representing shares
held by Participants must be returned to the tabulator by May 1, 2007 using the enclosed return
envelope and should not be returned to us. If shares are owned through the Plans and the
Participant does not submit voting instructions by May 1, 2007, the trustee of the Plans will vote
such shares in the same proportion as the voting instructions received from the other Participants.
Participants who wish to revoke a proxy card will need to contact the trustee and follow its
instructions.
As of the Record Date, we had a total of 5,786,367 shares of Common Stock outstanding, each
share of which is entitled to one vote. The presence, either in person or by proxy, of persons
entitled to vote a majority of the outstanding Common Stock is necessary to constitute a quorum for
the transaction of business at the Annual Meeting. Under our Restated Articles of Incorporation
and Bylaws, holders of Common Stock are not entitled to vote such shares on a cumulative basis.
3
Election of Directors
(Proposal 1)
Our Board of Directors, or the Board, is divided into three classes, the classes being
as equal in number as possible. At the 2007 Annual Meeting, the following persons constituting
Class II of the directors have been nominated by the Board of Directors to be elected to hold
office for a three year term and until their successors are duly elected and qualified:
Manuel H. Johnson
David A. Preiser
John M. Toups
Paul W. Whetsell
Our Restated Articles of Incorporation state that the number of directors on our Board will be
no less than seven and no more than thirteen, as established from time to time by Board resolution.
Currently, our Board has established the size of the Board as ten.
Mr. Johnson, Mr. Preiser and Mr. Toups are current directors standing for reelection. Mr.
Whetsell was appointed as a director on March 1, 2007 and is standing for election by our
shareholders for the first time. Mr. Schar, NVRs Chairman, recommended Mr. Whetsell to the
Nominating Committee for consideration as a director. Each nominee has consented to serve as one
of our directors if elected. Our Board of Directors has affirmatively determined that each of our
Board of Directors proposed nominees is independent. Our Board does not contemplate that any of
its proposed nominees listed above will become unavailable for any reason, but if any such
unavailability should occur before the Annual Meeting, proxies may be voted for another nominee
selected by the Board of Directors.
Vote Required
Assuming the presence of a quorum, the affirmative vote of the holders of a plurality of the
votes cast by the shares entitled to vote in person or by proxy at the Annual Meeting is required
for the election of each of the four nominees named above. Unless marked otherwise, proxies
received will be voted FOR the election of each of the four nominees named above. Shareholders may
withhold their votes from the entire slate of nominees or from any particular nominee by so
indicating in the space provided on the attached proxy card.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR ALL OF THE FOREGOING NOMINEES AS DIRECTORS OF NVR.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
We are committed to having sound corporate governance principles and practices. Having and
acting on that commitment is essential to running our business efficiently and to maintaining our
integrity in the marketplace. Our primary corporate governance documents, including our Corporate
Governance Guidelines, Code of Ethics and all of the our Board of Directors committee charters,
are available to the public on our internet website at http://www.nvrinc.com.
4
Board Structure and Committee Composition
Our Restated Articles of Incorporation state that the number of directors on our Board will be
no less than seven and no more than thirteen, as established from time to time by Board resolution.
As of the date of this Proxy Statement, the Board has ten members.
Dwight C. Schar, our executive chairman, leads our Board, which meets at least quarterly. In
addition, our Corporate Governance Guidelines require that each year our Board name an independent
lead director to chair meetings of our independent directors. The independent directors of our
Board meet as a group at least annually. Our independent lead director position rotates annually
between the Audit, Compensation, Corporate Governance and Nominating Committee chairmen. Robert C.
Butler, the Chairman of our Corporate Governance Committee, served as our independent lead director
for calendar year 2006. David A. Preiser, the Chairman of our Nominating Committee, assumed the
independent lead director role for the 2007 calendar year.
Our Board has the following six committees: Audit, Compensation, Corporate Governance,
Executive, Nominating, and Qualified Legal Compliance. Each committee, other than the Executive
Committee, meets at least annually to review its Committee Charter. During 2006, the full Board of
Directors met seven times, the Audit Committee met five times, the Compensation Committee and
Corporate Governance Committees each met three times, the Nominating Committee met twice, and the
Qualified Legal Compliance Committee met once. The Executive Committee did not meet during 2006.
Our independent directors met once during 2006 in executive session without the presence of
non-independent directors and management. Each of our Board members attended at least 75% of all
of our Board and their respective Committee meetings during 2006, and each then-standing director
attended the 2006 annual meeting of shareholders. Our Board requires that our Board members attend
each Board and Committee meeting in person. Our Board of Directors further requires that all
current Board members and all nominees for election to our Board of Directors put forth in our
proxy statement by our Board attend in person our annual meeting of shareholders, unless personal
circumstances affecting such Board member or director nominee make such attendance impracticable or
inappropriate.
Board Member Information
The following sets forth certain pertinent information with respect to our current directors,
including the nominees listed above.
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Year First Elected or Appointed/ |
Name |
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Age |
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Term Expires |
Dwight C. Schar (3*) |
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65 |
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1993/2008 |
C. Scott Bartlett, Jr. (1) (4) (6) |
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74 |
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1993/2009 |
Robert C. Butler (1) (4) (5*) (6) |
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76 |
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2002/2008 |
Timothy M. Donahue (2) (4) |
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58 |
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2006/2009 |
Manuel H. Johnson (1*) (2) (5) (6*) |
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58 |
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1993/2007 |
William A. Moran (3) |
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60 |
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1993/2009 |
David A. Preiser (2) (4*) (5) (**) |
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50 |
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1993/2007 |
George E. Slye (1) (3) (6) |
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76 |
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1993/2008 |
John M. Toups (2*) (3) (5) |
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81 |
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1993/2007 |
Paul W. Whetsell (2)(5) |
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56 |
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2007/2007 |
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(1) |
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Member of Audit Committee |
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(2) |
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Member of Compensation Committee |
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(3) |
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Member of Executive Committee |
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(4) |
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Member of Nominating Committee |
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(5) |
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Member of Corporate Governance Committee |
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(6) |
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Member of Qualified Legal Compliance Committee |
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(*) |
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Chairperson |
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(**) |
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Independent Lead Director |
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Dwight C. Schar has been Chairman of the Board since September 30, 1993. Mr. Schar
served as the President and Chief Executive Officer of NVR from September 30, 1993 through June 30,
2005. Mr. Schar is also a director of Six Flags, Inc.
C. Scott Bartlett, Jr. has been a director since September 30, 1993. Mr. Bartlett retired
as an Executive Vice President of National Westminster Bank USA, now Bank of America, Inc., in
1990. Mr. Bartlett is also a director of Abraxas Petroleum Corporation where he serves as the
chairman of the audit committee and serves on the nominating committee.
Robert C. Butler has been a director since May 1, 2002. Prior to his retirement, Mr.
Butler served as Senior Vice President and Chief Financial Officer of Celgene Corporation from
1996 through 1998. Previously, Mr. Butler served as Chief Financial Officer of International
Paper Co. In addition, Mr. Butler was the Chairman of the Financial Accounting Standards
Advisory Council from 1997 through 2001. Mr. Butler is a director of Studio One Networks, Inc.
He also serves on the Board of Trustees of COPE Center, Inc., a non-profit social services
entity.
Timothy M. Donahue has been a director since January 1, 2006. Prior to his retirement, Mr.
Donahue was Executive Chairman of Sprint Nextel Corporation from August 2005 to December 2006.
He previously served as president and chief executive officer of Nextel Communications, Inc. He
began his career with Nextel in January 1996 as president and chief operating officer. Before
joining Nextel, Mr. Donahue served as northeast regional president for AT&T Wireless Services
operations from 1991 to 1996. Prior to that, he served as president for McCaw Cellulars paging
division in 1986 and was named McCaws president for the U.S. central region in 1989. He is
also a director of Kodak and John Carroll University.
Manuel H. Johnson has been a director since September 30, 1993. Dr. Johnson has been
co-chairman and senior partner in Johnson Smick International, Inc., an international financial
policy-consulting firm, since 1990. From August 1, 1997 until December 2003, Dr. Johnson was
the chairman of the Board of Trustees and president of the Financial Accounting Foundation,
which oversees the Financial Accounting Standards Board. Also during 1997, Dr. Johnson was
named a member of the Independence Standards Board (which was dissolved on July 31, 2001),
formed jointly by the Securities and Exchange Commission and the American Institute of Certified
Public Accountants. Dr. Johnson is a founder and co-chairman of the Group of Seven
Council, an international commission supporting economic cooperation among the major industrial
nations. He is a director of Morgan Stanley Funds, Greenwich Capital Markets, Inc. and
Evergreen Energy, Inc.
William A. Moran has been a director since September 30, 1993. Mr. Moran has been the
chairman of Elm Street Development, Inc. (Elm Street) since 1996. Mr. Moran is currently a
director and shareholder of Craftmark, Inc., a homebuilder in Virginia, Maryland, Pennsylvania
and Delaware and Craftstar, Inc., which develops, invests in and periodically sells apartments,
condominiums, single family homes and townhomes in Virginia and Maryland. Mr. Moran is also a
director and shareholder of ESD, Inc.
David A. Preiser has been a director since September 30, 1993. Mr. Preiser has been a
senior managing director and a member of the Board of Directors (now an advisory member) of the
investment banking firm of Houlihan Lokey Howard & Zukin (Houlihan Lokey) since 2001. Prior
to that date, Mr. Preiser was a managing director of Houlihan Lokey. Since January 1, 2005, Mr. Preiser has
served as Chairman of Houlihan Lokey Howard and Zukin Europe, pursuant to which he leads
Houlihan Lokeys European investment banking activities. Additionally, Mr. Preiser continues to
hold the position of managing partner of Sunrise Capital Partners L.P., a distressed private
equity fund affiliated with Houlihan Lokey since 1998, the investment strategy of which is to
invest in bankrupt companies and turn-around situations. From 1990, Mr. Preiser had been active
in coordinating Houlihan Lokeys real estate and financial restructuring activities as a
managing director. Mr. Preiser is also a director of Jos. A. Bank Clothiers, Inc.; Akrion,
Inc.; Collective Licensing International, LLC; and AIT Holding Company, LLC.
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George E. Slye has been a director since September 30, 1993. Mr. Slye has been the chief
executive officer and owner of GESCOM, Inc., a real estate investment firm, since 1983. Mr.
Slye has also been acting as a business and real estate consultant with two West Coast
corporations, Real Energy Corporation, LLC and Brentwood Capital Partners, during the last five
years. Mr. Slye was a co-founder and vice-chairman of Spaulding and Slye Colliers, a major real
estate development company with offices in Boston and Washington, D.C. He has served as a
trustee of Babson College and University Hospital of Boston and as a director of Manufacturers
Advisor Corporation of Toronto. In addition, Mr. Slye was a two-term president of the Greater
Boston Real Estate Board. Mr. Slye was previously a director of two real estate trusts owned by
Travelers Insurance Company, which are now merged into other Travelers entities.
John M. Toups has been a director since September 30, 1993. Prior to his retirement, Mr.
Toups held various management positions with Planning Research Corporation from 1970 through
1987, for which he was chief executive officer from 1978 to 1987 and chairman from 1982 to 1987.
He is also a director of Halifax Corporation, GTSI, Inc. and Dewberry and Davis.
Paul W. Whetsell has been a director since the Board appointed him on March 1, 2007. Mr.
Whetsell has been the chairman of the board of Interstate Hotels and Resorts, Inc.
(Interstate) since August 1998 and the president and chief executive officer of Capstar Hotel
Company since 2006. From August 1998 until October 2003, he also served as the chief executive
officer of Interstate and its predecessor. From August 1998 until May 2006, Mr. Whetsell served
as the chairman and chief executive officer of Meristar Hospitality Corporation.
Board Independence
Our Board has established Director independence standards to assist us in determining
director independence, the standards of which either meet or exceed the independence
requirements of the American Stock Exchanges (AMEX) corporate governance listing standards
(our common stock is listed on the AMEX). Our independence standards are included within our
Corporate Governance Guidelines which are available on our website at http://www.nvrinc.com.
Our Board considers all relevant facts and circumstances in making an independence
determination. To be considered independent under our independence standards, a director must
be determined, by a resolution of our Board, to have no material relationship with us (other
than as a director) directly or indirectly, that would interfere with the exercise of
independent judgment.
Our Board has affirmatively determined that Mssrs. Bartlett, Butler, Donahue, Johnson,
Preiser, Slye, Toups and Whetsell are independent pursuant to our independent standards and have
no material relationship with us, directly or indirectly, that would interfere with the exercise
of independent judgment. Mr. Schar, our Executive Chairman, and Mr. Moran, an existing director
who controls a company from which we acquire a small portion of our finished lots upon which to build our homes, have been
determined by our Board not to be independent.
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When our Board met to analyze the independence of its member, it analyzed two separate
transactions that it considered immaterial to the independence of the directors involved:
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Mr. Toups is a director of Dewberry & Davis (Dewberry), a privately held
professional services firm that provides engineering, surveying and environmental
sciences services. Previously, the independent members of our Board (with Mr. Toups
abstaining) authorized us to obtain services in the ordinary course of business from
Dewberry, the services of which included engineering and surveying of certain
finished lots upon which we build our homes. We obtained services from Dewberry
during 2006. |
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Mr. Donahue was the Executive Chairman of Sprint Nextel Corporation (Sprint)
through December 31, 2006. Previously, the independent members of our Board
authorized us to obtain services in the ordinary course of business from Sprint. We
obtained telecommunication services from Sprint during 2006. |
Board Committees
Audit Committee
We have a separately designated standing Audit Committee comprised of four members, each of
whom satisfies the independence standards specified above and Rule 10A-3(b)(1) under the Securities
Exchange Act of 1934 (1934 Act). All current members of our Audit Committee are financially
literate and are able to read and understand fundamental financial statements, including a balance
sheet, income statement and cash flow statement. Our Board has determined that Manuel H. Johnson,
our current Audit Committee Chairman, qualifies as an audit committee financial expert as defined
within Section 229-401(h) of the 1934 Act. This designation does not impose on Mr. Johnson any
duties, obligations or liability that are any greater than are generally imposed on him as a member
of our Audit Committee and our Board, and his designation as an audit committee financial expert
pursuant to this Securities and Exchange Commission (SEC) requirement does not affect the duties,
obligations or liability of any other member of our Audit Committee or our Board.
Our Audit Committee operates pursuant to a charter adopted by our Board that is available at
http://www.nvrinc.com. As enumerated in the Charter, our Audit Committee was established to assist
our Boards oversight of (1) the integrity of our accounting and financial reporting processes, (2)
our compliance with legal and regulatory requirements, (3) our independent external auditors
qualifications and independence, and (4) the performance of our internal audit function and
independent external auditors. Among other things, our Audit Committee prepares the Audit
Committee Report for inclusion in our proxy statement; annually reviews our Audit Committee Charter
and the Audit Committees performance; appoints, evaluates and determines the compensation of our
independent external auditors; and maintains written procedures for the receipt, retention and
treatment of complaints on accounting, internal accounting controls or auditing matters, as well as
for the confidential, anonymous submissions by our employees of concerns regarding questionable
accounting or auditing matters. Our Audit Committee has the authority and available funding to
engage any independent legal counsel and any accounting or other expert advisors, as our Audit
Committee deems necessary to carry out its duties.
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Compensation Committee
We have a separately designated standing Compensation Committee comprised of five members,
each of whom satisfies our independence standards specified above. Our Compensation Committee
operates pursuant to a charter adopted by our Board that is available at http://www.nvrinc.com.
Description of Duties
Among other things, our Compensation Committee (1) determines the compensation of our
Executive Chairman and our Chief Executive Officer (CEO) and, based in part on the recommendation
of the Executive Chairman and the CEO, of all of our other executive officers; (2) periodically
reviews and makes recommendations to the Board with respect to the compensation of our directors;
(3) administers and interprets incentive compensation and stock option plans for our employees; (4)
prepares our Compensation Committee Report for inclusion in our annual meeting proxy statement in
accordance with applicable rules and regulations of the SEC; (5) makes recommendations to our Board
about succession planning for our CEO, and in conjunction with the CEO, also considers succession
planning for other of our key positions; and (6) annually reviews our Compensation Committee
Charter and the Compensation Committees performance. Our Compensation Committee also has the sole
authority and appropriate funding to obtain advice and assistance from compensation
consultants, and internal or outside legal, accounting or other expert advisors that it
determines necessary to carry out its duties.
Compensation Consideration and Determination
See the Compensation Determination Process included in the Compensation Discussion and
Analysis below.
We do not engage compensation consultants to set executive officer compensation each year.
Rather, we engage consultants on an as needed basis as determined by us or our Compensation
Committee (we did not engage any such consultant during 2006). For example, we engaged a
compensation consultant in early 2005 to assist us in formulating the terms of the 2005 Stock
Option Plan. This was done to ensure that all of the plan terms, including the four-year
performance measure that is required to be met for vesting (see the EPS Target discussion in the
Fixed Price Stock Option section of our Compensation Discussion and Analysis below),
appropriately achieved and satisfied all of our objectives.
Our Compensation Committee has the only authority to grant stock options to our named
executive officers. Our Compensation Committee, by resolution, has delegated authority to either
the Executive Chairman or CEO, and the Senior Vice President of Human Resources, jointly, to grant
options to new and existing employees below the executive officer rank. The Senior Vice President
of Human Resources must report any options granted pursuant to this delegated authority to the
Compensation Committee at their next scheduled meeting after the delegated authority is exercised.
We do not have a program, plan or practice in place to grant options in coordination with the
release of material non-public information.
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Compensation Committee Interlocks and Insider Participation
During 2006, our compensation committee was comprised of Mr. Toups, Mr. Donahue, Mr. Johnson,
and Mr. Preiser, all of who are independent directors. None of our executive officers served as a
member of the board of directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board or our Compensation Committee; accordingly,
there were no interlocks with other companies within the meaning of the SECs proxy rules during
2006.
Nominating Committee
We have a separately designated standing Nominating Committee comprised of four members, each
of whom satisfies our independence standards specified above. The Nominating Committee operates
pursuant to a charter adopted by the Board that is available at http://www.nvrinc.com.
Among other things, the Nominating Committee (1) identifies individuals qualified to become
Board members; (2) recommends that our Board select the director nominees for the next annual
meeting of shareholders; (3) recommends to our Board names of individuals to fill any vacancies on
our Board that arise between annual meetings of shareholders; (4) considers from time to time our
Board committee structure and makeup; and (5) annually reviews our Nominating Committee Charter and
the Nominating Committees performance. Our Nominating Committee also has the sole authority and
appropriate funding to obtain advice and assistance from executive search firms, and
internal or outside legal, accounting or other expert advisors that it determines necessary to
carry out its duties.
Attached as Appendix A are our Policies and Procedures for the Consideration of
Board of Directors Candidates, including nominations submitted by our security holders. This
material is also available at http://www.nvrinc.com.
Corporate Governance Committee
We have a separately designated standing Corporate Governance Committee comprised of five
members, each of whom satisfies our independence standards specified above. The Corporate
Governance Committee operates pursuant to a charter adopted by our Board that is available at
http://www.nvrinc.com. Our Corporate Governance Guidelines are also available at
http://www.nvrinc.com.
Among other things, the Corporate Governance Committee (1) develops and recommends to our
Board a set of corporate governance principles; (2) annually reviews and assesses the adequacy of
our Corporate Governance Guidelines, including ensuring that they reflect best practices where
appropriate; and (3) annually reviews our Corporate Governance Committee Charter and the Corporate
Governance Committees performance. Our Corporate Governance Committee must obtain Board approval
for funding to obtain advice and assistance from internal or outside legal, accounting or other
expert advisors that it determines necessary to carry out its duties.
Qualified Legal Compliance Committee
Our Qualified Legal Compliance Committee (QLCC) is a separately designated standing
committee, currently consisting of all of the members of our Audit Committee. It was established
to assist our Board in fulfilling its responsibilities relating to oversight of legal compliance by
our employees and us and to meet the requirements for a qualified legal compliance committee under Part 205 of the
rules of the SEC (the Part 205 Rules). The composition of the QLCC is intended to comply with
all independence requirements under the Part 205 Rules. Our QLCC operates pursuant to a charter
adopted by our Board and is available at http://www.nvrinc.com. Our QLCC annually reviews the QLCC
Charter and the QLCCs performance.
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Our QLCC has adopted written procedures for the confidential receipt, retention and
consideration of any report of evidence of a material violation of securities laws or material
breach of fiduciary duty or similar material violation by us, or our directors, officers, employees
or agents (Material Violation) under the Part 205 Rules, and has the authority and responsibility
(1) to inform our chief legal officer (CLO), CEO and chief financial officer (CFO) of any
report of evidence of a Material Violation; (2) to determine whether an investigation is necessary
regarding any report of evidence of a Material Violation and; (3) if our QLCC determines an
investigation is necessary or appropriate, initiate such investigation; (4) to obtain a written
report from our CLO or outside counsel conducting any such investigation at the investigations
conclusion; (5) recommend, by majority vote, that we implement an appropriate response to evidence
of a Material Violation and inform our Board, CEO, CLO and CFO of the results of any such
investigation and the appropriate remedial measures to be adopted; and (6) acting by majority vote,
to take all other appropriate action, including the authority to notify the SEC in the event that
we fail in any material respect to implement an appropriate response that our QLCC has recommended
that we take. Our QLCC has the authority and available funding to engage any independent legal
counsel, accounting or other expert advisors as our QLCC deems necessary to carry out its duties.
Executive Committee
Our Executive Committee was established pursuant to our Bylaws to have such powers, authority
and responsibilities as may be determined by a majority of our Board of Directors. Our Executive
Committee has never met, nor has our Board ever delegated any powers, authority or responsibilities
to the Executive Committee. Our Board of Directors intends to continue the practice of considering
corporate matters outside the scope of our other existing Board committees at the full Board level.
Security Holder Communications with the Board of Directors
Our Policies and Procedures Regarding Security Holder Communications with the NVR, Inc. Board
of Directors are available at http://www.nvrinc.com.
Transactions With Related Persons
During the year ended December 31, 2006, we entered into forward lot purchase agreements to
purchase finished building lots for a total purchase price of approximately $30,000,000 with Elm
Street Development, Inc. (Elm Street), which is controlled by Mr. Moran. The independent members
of our Board approved these transactions, and we expect to purchase these finished lots over the
next three years at market prices. During 2006, NVR purchased 284 developed lots at market prices
from Elm Street for approximately $50,000,000.
During 2006, one of Mr. Savilles adult children who lives independent of him entered into a
sales contract to purchase one of our homes for $733,000. The sale closed in February 2007. The
price and the terms of the sale were no less favorable than those that would have been entered into
with an unrelated third party, and our independent Directors approved the sale.
11
During February 2007, Mr. Bartletts adult child who lives independent of him entered
into a sales contract to purchase one of our homes for $324,000. The sale is expected to close in
2007. The price and the terms of the sale are no less favorable than those that would have been
entered into with an unrelated third party, and our disinterested independent Directors approved
the sale.
During 2006, we had two marketing and promotional arrangements with certain entities
controlled by or affiliated with the Washington Redskins National Football League franchise (the
Redskins). Mr. Schar is a minority owner of the Redskins. Our independent directors approved
each of these arrangements. In total, we incurred or committed to incur approximately $179,500
under these marketing and promotional arrangements.
Procedures for Approval of Related Person Transactions
All related person transactions affecting us that are potentially disclosable under Item
404(a) of Regulation S-K must be considered, reviewed and approved or ratified by the
disinterested, independent directors of our Board, regardless of the type of transaction or amount
involved. This requirement is contained within various written documents, including Section 7.05
of our Bylaws (available on our website at
http://www.nvrinc.com), Sections 1 and 3 of our Code of
Ethics (available on our website at http://www.nvrinc.com), which makes reference to the approval
requirements of related party transactions contained within the AMEXs listing standards, and our
internal Standards of Business Conduct, Human Resource and Financial Policies and Procedures.
Security Ownership of Certain Beneficial Owners and Management
The following tables sets forth certain information as to the beneficial ownership of
Common Stock by each person known by us to be the beneficial owner of more than 5% of the
outstanding Common Stock as of the dates indicated, and each director, director nominee and
executive officer and by all directors and executive officers as a group as of March 1, 2007.
Except as otherwise indicated, all shares are owned directly and the owner has sole voting and
investment power with respect thereto.
Certain Beneficial Owners
|
|
|
|
|
|
|
|
|
Name and Address of Holder |
|
Number of Shares |
|
Percent of Class |
Barclays Global Investors, N.A.
|
|
|
735,947 |
(1) |
|
|
12.7 |
% |
45 Fremont Street
San Francisco, CA 94105 |
|
|
|
|
|
|
|
|
Putnam, LLC
|
|
|
386,910 |
(2) |
|
|
6.7 |
% |
One Post Office Square
Boston, MA 02109 |
|
|
|
|
|
|
|
|
Janus Capital Management LLC
|
|
|
305,734 |
(3) |
|
|
5.3 |
% |
151 Detroit Street
Denver, CO 80206 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Of the shares that were reported within a Schedule 13G filed January 23, 2007, the
entity has sole voting power of 674,829 shares and sole investment power of 735,947 shares. |
|
(2) |
|
Of the shares that were reported within a Schedule 13G filed February 13, 2007, the entity
has shared voting power of 21,735 shares and shared investment power of 386,910 shares. |
|
(3) |
|
Of the shares that were reported within a Schedule 13G filed February 14, 2007, the entity
has sole voting and investment power of 305,734 shares. |
12
Directors and Management
|
|
|
|
|
|
|
|
|
Name |
|
Number of Shares |
|
Percent of Class |
Dwight C. Schar |
|
|
542,796 |
(1) |
|
|
9.4 |
% |
C. Scott Bartlett, Jr. |
|
|
9,380 |
(2) |
|
|
* |
|
Robert C. Butler |
|
|
4,550 |
(3) |
|
|
* |
|
Timothy M. Donahue |
|
|
200 |
|
|
|
* |
|
Manuel H. Johnson |
|
|
30,215 |
(4) |
|
|
* |
|
William A. Moran |
|
|
24,750 |
|
|
|
* |
|
David A. Preiser |
|
|
5,800 |
(5) |
|
|
* |
|
George E. Slye |
|
|
4,250 |
|
|
|
* |
|
John M. Toups |
|
|
18,718 |
(6) |
|
|
* |
|
Paul W. Whetsell |
|
|
|
|
|
|
* |
|
William J. Inman |
|
|
121,605 |
(7) |
|
|
2.1 |
% |
Paul C. Saville |
|
|
302,762 |
(8) |
|
|
5.1 |
% |
Dennis M. Seremet |
|
|
70,993 |
(9) |
|
|
1.2 |
% |
Robert W. Henley |
|
|
5,514 |
(10) |
|
|
* |
|
|
|
|
|
|
|
|
|
|
All directors, director nominees
and executive officers as a group
(14 persons) |
|
|
1,141,533 |
|
|
|
19.0 |
% |
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
Includes 3,021 vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust,
242,653 vested shares held in a Deferred Compensation Rabbi Trust and 31,928 shares held as a
discretionary investment in the NVR, Inc. Profit Sharing Plan. Excludes 5,013 shares held in
a Deferred Compensation Plan, which are not distributable until six months subsequent to
separation of service. |
|
(2) |
|
Includes 3,875 vested options issued under the NVR, Inc. 1998 Directors Long Term Stock
Option Plan, 4,250 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option
Plan and 755 shares owned by his wife. |
|
(3) |
|
Includes 4,250 vested options issued under the NVR, Inc. 1998 Directors Long Term Stock
Option Plan. |
|
(4) |
|
Includes 12,500 vested options issued under the NVR, Inc. 1998 Directors Long Term Stock
Option Plan, 4,250 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option
Plan and 65 shares owned by his son. |
|
(5) |
|
Includes 4,250 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option Plan. |
|
(6) |
|
Includes 12,500 vested options issued under the NVR, Inc. 1998 Directors Long Term Stock
Option Plan, 4,250 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option
Plan and 43 shares owned by his wife. |
|
(7) |
|
Includes 12,500 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option Plan,
86,384 vested shares held in a Deferred Compensation Rabbi Trust, 3,118 vested shares held by
the NVR, Inc. Employee Stock Ownership Plan in trust and 22 shares held as a discretionary
investment in the NVR, Inc. Profit Sharing Plan. |
|
(8) |
|
Includes 77,500 vested options issued under the 1998 Management Long Term Stock Option Plan,
37,500 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option Plan, 3,117
vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust, 4,290 shares held
as a discretionary investment in the NVR, Inc. Profit Sharing Plan, 60,000 shares held in a
family LLC, 105,883 vested shares held in a Deferred Compensation Rabbi Trust and 2,000 shares
owned by his children. Excludes 777 shares held in a Deferred Compensation Plan which are not
distributable until six months subsequent to separation of service. |
|
(9) |
|
Includes 12,000 vested options issued under the 1998 Management Long Term Stock Option Plan,
12,500 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option Plan, 3,000
vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust, 2,016 shares held
as a discretionary investment in the NVR, Inc. Profit Sharing Plan, 40,527 vested shares held
in a Deferred Compensation Rabbi Trust and 600 shares owned by his children. |
|
(10) |
|
Includes 2,500 vested options issued under the 1996 Management Long-term Stock Option Plan,
1,750 vested options issued under the NVR, Inc. 2000 Broad-Based Stock Option Plan, 1,016
vested shares held by the NVR, Inc. Employee Stock Ownership Plan in trust and 248 shares held
as a discretionary investment in the NVR, Inc. Profit Sharing Plan. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires our directors and executive officers and persons who
own more than 10% of our Common Stock to file reports of ownership and changes in ownership of
such stock with the SEC and the AMEX. Directors, executive officers and greater than 10%
shareholders are required by SEC regulations to furnish us with copies of all such forms filed.
To our knowledge, based solely on a review of the copies of such reports furnished to us during
2006 and written representations that no other reports were required, all directors, executive
officers and greater than 10% shareholders complied with all applicable Section 16(a) filing
requirements.
13
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE SHALL NOT BE DEEMED TO
BE SOLICITING MATERIAL OR TO BE FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE IN ANY
DOCUMENT SO FILED.
Report of the Audit Committee
NVRs Audit Committee is solely comprised of independent directors as defined by our
independence standards (see above) and in the applicable SEC rules, and operates pursuant to a
charter adopted by our Board, which is available at
http://www.nvrinc.com.
Our management has primary responsibility for preparing our financial statements and
establishing financial reporting systems and internal controls. Management also has the
responsibility of reporting on the effectiveness of our internal controls over financial reporting.
Our independent external auditor, KPMG LLP, is responsible for expressing opinions on the
conformity of our audited financial statements with accounting principles generally accepted in the
United States of America and on managements report on the effectiveness of its internal control
over financial reporting. In this context, the Audit Committee hereby reports as follows:
|
1. |
|
The Audit Committee has reviewed and discussed the audited financial statements and
managements assessment of the effectiveness of our internal controls over financial reporting
with management, and reviewed and discussed KPMG LLPs audit opinions with KPMG LLP; |
|
|
2. |
|
The Audit Committee has discussed with KPMG LLP the matters required to be discussed by
Statement on Auditing Standards (SAS) 61 (Codification of Statements on Auditing Standards,
AU 380), SAS 99 (Consideration of Fraud in a Financial Statement Audit) and SEC rules
discussed in Final Releases 33-8183 and 33-8183a; |
|
|
3. |
|
The Audit Committee has received the written disclosures and the letter from KPMG LLP
required by Independence Standards Board Standard No. 1 (Independence Discussions with Audit
Committee), and has discussed with KPMG LLP their independence; and |
|
|
4. |
|
Based on the reviews and discussions referred to in paragraphs (1) through (3) above, the
Audit Committee recommended to the Board, and the Board has approved, that the audited
financial statements be included in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2006, for filing with the SEC. |
The undersigned, constituting all of the members of the Audit Committee, have submitted this report
to the Board of Directors.
Manuel H. Johnson (Chairman), C. Scott Bartlett, Jr., Robert C. Butler, and George E. Slye
14
COMPENSATION DISCUSSION AND ANALYSIS
General Compensation Philosophy and Objectives
Our general compensation philosophy for our named executive officers is to place
significant focus on, and reward achievement of, long-term objectives, which is necessary
considering the industry in which we operate. Residential real estate projects often take a
substantial period of time to mature. A typical community in which we sell and build homes may
take anywhere between one year and five years to build out completely. For us to be successful, it
is necessary for us to control land from our developers upon which to build our homes several years
in advance of our sales and construction efforts. The homebuilding industry is cyclical and
exhibits peaks and troughs over a long-term period. Because we need to effectively manage our
business over lengthy project time periods and during different stages of the homebuilding economic
cycle, we believe that the bulk of our named executive officers compensation should be predicated
upon our long-term results of operations, and not on short-term quarterly or annual measures. We
do this by limiting short-term cash compensation opportunities and emphasizing long-term earning
opportunities through ownership of our common stock. Specifically, we:
|
|
|
pay cash compensation to our named executive officers based on their positions, and
what we believe to be low relative to comparable positions in other publicly traded
companies within our industry; |
|
|
|
|
cap the annual cash bonus opportunity of our named executive officers at 100% of
their base salary, and we do not provide any opportunity to exceed that amount for
short-term quarterly or annual performance in excess of our expectation from our
business plan; and |
|
|
|
|
issue our named executive officers periodic (though not annual) grants of
fixed-price stock options that vest over a long-term vesting schedule. Each grant has
a four- to five-year holding period before vesting begins. The vesting of each grant
is over an additional four-year period in 25% increments. We layer our option grants
such that each named executive officer has one grant that is within the holding period
before vesting begins, and another grant that is actively vesting over the additional
four-year period. |
A long-term equity interest in our company by our named executive officers is the major thrust
of our philosophy. We believe that providing the bulk of their compensation in the form of fixed
price stock options with a long-term vesting schedule is an effective way to retain their services,
and the services of all of our other management employees compensated in the same manner, over a
long-term period. Additionally, each stock option agreement contains non-compete provisions that
protect our interests. Retention of our experienced management team, which includes our named
executive officers, has been and will continue to be one of our most key strategic goals in
managing our business. To encourage further equity ownership, we give each of our named executive
officers, at their choice, the opportunity to defer any salary or annual bonus awards due to them
into our deferred compensation plan. All deferred amounts must be invested solely in our common
stock and paid out only after separation of service. We also require our named executive officers
to continuously hold our common stock with a market value of four to eight times their respective
base salaries (see the Deferred Compensation Plan and Stock Holding Requirement discussions below,
respectively). We believe that fostering a long-term focus through equity compensation
and ownership effectively aligns our named executive officers interest with those of our
shareholders.
15
Compensation Determination Process
The Compensation Committee of our Board of Directors approves all compensation awarded to
our named executive officers. The CEO and the Senior Vice President of Human Resources make
recommendations to the Committee regarding all compensation to be awarded to our CFO, NVRM
President and the Controller, which are generally accepted by the Committee. These recommendations
are based on salary information for comparable positions at other large, publicly traded
homebuilding and mortgage companies, as well as individual performance. The Committee deliberates
on and establishes our Chairman and CEOs compensation on its own initiative, though we do provide
the Committee with salary survey data and comparative financial measures (our financial and
operating performance compared to information publicly-available on our industry peers) to use in
their deliberations, if they choose. For further information on our Compensation Committees
processes and procedures, see Corporate Governance above in this proxy statement.
Elements of Compensation
Base Salary
Our objective in providing our named executive officers a base salary is to provide a minimum
level of cash compensation for employment services rendered. The amounts are set considering i)
comparable salaries of peer companies included in a national homebuilder salary survey prepared by
Analytical Consulting Companies, Inc., ii) our overall operating performance during the prior
fiscal year, and iii) qualitative factors, such as the named executive officers relative
experience and performance in the position. Included in the salary survey are many companies
included in the Dow Homes Construction Index, such as: Beazer Homes USA, Inc., Centex Homes, D. R.
Horton, Inc., KB Home, Lennar Corporation, MDC Holdings, Meritage Corporation, Pulte Corporation,
Standard Pacific Corporation, The Ryland Group, Toll Brothers, Inc. and WCI Communities.
The salaries paid to Mssrs. Saville, Seremet and Henley for 2006 were set between the
50th and 80th percentile of the survey data, reflecting our desire to focus
more on long term incentives than on short-term cash awards. For Mr. Inman, the salary selected
was above the 90th percentile of the survey data, reflecting our judgment of his lengthy
experience in the mortgage industry in general, and with us specifically. For 2006, Mr. Schar
requested that the Committee reduce his aggregate salary and annual bonus award opportunity by a
total of $1,000,000 (a $500,000 reduction to each of Mr. Schars salary and annual bonus award
opportunity). This reduction corresponded with Mr. Schars successful transition of certain of his
duties to Mr. Saville after we separated the Chairman and CEO roles in 2005.
For 2007, Mr. Schar requested that his base salary and annual bonus opportunity be reduced to
$0, and we have granted that request. In addition, for 2007 we have frozen the base salaries at
2006 levels for all of the other named executive officers to reflect the current downturn in the
homebuilding industry.
16
Annual Bonus
The annual bonus award opportunity is the only non-stock option incentive available to our
named executive officers. The objective of the annual bonus portion of the total compensation
package is to focus each of the named executive officers on the attainment of annual goals
necessary to achieve our five-year business plan. We do this by establishing financial targets
applicable to each named
executive officer at the beginning of each year that are tied to our annual business plan. These
annual objectives are consistent with the current years portion of our five-year business plan.
The Board of Directors approves our business plans for the upcoming year in December each year.
Historically, and for 2006, our named executive officers begin to earn the annual bonus award once
the financial targets are at least 70% attained. The full amount of the annual bonus award is
earned ratably from 70% up to 100% of the financial target attainment. We have never exercised
discretion in awarding bonuses in amounts different, either higher or lower, from the amount
calculated by our actual results relative to the preset performance target and attainment ranges.
The named executive officers can earn no more than 100% of their base salary as a bonus award,
which is earned once 100% of the financial targets are attained. Attainment of greater than 100%
of the financial target has no impact on the amount of the bonus award earned. The annual bonus
is payable in cash, and may be deferred at the election of the named executive officer. See the
Deferred Compensation Plans discussion below.
The financial target for corporate executives in 2006 was predicated upon our consolidated
pre-tax profit (before consolidated annual bonus and stock-based compensation expense but after
all other charges). The financial targets used in 2006 for the mortgage banking operation were
pre-tax profit (before annual bonus expense, stock-based compensation expense and certain
corporate overhead cost allocations) and return on invested capital. Because their duties are
associated with our business as a whole, the bonus opportunity for each of Mssrs. Schar, Saville,
Seremet and Henley was measured solely on achieving the consolidated pre-tax profit objective.
The bonus opportunity for Mr. Inman, who leads our mortgage banking operations, was measured 50%
on the mortgage banking operations pre-tax profit, 25% on the mortgage banking operations return
on invested capital, and 25% on our consolidated pre-tax profit. Because we failed to meet the
70% threshold for consolidated pre-tax profit in 2006, none of Mssrs. Schar, Saville, Seremet or
Henley earned any annual bonus award in 2006. Mr. Inman earned approximately 40% of his maximum
incentive award in 2006, based on our achievement of 44% of the mortgage banking operation pre-tax
profit target and 71% of the mortgage banking operation return on invested capital target. See
the Grants of Plan-Based Award Table below for additional information on these awards and
performance metrics for 2006.
For 2007, to properly focus us on managing out of the downturn currently being experienced in
the homebuilding industry, we have adjusted the financial targets and tightened the threshold and
attainment ranges under the annual cash bonus plan as discussed in detail below. The annual bonus
opportunity will remain capped at 100% of base salary for the named executive officers, with the
exception of Mr. Schar, who, as noted above, requested that his bonus opportunity for 2007 be
reduced to $0.
17
The annual bonus opportunity for Mr. Saville, Mr. Seremet and Mr. Henley will be based 80%
upon our consolidated pre-tax profit (before consolidated annual bonus and stock-based
compensation expense but after all other charges) and 20% based on the number of new orders (net
of cancellations) that we generate compared to the consolidated pre-tax profit and new orders
within our 2007 annual business plan. The new orders measure was added for 2007 to properly focus
our named executive officers on driving new orders during the downturn currently being experienced
in the homebuilding industry. Mssrs. Saville and Seremet begin to earn the consolidated pre-tax
profit portion of their annual bonus award once the target is at least 100% attained. The full
amount of the consolidated pre-tax profit portion of their annual bonus award is earned ratably
from 100% up to 105% of the target attainment. Mssrs. Saville and Seremet begin to earn the new
orders unit portion of their annual bonus award once the target is at least 85% attained. The
full amount of the new orders unit portion of their annual bonus award is earned ratably from 85%
up to 100% of the target attainment. Mr. Henley begins to earn the consolidated pre-tax profit
portion of his annual bonus award once the target is at least 80% attained. The full amount of
the consolidated pre-tax profit portion of his annual bonus award is earned ratably
from 80% up to 105% of the target attainment. Mr. Henley begins to earn the new orders unit
portion of his annual bonus award once the target is at least 85% attained. The full amount of
the new orders unit portion of his annual bonus award is earned ratably from 85% up to 100% of the
financial target attainment.
Mr. Inmans annual bonus opportunity will be based 55% upon our mortgage banking operations
pre-tax profit (before annual bonus expense, stock-based compensation expense and certain
corporate overhead cost allocations), 25% upon return on invested capital in the mortgage
operations and 20% based on our new orders (net of cancellations). Mr. Inman begins to earn the
mortgage banking pre-tax profit and return on invested capital portions of his annual bonus award
once the target is at least 100% attained. The full amount of the mortgage banking pre-tax profit
and return on invested capital portions of his annual bonus award is earned ratably from 100% up
to 105% of the target attainment. Mr. Inman begins to earn the new orders unit portion of his
annual bonus award once the target is at least 85% attained. The full amount of the new orders
unit portion of his annual bonus award is earned ratably from 85% up to 100% of the target
attainment.
Fixed Price Stock Options
Stock Option Plans
The potential single largest component of each of our named executive officers total
compensation package is realized through the grant of fixed-price stock options, in which most of
our management group participates. We believe that the use of stock options is the best
performance-based equity vehicle because of our focus on growth in earnings per share,
accomplished through both net income growth and the efficient use of capital. Our intent is that
the named executive officers only be rewarded when our shareholders realize long-term growth in the
price appreciation of our stock (we have never paid a dividend). Unless our financial performance
over a long-term period drives an increase in our stock price, the options granted provide little
or no value to our named executive officers, and if the price of the stock falls below the price at
the grant date, the stock option provides no value. Conversely, we do not believe that restricted
stock plans meet our compensation philosophy because restricted stock plans provide value to the
recipient regardless of a companys performance, providing value to an employee even if the stock
price drops from the date of grant (unless the stock price falls to $0).
Our practice has been to structure stock option plans to vest over a long-term period. None
of our four most recently approved equity plans had options scheduled to vest within the first four
and one-half year period from the grant date. The average length of time for full vesting under
these plans is over seven and one half years from the date of grant. Following is a summary of the
material terms of the four most recently approved stock option plans:
18
|
|
|
|
|
|
|
|
|
Term description |
|
1996 Plan |
|
1998 Plan |
|
2000 Plan |
|
2005 Plan |
Exercise price
|
|
Market value on
date of grant
|
|
Market value on
date of grant
|
|
Market value on
date of grant
|
|
Market value on
date of grant |
|
|
|
|
|
|
|
|
|
Repricing requires
shareholder approval
|
|
No
|
|
Yes
|
|
Yes
|
|
Yes |
|
|
|
|
|
|
|
|
|
Date options were
granted to named
executive officers(1)
|
|
May 30, 1996
|
|
May 26, 1999
|
|
May 3, 2001
|
|
May 26, 2005 |
|
|
|
|
|
|
|
|
|
Vesting Determination
|
|
Continued
employment at
vesting dates
|
|
Continued
employment at
vesting dates
|
|
Continued
employment at
vesting dates
|
|
Attainment of EPS
Target (as defined
below), then
continued
employment at
vesting dates |
|
|
|
|
|
|
|
|
|
Vesting period for
named executive
officers
|
|
One-third on each
of December 31,
2000, 2001 and
2002
|
|
One-third on each
of December 31,
2003, 2004 and
2005
|
|
One-quarter on each
of December 31,
2006, 2007, 2008
and 2009
|
|
One-quarter on each
of December 31,
2010, 2011, 2012,
and 2013 |
|
|
|
|
|
|
|
|
|
Period from grant date
to full vesting
|
|
Six years and
seven months
|
|
Six years and
seven months
|
|
Eight years and
eight months
|
|
Eight years and
seven months |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Seremet and Mr. Henley received an additional grant of 1,835 options each on July 1,
2005 upon their appointment to CFO and Controller, respectively. See the Outstanding Equity
Awards at December 31, 2006 Table below for the terms of these grants. |
The above chart illustrates that we have consistently sought improvements in our equity
compensation plans to ensure that the majority of the named executive officers potential
compensation was effectively aligned with our shareholders. We do not issue stock option grants
annually. As noted above, we layer our stock option grants to employees such that there is one
grant actively vesting over a four-year period, and another grant in a four to five year
pre-vesting period. Also, all plans implemented after the 1996 Plan require shareholder approval
to reprice options. This feature was added after we independently recognized the importance of
shareholder-controlled repricing, and years before the American Stock Exchanges amended listing
rules took effect in 2003 mandating shareholder approval to reprice options. No options granted
under the 1996 Plan, however, have ever been repriced. For the 2000 and 2005 Plans, the period
from grant date to full vesting was increased by more than two years to almost nine years from the
original grant date. We increased the full vesting time period to increase our probability of
retaining our experienced management over a longer time period.
For the 2005 Plan, all options granted are subject to both performance and service-based
vesting conditions. No option granted under the 2005 Plan will become exercisable unless a
performance target based on growth in diluted earnings per share (the EPS Target) is met. The
EPS Target has been set at a level that reflects a growth rate in diluted earnings per share of 10%
per year for four years, based on our 2004 diluted earnings per share of $66.42. We believe that
earnings per share-based compensation incentivizes our employees to grow our operations while
maintaining an efficient capital structure. The aggregate EPS Target is $339.00 per share,
measured based on the sum of the actual diluted earnings per share results for the four annual
periods ending December 31, 2005 through 2008. The performance requirement was added as a vesting
condition to our stock option program in 2005 to ensure that potential share dilution from stock
option exercises only occurred if our performance provided our shareholders with a long-term return
of 10% over the four-year measurement period.The diluted earnings per share
19
for the EPS Target will be calculated based on generally accepted accounting principles in
effect at the end of each of the respective four years. Per the terms of the 2005 Plan, the EPS
Target will not be adjusted for accounting rule changes that subsequently become effective. The
service-based vesting condition for the 2005 Plan begins in 2010, with the first 25% installment
vesting on December 31, 2010 and the subsequent installments vesting on December 31, 2011, 2012 and
2013. In addition, the 2005 Plan also contains clawback provisions that allow us to recapture
realized stock option gains in the event that any holder of an option under the plan, including
named executive officers, violates the non-compete provisions contained within the stock option
agreement. The clawback provision allows for an eighteen-month look back from the date of any
violation.
Total Fair Value Transfer
When issuing option grants under our option plans to our named executive officers, or to any
employee of our company, we first establish a dollar value of the total targeted compensation to be
awarded by position. After determining the salary and annual bonus components, these amounts are
subtracted from the total targeted compensation to drive out the fair value that we want to
transfer to the employee in the form of stock options over the vesting period. On the date of
grant, we divide that total stock option fair value dollar amount by the per share fair value,
calculated using the Black Scholes Option pricing model, to determine the number of options to
award. Although we use what we consider to be a reasoned approach in determining the number of
options to award our named executive officers using a formula that is based on a widely accepted
option-pricing model, the ultimate value of the options issued only becomes clear when they are
exercised. The stock options may wind up being worthless, or worth much more than the fair value
initially estimated. As a result, we do not consider realizable gains from prior stock option
grants when setting new grant amounts. We do not believe that it is a fair practice to offset
current compensation by realized or unrealized stock option gains several years after the grants
have been issued. Our goal is that the ultimate gain realized on option exercise exceeds our
initial estimate of fair value because gains in excess of the estimated fair value calculated on
the grant date are also realized by all of our other shareholders that held our common stock over
that time period. We believe that limiting potential upside on option gains provides a
disincentive for our named executive officers when focusing on long-term results, as our
compensation philosophy dictates.
Stock Option Grant Policies
Our practice is to award grants to existing employees for new option plans as soon as
administratively practicable after the Annual Meeting date at which the shareholders approved the
plan. Our Annual Meetings are held in May of each year. The existing-employee grants for the 2000
Plan, which was not a shareholder approved plan, were also issued in May so that we would have
consistent grant timing relative to the time of year. Our Compensation Committee has sole
authority to grant options to the named executive officers, and the grant date is the date of
Compensation Committee approval of the awards. The grant date for new employees is always their
start date of employment, and in the case of an existing promoted employee, the grant date is the
effective date that the employees start their new duties.
20
We do not have a program, plan or practice in place to grant options in coordination with the
release of material non-public information.
Stock Holding Requirements
To complete the linkage between the interests of our senior management with our shareholders,
we adopted stock ownership guidelines in 2000. These guidelines require the named executive
officers (and certain other members of senior management) to acquire and continuously hold a
specified minimum level of our shares for so long as we employ them in their respective positions.
The Board of Directors determined the holding requirements for the named executive officers based
on a review of holding policies for other publicly traded companies within our industry. Under our
holding requirements, our named executive officers must acquire and hold shares with a total fair
market value ranging from four- to eight-times their annual base salaries depending on position.
Thus, for 2006, the holding requirements for each of the named executive officers are as follows:
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|
Dollar Holding |
Name |
|
Base Salary |
|
Factor |
|
Requirement |
Dwight C. Schar (1) |
|
$ |
1,500,000 |
|
|
|
8 |
|
|
$ |
12,000,000 |
|
Paul C. Saville |
|
$ |
800,000 |
|
|
|
8 |
|
|
$ |
6,400,000 |
|
William J. Inman |
|
$ |
410,000 |
|
|
|
4 |
|
|
$ |
1,640,000 |
|
Dennis M. Seremet |
|
$ |
430,000 |
|
|
|
6 |
|
|
$ |
2,580,000 |
|
Robert W. Henley |
|
$ |
187,000 |
|
|
|
4 |
|
|
$ |
748,000 |
|
|
|
|
(1) |
|
As stated above Mr. Schars employment agreement was amended to reduce
his 2007 base salary to $0. However, his holding requirement remains and is
calculated on his minimum base salary per the agreement. |
Any named executive officer who does not meet his requirement must retain 50% of the net
common stock received from option exercises until the holding requirement is attained. Net common
stock received means the common stock received after the payment of the option price and the taxes
withheld related to the option exercise. All named executive officers are currently in compliance
with our stock ownership guidelines.
Personal Benefits
Our named executive officers are entitled to and eligible only for the same fringe benefits
for which all of our employees are eligible. We do not have programs in place to provide personal
perquisites for any employee. Our healthcare and other insurance programs, including the programs
participation costs, are the same for all eligible employees. Our annual discretionary
contribution to the NVR Employee Stock Ownership Plan, expressed as a percentage of eligible wages,
and our NVR 401(k) matching contribution, are also the same for all eligible employees, subject to
all applicable IRS contribution limits and formulas for plans of these types. Further, we do not
offer defined benefit pension or supplemental executive retirement plans to any of our employees.
Accounting Impact and Tax Deductibility of Compensation
Accounting Impact
We accrue our named executive officers salaries and bonus awards as an expense when earned by
the officer. For our fixed-price stock options, Statement of Financial Accounting Standards
(SFAS) 123R, Share-Based Payment, requires us to recognize compensation expense within our income
statement for all share-based payment arrangements, which includes employee stock option plans.
The expense is based on the grant-date fair value of the options granted, and is recognized ratably
over the requisite service period. We adopted SFAS 123R under the modified prospective method.
Under the
modified prospective method, SFAS 123R applies to new awards and to awards modified, repurchased,
or
cancelled after January 1, 2006, as well as to the unvested portion of awards outstanding as of
January 1, 2006. Our stock options are accounted for as equity awards.
21
Tax Deductibility
Section 162(m) of the Internal Revenue Code limits the corporate deduction for compensation
paid to the named executive officers to $1 million unless such compensation qualifies as
performance-based compensation. Among other things, Section 162(m) requires approval of the
performance-based compensation by our shareholders. We have concluded that the adverse tax impact
of paying salaries and bonuses to our Chairman and CEO in excess of that limit were not significant
enough to limit the salary and annual bonus amounts awarded. All of the compensation potentially
earned by our named executive officers under our stock option plans qualify as performance based
under 162(m), except for grants issued under the 2000 Plan, which was not shareholder approved.
Deferred Compensation Plan
We have two deferred compensation plans, which we refer to as plans 1 and 2, respectively, for
purposes of this discussion. We provide deferred compensation plans for three reasons: i) to
encourage ownership of our common stock in furtherance of our compensation philosophy, ii) to
establish a vehicle whereby named executive officers may defer the receipt of salary and bonus that
otherwise would be nondeductible for company tax purposes into a period where we would realize a
tax deduction for the amounts paid (see above Tax Deductibility discussion), and iii) to enable our
named executive officers, and other members of management, to acquire shares of our common stock on
a pre-tax basis in order to more quickly meet, and maintain compliance with, the stock holding
requirements described above. In addition, the structure of our deferred compensation plans
effectively increases the stock holding requirements for certain of our named executive officers,
and places the earned compensation at-risk during the executive officers deferral period. Plan
1, which we adopted December 15, 1999, was closed for new contributions effective December 31,
2004. The named executive officers, solely at their election, may defer 100% of any earned salary
or bonus into plan 2, which we adopted December 15, 2005. Stock option gains are prohibited by law
from being deferred.
The market value of a named executive officers deferred compensation accounts is not
considered when setting their other current compensation. The compensation earned and deferred was
already reviewed and analyzed based on the above described compensation philosophy and policies at
the time the compensation was awarded. Had the executive officer instead elected to receive a
payout of the compensation earned, and then invested those amounts externally, we would not have
considered external investment experience when considering the amount by which we should compensate
the executive officer. Thus, we do not believe it is either proper or necessary to consider the
value of the executive officers deferred compensation account just because it is held in a plan we
sponsor and is invested in our stock. In addition, had the amounts deferred been instead paid to
the applicable named executive officer when earned (and not deferred until separation of service),
we would have lost a substantial tax benefit that we will now receive as a result of the deferral.
See the Nonqualified Deferred Compensation Table below for additional information on our deferred
compensation plans.
22
Change of Control and Severance Payment
Change of control provisions applicable to our named executive officers are either single
trigger, meaning that the change of control event alone triggers either a payment or an
acceleration of certain rights, or double trigger, meaning that the change of control coupled
with the officers
termination from service within a certain period of the time after the change in control triggers
the payment or accelerated right.
The change of control provision in the named executive officers employment agreements for the
payment of severance is a double trigger. A double trigger for severance payments was selected
because, unless the named executive officers employment is terminated after the change in control,
his cash compensation in the form of salary and annual bonus would continue from the acquiring
entity, which is what the severance payment is based upon and intended to replace. See the
Narrative Disclosures of Termination and Change in Control Payments discussion below for additional
information on these severance payments.
The change of control provisions in the stock option agreements and the deferred compensation
plans are single trigger, reflecting our intent that the named executive officers have the ability
to use those shares to vote upon any proposed transaction, and to ensure that the named executive
officer receives deferred compensation to which they are entitled. The change of control
acceleration provisions are triggered for the 2005 Stock Option Plan regardless of whether the EPS
Target (as defined under Fixed Priced Stock Options above) has been satisfied.
We do not provide tax gross ups to our named executive officers in connection with any
change in control or severance payment.
Other
In the event that our previously reported financial results upon which our compensation plans
are based are ever restated or otherwise adjusted, and the adjustment or restatement would have
otherwise reduced the size of any compensatory award or payment previously paid, we would analyze
the specific facts and circumstances of the event, and in consultation with the Compensation
Committee and the Board, determine what actions are appropriate, if any, to recover the award. We
have never experienced such an event.
23
THE FOLLOWING REPORT OF THE COMPENSATION COMMITTEE SHALL NOT BE
DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933
OR THE SECURITIES EXCHANGE ACT OF 1934 OR INCORPORATED BY REFERENCE
IN ANY DOCUMENT SO FILED.
Report of the Compensation Committee
The Compensation Committee hereby reports as follows:
|
1. |
|
The Compensation Committee has reviewed and discussed the Compensation
Discussion and Analysis with NVRs management; and |
|
|
2. |
|
Based on the review and discussion referred to in paragraph 1, the Compensation
Committee recommended to the Board, and the Board has approved, that the Compensation
Discussion and Analysis be included in our 2007 proxy statement to be incorporated by
reference in our Annual Report on Form 10-K for the fiscal year ended December 31,
2006, for filing with the Securities and Exchange Commission. |
The undersigned, constituting all of the members of the Compensation Committee during 2006,
have submitted this report to the Board of Directors.
John M. Toups (Chairman), Timothy M. Donahue, Manuel H. Johnson, and David A. Preiser
24
2006 SUMMARY COMPENSATION TABLE
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Non-Equity |
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|
Option |
|
Incentive Plan |
|
All Other |
|
|
Name and |
|
|
|
|
|
Salary |
|
Awards |
|
Compensation |
|
Compensation |
|
Total |
Principal Position |
|
Year |
|
($) |
|
($) (1) |
|
($) |
|
($) (2) |
|
($) |
Dwight C. Schar |
|
|
2006 |
|
|
$ |
1,500,000 |
|
|
$ |
6,751,746 |
|
|
|
|
|
|
$ |
9,300 |
|
|
$ |
8,261,046 |
|
Chairman of the Board |
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|
Paul C. Saville |
|
|
2006 |
|
|
$ |
800,000 |
|
|
$ |
3,348,317 |
|
|
|
|
|
|
$ |
9,300 |
|
|
$ |
4,157,617 |
|
Principal Executive
Officer |
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|
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|
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|
|
|
|
|
|
William J. Inman |
|
|
2006 |
|
|
$ |
410,000 |
|
|
$ |
1,203,190 |
|
|
$ |
161,846 |
|
|
$ |
8,800 |
|
|
$ |
1,783,836 |
|
President, NVR
Mortgage Finance,
Inc. |
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|
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|
|
|
|
|
Dennis M. Seremet |
|
|
2006 |
|
|
$ |
430,000 |
|
|
$ |
1,311,576 |
|
|
|
|
|
|
$ |
9,300 |
|
|
$ |
1,750,876 |
|
Principal Financial
Officer |
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Robert W. Henley |
|
|
2006 |
|
|
$ |
187,000 |
|
|
$ |
255,932 |
|
|
|
|
|
|
$ |
8,800 |
|
|
$ |
451,732 |
|
VP and Controller |
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|
(1) |
|
The amounts disclosed represent the stock option compensation expense that we recognized
in our financial statements for each of the named executive officers during 2006 in
accordance with Statement of Financial Accounting Standards (SFAS) No. 123(R). The total
charge includes stock option grants issued to each of the named executive officers on May 3,
2001 and May 26, 2005, and stock option grants issued on July 1, 2005 to Mr. Seremet and Mr.
Henley. See the Outstanding Equity Awards at December 31, 2006 Table below. The May 26 and
July 1, 2005 option grants were issued under a performance-based plan, and because we
currently believe that it is probable that the performance target will be achieved, we are
recording compensation for those grants in our financial statements. |
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|
For the May 3, 2001 stock option grants, the fair value valuation assumptions are
as follows: i) the estimated option life is 10 years, ii) the risk free interest rate
was 5.5% (based on a U.S. Treasury Strip due in a number of years equal to the stock
option term), iii) the expected volatility equals 42.4%, and iv) the estimated
dividend yield is 0%. |
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|
|
For the May 26, 2005 stock option grants, the fair value valuation assumptions are
as follows: i) the estimated option life is 8.8 years, ii) the risk free interest rate
was 4.0% (based on a U.S. Treasury Strip due in a number of years equal to the stock
option term), iii) the expected volatility equals 34%, and iv) the estimated dividend
yield is 0%. |
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|
For the July 1, 2005 stock option grants, the fair value valuation assumptions are
as follows: i) the tranche-weighted estimated option life is 8.8 years, ii) the risk
free interest rate was 4.1% (based on a U.S. Treasury Strip due in a number of years
equal to the estimated option life), iii) the expected volatility equals 34%, and iv)
the estimated dividend yield is 0%. |
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(2) |
|
For each person named above, the all other compensation amounts include $8,800
contributed by us on their behalf to our Employee Stock Ownership Plan, which is a defined
contribution plan, for the 2006 plan year. For Mssrs. Schar, Saville and Seremet, the
amounts reported also includes a $500 matching contribution made by us pursuant to our 401(K)
plan. |
25
2006 Grants of Plan-Based Awards
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|
Estimated Future Payouts Under |
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Non-Equity Incentive Plan Awards |
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|
|
(1) |
Name |
|
Grant Date |
|
Target |
|
Maximum |
Dwight C. Schar (2) |
|
|
02/22/06 |
|
|
$ |
1,500,000 |
|
|
$ |
1,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul C. Saville (2) |
|
|
02/22/06 |
|
|
$ |
800,000 |
|
|
$ |
800,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William J. Inman (2) |
|
|
02/22/06 |
|
|
$ |
410,000 |
|
|
$ |
410,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis M. Seremet (2) |
|
|
02/22/06 |
|
|
$ |
430,000 |
|
|
$ |
430,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert W. Henley (2) |
|
|
02/22/06 |
|
|
$ |
187,000 |
|
|
$ |
187,000 |
|
|
|
|
(1) |
|
Amounts referred to in this table pertain to our annual bonus plan. See the Annual Bonus
section in our Compensation Discussion and Analysis and the Narrative to Summary Compensation
Table and Grants of Plan-based Awards below. |
|
(2) |
|
Mssrs. Schar, Saville, Seremet and Henley earned no annual bonus in 2006. Mr. Inman earned
$161,846 for his 2006 annual bonus. See the Narrative to Summary Compensation Table and
Grants of Plan-based Awards Table below. |
Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Tables
Employment Agreements
We have entered into employment agreements with all of our named executive officers, except
Mr. Henley. The agreements were entered into on July 1, 2005, and continue through January 1,
2011. As discussed above in our Compensation Discussion and Analysis, Mr. Schars agreement was
amended on December 21, 2006 to reduce his 2007 salary and bonus opportunity to $0. The
agreements can be extended if both the executive officer and we mutually agree to extend the term.
The full agreements were filed as exhibits 10.1, 10.2, 10.3, 10.4 to a Form 8-K filed with the
SEC on June 28, 2005, and Mr. Schars December 21, 2006 amendment was filed as exhibit 10.1 to a
Form 8-K filed with the SEC on December 22, 2006. The two Forms 8-K can be found on the SECs
website at www.sec.gov.
Other than the applicable named executive officers titles, minimum base salary amounts and
NVR stock holding requirements, the material terms in each agreement are essentially the same and
cover:
26
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|
Minimum base salaries: |
|
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|
|
|
|
|
|
Mr. Schar |
|
$ |
1,500,000 |
(a) |
|
|
|
|
|
|
Mr. Saville |
|
$ |
650,000 |
|
|
|
|
|
|
|
Mr. Inman |
|
$ |
390,000 |
|
|
|
|
|
|
|
Mr. Seremet |
|
$ |
400,000 |
|
|
|
|
(a) |
|
Effective January 1, 2006, Mr. Schar requested, and the
Compensation Committee granted, a $500,000 reduction to his annual base salary
to reflect his changed duties after the successful transition of his CEO
responsibilities to Mr. Saville. As discussed above, on December 21, 2006, we
amended Mr. Schars employment agreement at his request to permanently reduce
his base salary to $1,500,000 and to reduce his 2007 salary and bonus
opportunity to $0. For all other computational purposes in the employment
agreement, i.e., his stock holding requirement and severance benefits, the
$1,500,000 minimum base salary specified in the amendment is used; |
|
|
Annual bonus eligibility up to 100% of base salary based on criteria determined by
our Compensation Committee (see Compensation Discussion and Analysis Annual Bonus
above); |
|
|
|
Eligibility to participate in our benefit plans at identical participation costs
offered to all of our employees eligible to participate in those plans; |
|
|
|
Eligibility to have reasonable business expenses reimbursed, subject to
reimbursement policies to which all of our employees are subject equally; |
|
|
|
The requirement of a continuous NVR stock holding requirement, as follows: |
|
|
|
Name |
|
Holding Requirement |
Dwight C. Schar (1)
|
|
8 x current base salary |
Paul C. Saville
|
|
8 x current base salary |
William J. Inman
|
|
4 x current base salary |
Dennis M. Seremet
|
|
6 x current base salary |
|
|
|
(1) |
|
As stated above, Mr. Schars employment agreement was amended to reduce
his 2007 base salary to $0. However, his stock holding requirement remains
and is calculated on his minimum base salary per the agreement. |
|
|
Severance payments due under various termination scenarios (see Potential
Payments Upon Termination or Change of Control below for additional information); |
|
|
|
Covenants for the applicable named executive officers not to compete with us (see
Potential Payments Upon Termination or Change of Control below for additional
information); and |
|
|
|
Extension of our indemnification to the applicable named executive officers during
the performance of their duties to the fullest extent permitted by the laws of the
Commonwealth of Virginia. |
27
2006 Compensation
For Mssrs. Schar, Saville, Seremet and Henley, all of the cash compensation earned was in the
form of base salary during 2006. Further, we did not grant any stock options to the named
executive officers during 2006 (see Compensation Discussion and Analysis Fixed Price Stock
Options above).
Each of our named executive officers participates in our annual bonus plan. The Compensation
Committee establishes financial targets at the beginning of each year that are tied to our annual
business plan. Our named executive officers begin to earn the annual bonus award once the
financial targets are at least 70% attained. The full amount of the annual bonus award is earned
ratably from 70% up to 100% of the financial target attainment. The named executive officers can
earn no more than 100% of their base salary as a bonus award, which is earned once 100% of the
financial targets are attained. Attainment of greater than 100% of the financial target has no
impact on the amount of the bonus award earned.
By way of example, assume that the financial target is $100. The threshold would then equal
$70 (70% of the target). If the actual measure was $85, the named executive officer would earn
50% of their base salary as an annual bonus award calculated as follows: Base Salary x [($85 -
$70) / ($100 $70)]. If exactly $70 is achieved as the actual result, no annual bonus would be
earned, as follows: Base Salary x [($70 $70) / ($100 $70)]. If greater than $100 is actually
achieved, the earned bonus award is capped at 100% of base salary. If more than one financial
target is used, each separate financial target calculation is weighted to arrive at the total
percentage of annual bonus earned.
The bonus opportunity for Mssrs. Schar, Saville, Seremet and Henley in 2006 was measured 100%
upon our consolidated pre-tax profit (before consolidated annual bonus and stock-based
compensation expense but after all other charges). For 2006, the target consolidated pre-tax
profit was established at $1,536,423,000, and the 70% threshold at which the annual bonus began to
be ratably earned was $1,075,496,000. Our actual 2006 consolidated pre-tax profit was
$1,055,960,000. Because the 2006 actual consolidated pre-tax profit was less than the 70% target
threshold, Mssrs. Schar, Saville, Seremet and Henley earned no annual bonus in 2006.
The bonus opportunity for Mr. Inman in 2006 was measured 50% on the mortgage banking
operations pre-tax profit (before annual bonus expense, stock-based compensation expense and
certain corporate overhead cost allocations), 25% on the mortgage banking operations return on
invested capital, and 25% on our consolidated pre-tax profit defined above. For 2006, the target
mortgage banking operations pre-tax profit was established at $84,063,000, and the 70% threshold
at which that portion of the annual bonus began to be ratably earned was $58,844,000. The actual
2006 mortgage banking operations pre-tax profit was $69,808,000, resulting in 43.5% being earned
for the 50% portion of Mr. Inmans mortgage banking operation pre-tax profit award. For 2006, the
target mortgage banking operations return on invested capital was established at 232.5%, and the
70% threshold at which that portion of the annual bonus began to be ratably earned was 162.7%. The
actual 2006 mortgage banking operations return on invested capital was 212.2%, resulting in 71%
being earned for the 25% portion of Mr. Inmans mortgage banking operation return on invested
capital award. Mr. Inman earned 0% of the 25% portion of his annual bonus award measured on
consolidated pre-tax profit (see above). In the aggregate, Mr. Inman earned 39.5% of his base
annual salary, or $161,846, calculated as follows: $410,000 x [(50% x 43.5%) + (25% x 71%) + (25% x
0%)].
28
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2006
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Equity Incentive |
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Number of |
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Number of |
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Plan Awards: |
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Securities |
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Securities |
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Number of |
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Underlying |
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Underlying |
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Securities |
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Unexercised |
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Unexercised |
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Underlying |
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Option |
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Options |
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Options |
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Unexercised |
|
Exercise |
|
Option |
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|
(#) |
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(#) |
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Unearned |
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Price |
|
Expiration |
Name |
|
Exercisable |
|
Unexercisable |
|
Options (#) |
|
($) |
|
Date |
Dwight C. Schar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan (a) |
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|
100,000 |
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|
300,000 |
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|
|
|
|
$ |
189.00 |
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|
05/02/11 |
|
2005 Option Plan (b) |
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|
|
|
|
|
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25,000 |
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|
$ |
737.00 |
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05/25/15 |
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Paul C. Saville: |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Option Plan (c) |
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|
77,500 |
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|
|
|
|
|
|
|
|
|
$ |
47.625 |
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|
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05/25/09 |
|
2000 Option Plan (a) |
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37,500 |
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|
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112,500 |
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|
|
|
|
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$ |
189.00 |
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|
|
05/02/11 |
|
2005 Option Plan (b) |
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|
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|
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|
|
|
25,000 |
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|
$ |
737.00 |
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|
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05/25/15 |
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|
|
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William J. Inman: |
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|
|
|
|
|
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|
|
|
|
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|
|
|
2000 Option Plan (a) |
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12,500 |
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|
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37,500 |
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|
|
|
|
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$ |
189.00 |
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|
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05/02/11 |
|
2005 Option Plan (b) |
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|
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10,000 |
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|
$ |
737.00 |
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|
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05/25/15 |
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Dennis M. Seremet: |
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|
|
|
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|
|
|
|
|
1998 Option Plan (c) |
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17,000 |
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|
|
|
|
|
|
|
|
|
$ |
47.625 |
|
|
|
05/25/09 |
|
2000 Option Plan (a) |
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|
12,500 |
|
|
|
37,500 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
2005 Option Plan (b) |
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|
|
|
|
|
|
|
|
|
10,000 |
|
|
$ |
737.00 |
|
|
|
05/25/15 |
|
2005 Option Plan (d) |
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|
|
|
|
|
|
|
|
|
1,835 |
|
|
$ |
810.00 |
|
|
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06/30/15 |
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Robert W. Henley: |
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|
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|
|
|
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1996 Option Plan (e) |
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|
2,500 |
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|
|
|
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|
|
|
$ |
105.46 |
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12/21/10 |
|
2000 Option Plan (a) |
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|
1,750 |
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|
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5,250 |
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|
|
|
|
$ |
189.00 |
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|
|
05/02/11 |
|
2005 Option Plan (b) |
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|
|
|
|
|
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|
|
1,000 |
|
|
$ |
737.00 |
|
|
|
05/25/15 |
|
2005 Option Plan (d) |
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|
|
|
|
|
|
|
|
|
1,835 |
|
|
$ |
810.00 |
|
|
|
06/30/15 |
|
|
|
|
(a) |
|
The options were granted on May 3, 2001. The exercise price of the options was equal to the
market value of the underlying stock on the date of grant. Twenty-five percent of the
options vest on each of December 31, 2006, 2007, 2008 and 2009, with vesting based solely
upon continued employment. |
|
(b) |
|
The options were granted on May 26, 2005. The exercise price of the options was equal to
the market value of the underlying stock on the date of the respective grants. The options
vest in twenty-five percent increments in each of 2010, 2011, 2012 and 2013 if the EPS Target
(as defined below) is achieved and contingent on continued employment. None of the options
granted under the 2005 Stock Option Plan will become exercisable, other than in the case of a
change in control (see the Narrative Disclosure of Termination and Change in Control Payments
below), unless we satisfy a performance target based on growth in diluted earnings per share
(the EPS Target). The EPS Target is set at a level that reflects a growth rate in diluted
earnings per share of 10% per year for four years, based on our 2004 diluted earnings per
share of $66.42. The aggregate EPS Target is $339.00 per share, measured based on the sum of
the actual diluted earnings per share results for the four annual periods ending December 31,
2005 through 2008. |
|
(c) |
|
The options were granted on May 26, 1999. The exercise price of the options was equal to
the market value of the underlying stock on the date of grant. One-third of the options
vested on each of December 31, 2003, 2004 and 2005, with vesting based solely upon continued
employment. |
|
(d) |
|
The options were granted on July 1, 2005, the date that Mr. Seremet was promoted to chief
financial officer and Mr. Henley assumed the position of controller. The exercise price of
the options was equal to the market value of the underlying stock on the date of grant. The
options vest in 25% increments in each of 2010, 2011, 2012 and 2013 if the EPS Target (see
explanation in (b) above) is achieved at the end of 2008 and contingent on continued
employment. |
|
(e) |
|
The options were granted on December 22, 2000. The exercise price of the options was equal
to the market value of the underlying stock on the date of grant. One-third of the options
vested on each of December 31, 2003, 2004 and 2005, with vesting based solely upon continued
employment. |
29
2006 OPTION EXERCISES AND STOCK VESTED
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|
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Option Awards |
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Number of |
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|
|
|
Shares |
|
Value Realized |
|
|
Acquired |
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on |
|
|
on |
|
Exercise |
Name |
|
Exercise (#) |
|
($) (1) |
Dwight C. Schar |
|
|
83,333 |
|
|
$ |
59,364,346 |
|
|
|
|
|
|
|
|
|
|
Paul C. Saville |
|
|
11,700 |
|
|
$ |
6,447,688 |
|
|
|
|
|
|
|
|
|
|
William J. Inman |
|
|
16,667 |
|
|
$ |
11,914,815 |
|
|
|
|
|
|
|
|
|
|
Dennis M. Seremet |
|
|
3,000 |
|
|
$ |
2,024,625 |
|
|
|
|
|
|
|
|
|
|
Robert W. Henley |
|
|
|
|
|
$ |
0 |
|
|
|
|
(1) |
|
The value realized is calculated based on the
difference between the market price of NVR common stock on
the date of exercise and the respective exercise price,
multiplied by the number of shares exercised. |
30
2006 NON-QUALIFIED DEFERRED COMPENSATION TABLE
|
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|
|
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|
|
|
|
|
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|
|
|
|
|
|
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|
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|
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|
Aggregate |
|
|
|
|
|
|
Executive |
|
Registrant |
|
Earnings |
|
Aggregate |
|
Aggregate |
|
|
Contributions in |
|
Contributions |
|
(Loss) in Last |
|
Withdrawals/ |
|
Balance at Last |
|
|
Last FY |
|
in Last FY |
|
FY |
|
Distributions |
|
FYE |
Name |
|
($) |
|
($) |
|
($) (a) |
|
($) |
|
($) |
Dwight C. Schar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan 1 (b) |
|
|
|
|
|
|
|
|
|
$ |
(13,831,221 |
) |
|
|
|
|
|
$ |
156,511,185 |
|
Plan 2 (c) |
|
$ |
3,476,520 |
|
|
|
|
|
|
$ |
(242,955 |
) |
|
|
|
|
|
$ |
3,233,565 |
|
Paul C. Saville: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan 1 (d) |
|
|
|
|
|
|
|
|
|
$ |
(6,035,331 |
) |
|
|
|
|
|
$ |
68,294,535 |
|
Plan 2 (e) |
|
$ |
600,000 |
|
|
|
|
|
|
$ |
(98,998 |
) |
|
|
|
|
|
$ |
501,002 |
|
William J. Inman: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan 1 (f) |
|
|
|
|
|
|
|
|
|
$ |
(4,923,888 |
) |
|
|
|
|
|
$ |
55,717,680 |
|
Dennis M. Seremet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan 1 (g) |
|
|
|
|
|
|
|
|
|
$ |
(2,310,039 |
) |
|
|
|
|
|
$ |
26,139,915 |
|
Robert W. Henley |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Earnings solely represent unrealized earnings/(losses) of the market value of the NVR common
stock held in the respective officers deferred compensation account. We have never paid a
dividend. |
|
(b) |
|
Mr. Schar deferred a total of $30,171,848 of earned compensation, all of which was
previously reported by us in prior years Summary Compensation Tables within our proxy
statements. |
|
(c) |
|
The amounts were voluntarily deferred by Mr. Schar in 2006 and include his $2,000,000 annual
bonus for 2005 that was due to be paid to him in cash on March 15, 2006, and $1,476,520 of
his 2006 salary, which was deferred equally in monthly installments as his annual salary was
due and payable. We reported the 2005 annual bonus in our 2006 proxy statement, and the
amount deferred from his 2006 salary is included in the Summary Compensation Table above. |
|
(d) |
|
Mr. Saville deferred a total of $15,995,411 of earned compensation, all of which was
previously reported by us in prior years Summary Compensation Tables within our proxy
statements. |
|
(e) |
|
The amount was voluntarily deferred by Mr. Saville in 2006 and includes his $600,000 annual
bonus for 2005 that was due to be paid to him in cash on March 15, 2006. We reported the
2005 annual bonus in our 2006 proxy statement. |
|
(f) |
|
Mr. Inman deferred a total of $12,274,639 of earned compensation, all of which was
previously reported by us in prior years Summary Compensation Tables within our proxy
statements. |
|
(g) |
|
Mr. Seremet deferred a total of $7,334,970 of earned compensation, all of which was
previously reported by us in prior years Summary Compensation Tables within our proxy
statements. |
Narrative to the 2006 Non-Qualified Deferred Compensation Table
We have two deferred compensation plans, which we refer to as plans 1 and 2, respectively, for
purposes of this discussion. Plan 1, which we adopted on December 15, 1999, is closed for new
contributions effective December 31, 2004. The named executive officers, solely at their election,
may defer 100% of any earned salary or bonus into plan 2, which we adopted December 15, 2005.
Stock option gains are prohibited by law from being deferred.
Amounts deferred are invested in a fixed number of shares of our common stock, which is
purchased on the open market at fair market value. This is the only investment choice for named
executive officers. All amounts placed in the deferred compensation plan are amounts already due
to the named executive officer; we do not make employer contributions to their accounts. Further,
earnings on deferred amounts solely represent appreciation/(depreciation) of the market value of
the NVR shares of common stock held. We do not provide for a minimum return or guarantee
a minimum payout amount. These are at risk investments. The shares of our common stock
held in each named executive officers account is distributed to the named executive officer upon
expiration of the deferral period. The deferral period expires for Plan 1 at the named executive
officers termination of employment, and expires for Plan 2 six months after the named executive
officers termination of employment.
31
NARRATIVE DISCLOSURES OF TERMINATION AND CHANGE OF CONTROL PAYMENTS
Our named executive officers are eligible to receive certain termination and/or change in
control payments and acceleration rights under certain of the compensation arrangements that they
hold with us. These payments and acceleration rights are contained within the executive officers
employment agreements, employee stock option agreements and deferred compensation plan agreements.
Employment Agreements
As noted in the Narrative Disclosure to the Summary Compensation Table, we employ Mssrs.
Schar, Saville, Inman and Seremet pursuant to employment agreements (Mr. Henley does not have an
employment agreement with us). The agreements cover the additional payments that would be due to
these individuals in the following termination scenarios: 1) death, 2) disability, 3) retirement,
4) cause, 5) without cause, 6) voluntary, 7) voluntary within one year after a change in control,
and 8) voluntary upon the election or appointment of a new Chairman and/or CEO accompanied by a
change in business philosophy. The terms are identical in each of the agreements.
We do not believe that we should pay our applicable named executive officers any incremental
compensation upon termination when the termination is by either choice or due to conduct that is
potentially detrimental to our company. Thus, we do not provide any of our named executive
officers any incremental severance benefits other than any amounts already earned and accrued at
the date of termination if the termination is voluntary (unless due to a change in control of our
company), including voluntary upon the election or appointment of a new Chairman and/or CEO, or due
to cause (as defined below).
The two-month severance benefit (see below) upon termination due to death or disability
reflects what we believe to be a modest transition for the applicable named executive officer or
their family for termination events that are sudden and beyond their control. We provide severance
benefits of 200% of base salary for terminations without cause or that are voluntary within one
year after a change in control. This amount reflects our belief that it is difficult for senior
managers to find comparable employment opportunities in a short period of time, particularly after
experiencing a termination that was beyond their control. We provide a severance benefit of 100%
of base salary upon retirement. We do not provide our named executive officers defined benefit or
supplemental executive retirement plans, and we consider the 100% severance payment a nominal
reward for length of service. Specifically, severance payments under the above scenarios are
summarized below.
32
Termination Events
|
|
Death or Disability. The applicable named executive officer would be entitled to receive
in a lump sum his then annual base salary and accrued pro-rated annual bonus, assuming that
the maximum of 100% of base salary is earned for the period ending on the last calendar day of
the second calendar month following the month in which the death or disability occurred.
Assuming a December 31, 2006 termination event for death or disability, payments would be as
follows: |
|
|
|
|
|
|
|
Name |
|
Salary Due |
|
Bonus Due |
|
Total Due |
Dwight C. Schar |
|
$250,000 |
|
$250,000 |
|
$500,000 |
Paul C. Saville |
|
$133,333 |
|
$133,333 |
|
$266,666 |
William J. Inman |
|
$ 68,333 |
|
$ 68,333 |
|
$136,666 |
Dennis M. Seremet |
|
$ 71,667 |
|
$ 71,667 |
|
$143,334 |
|
|
Retirement. Upon retirement, the applicable named executive officer would be
entitled to receive, in twelve monthly installments, an amount equal to 100% of his then
annual base salary and any accrued pro-rated annual bonus, assuming that the maximum of 100%
of base salary is earned, the annual bonus being paid at the same time that all of our other
employees are paid their annual bonus. Assuming a December 31, 2006 termination event in
connection with retirement, payments would be as follows: |
|
|
|
|
|
|
|
Name |
|
Salary Due |
|
Bonus Due |
|
Total Due |
Dwight C. Schar |
|
$1,500,000 |
|
$1,500,000 |
|
$3,000,000 |
Paul C. Saville |
|
$ 800,000 |
|
$ 800,000 |
|
$1,600,000 |
William J. Inman |
|
$ 410,000 |
|
$ 410,000 |
|
$ 820,000 |
Dennis M. Seremet |
|
$ 430,000 |
|
$ 430,000 |
|
$ 860,000 |
|
|
Cause. The applicable named executive officers are not entitled to receive any
payments after the date of termination for cause. Termination for cause is a termination
due to: |
|
|
|
the officer being convicted of any felony, other crime involving moral turpitude, or
any crime or offense which results in his incarceration for more than three months; |
|
|
|
|
gross misconduct in connection with the performance of his duties as described
within the employment agreement; or |
|
|
|
|
the officer materially breaching affirmative or negative covenants or undertakings
described in the employment agreement, such as the agreements non-compete provisions. |
|
|
Without cause. The applicable named executive officer would be entitled to receive, in
twelve monthly installments, an amount equal to 200% of his then annual base salary. In
addition, we would provide the executive with up to $60,000 of outplacement services.
Assuming a December 31, 2006 termination event without cause, payments would be as follows: |
|
|
|
|
|
|
|
|
|
Salary |
|
Outplacement |
|
Total |
Name |
|
Due |
|
Due |
|
Due |
Dwight C. Schar |
|
$3,000,000 |
|
$60,000 |
|
$3,060,000 |
Paul C. Saville |
|
$1,600,000 |
|
$60,000 |
|
$1,660,000 |
William J. Inman |
|
$ 820,000 |
|
$60,000 |
|
$ 880,000 |
Dennis M. Seremet |
|
$ 860,000 |
|
$60,000 |
|
$ 920,000 |
|
|
Voluntary. The applicable named executive officer is not
entitled to receive any payments after the date of
termination. |
33
|
|
Voluntary within one year after a change in control. The
applicable named executive officer would be entitled to
receive, in twelve monthly installments, an amount equal to
200% of his then annual base salary, and accrued pro-rated
annual bonus under the assumption that 100% of the bonus
would have been paid for that year. A change of control
means i) any person or group acquires 20% or more of our
stock, ii) substantially all of our assets are sold to
another party, iii) we are liquidated or dissolved, or adopt
a plan to do so, or iv) we are merged into another entity or
we are taken private, and the executive officer experiences a
significant reduction in responsibilities. Assuming a
December 31, 2006 termination event in connection with a
change in control, payments would be as follows: |
|
|
|
|
|
|
|
Name |
|
Salary Due |
|
Bonus Due |
|
Total Due |
Dwight C. Schar |
|
$3,000,000 |
|
$1,500,000 |
|
$4,500,000 |
Paul C. Saville |
|
$1,600,000 |
|
$ 800,000 |
|
$2,400,000 |
William J. Inman |
|
$ 820,000 |
|
$ 410,000 |
|
$1,230,000 |
Dennis M. Seremet |
|
$ 860,000 |
|
$ 430,000 |
|
$1,290,000 |
|
|
Voluntary termination upon the election or appointment, as applicable, of a new
Chairman and/or Chief Executive Officer. The applicable named executive officer is not
entitled to receive any payments after the date of termination. |
Conditions to Receipt of Payment
The covenants within the employment agreements include non-compete provisions, including the
prohibition from:
|
|
|
engaging, on the individuals or another entitys behalf in the homebuilding or
mortgage businesses as an employee, greater than 1% owner, manager or otherwise; |
|
|
|
|
inducing or attempting to induce any customers or potential customers from
conducting business with us; |
|
|
|
|
hiring or attempting to hire our employees; or |
|
|
|
|
utilizing the services of or trying to acquire land, goods or services from, any of
our developers or subcontractors. |
The periods that the non-compete provisions cover are as follows:
|
|
|
During their term of employment with us, the named executive officers are bound by
the non-compete covenants at all times. |
|
|
|
|
For two years after termination, the named executive officer is bound by the
non-compete covenants if the termination was voluntary, due to retirement, for cause,
or without cause. |
|
|
|
|
The named executive officer is not bound by the non-compete covenants after their
termination date if the termination was voluntary within one year after a change in
control, or voluntary upon the election or appointment, as applicable, of a new
Chairman and/or Chief Executive Officer. |
34
Stock Option Agreements
We have granted each of the named executive officers stock options pursuant to individual
option agreements. Each option agreement provides for the acceleration of vesting of all unvested
options if we experience a change in control (as defined below). This includes any outstanding
and unearned options under the 2005 Stock Option Plan prior to achievement of the EPS Target. See
Compensation Discussion and Analysis Fixed Price Stock Options above. The accelerated vesting is
based on a single trigger, meaning that the named executive officer does not need to terminate
employment to receive the acceleration right. The change of control provisions within the named
executive officers agreements are identical to the change of control provisions within the
agreements for all other participants of the respective stock option plans. Generally, the change
of control provision is triggered upon:
|
|
|
our merger, consolidation, reorganization or other business combination with one
or more other entities in which we are not the surviving entity; |
|
|
|
|
our selling substantially all of our assets to another entity; or |
|
|
|
|
our experiencing any transaction resulting in any person or entity owning 20% or
more of the total number of our voting shares, or any person commencing a tender or
exchange offer to acquire beneficial ownership of 20% or more of the total number
of our voting shares. |
Assuming we experience a change in control on December 31, 2006, the market value realized on
the accelerated stock options for each of the named executive officers would be as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Price |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of NVR |
|
|
|
|
|
|
|
|
|
Number of |
|
|
Option |
|
|
Common |
|
|
Per Share |
|
|
Market Value |
|
|
|
Options |
|
|
Exercise |
|
|
Stock at |
|
|
Intrinsic Value |
|
|
Realized on |
|
|
|
Accelerated |
|
|
Price |
|
|
12/31/06 |
|
|
at 12/31/06 |
|
|
Acceleration |
|
Name |
|
(#) |
|
|
($) |
|
|
($) |
|
|
($) |
|
|
($) |
|
Dwight C. Schar: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
300,000 |
|
|
$ |
189.00 |
|
|
$ |
645.00 |
|
|
$ |
456.00 |
|
|
$ |
136,800,000 |
|
2005 Option Plan |
|
|
25,000 |
|
|
$ |
737.00 |
|
|
$ |
645.00 |
|
|
$ |
(92.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
136,800,000 |
|
Paul C. Saville: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
112,500 |
|
|
$ |
189.00 |
|
|
$ |
645.00 |
|
|
$ |
456.00 |
|
|
$ |
51,300,000 |
|
2005 Option Plan |
|
|
25,000 |
|
|
$ |
737.00 |
|
|
$ |
645.00 |
|
|
$ |
(92.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
51,300,000 |
|
William J. Inman: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
37,500 |
|
|
$ |
189.00 |
|
|
$ |
645.00 |
|
|
$ |
456.00 |
|
|
$ |
17,100,000 |
|
2005 Option Plan |
|
|
10,000 |
|
|
$ |
737.00 |
|
|
$ |
645.00 |
|
|
$ |
(92.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,100,000 |
|
Dennis M. Seremet: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
37,500 |
|
|
$ |
189.00 |
|
|
$ |
645.00 |
|
|
$ |
456.00 |
|
|
$ |
17,100,000 |
|
2005 Option Plan |
|
|
10,000 |
|
|
$ |
737.00 |
|
|
$ |
645.00 |
|
|
$ |
(92.00 |
) |
|
|
|
|
2005 Option Plan |
|
|
1,835 |
|
|
$ |
810.00 |
|
|
$ |
645.00 |
|
|
$ |
(165.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
17,100,000 |
|
Robert W. Henley: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan |
|
|
5,250 |
|
|
$ |
189.00 |
|
|
$ |
645.00 |
|
|
$ |
456.00 |
|
|
$ |
2,394,000 |
|
2005 Option Plan |
|
|
1,000 |
|
|
$ |
737.00 |
|
|
$ |
645.00 |
|
|
$ |
(92.00 |
) |
|
|
|
|
2005 Option Plan |
|
|
1,835 |
|
|
$ |
810.00 |
|
|
$ |
645.00 |
|
|
$ |
(165.00 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,394,000 |
|
35
Deferred Compensation Plans
Under the deferred compensation plans (see Compensation Discussion and Analysis
Non-Qualified Deferred Compensation Plans above for more information on these plans), each named
executive officer receives a lump sum distribution immediately if we experience a change in
control, rather than receiving their account balance at separation of service. The change of
control provisions within the deferred compensation plans are equally applicable to all
participants within the plans.
|
|
Plan 1. Generally, the change of control provision is the same
as the change in control provision set forth in our stock option
agreements, as summarized above. |
|
|
|
Plan 2. Generally, the change of control provision is triggered
if (i) we experience any transaction resulting in any person or
entity owning 50% or more of the total fair market value or total
voting power of our shares, (ii) we experience any transaction
resulting in any person or entity acquiring 35% or more of the
total fair market value or total voting power of our shares during
a 12-month period, (iii) a majority of our board of directors is
replaced during any 12-month period by new directors not endorsed
by a majority of our board of directors who were on our board
immediately preceding the new appointments or elections, or (iv)
we sell to another entity our assets that have a total gross fair
market value equal to or more than 40% of the total gross fair
market value of our total assets. |
Assuming a change in control under the deferred compensation plans at December 31, 2006, the
market value of the accelerated account balances is presented in the Non-Qualified Deferred
Compensation Plans table above.
36
2006 DIRECTOR COMPENSATION TABLE
|
|
|
|
|
|
|
|
|
Fees Earned or |
|
|
|
|
|
|
Paid in Cash |
|
Option Awards |
|
Total |
Name |
|
($)(2) |
|
($) (3) (4) |
|
($) |
Dwight C. Schar (1) |
|
|
|
|
|
|
C. Scott Bartlett, Jr. |
|
$50,000 |
|
$304,457 |
|
$354,457 |
Robert C. Butler |
|
$54,800 |
|
$575,719 |
|
$630,519 |
Timothy M. Donahue |
|
$45,200 |
|
$74,598 |
|
$119,798 |
Manuel H. Johnson |
|
$66,400 |
|
$304,457 |
|
$370,857 |
William A. Moran |
|
$37,200 |
|
$304,457 |
|
$341,657 |
David A. Preiser |
|
$50,000 |
|
$304,457 |
|
$354,457 |
George E. Slye |
|
$42,000 |
|
$304,457 |
|
$346,457 |
John M. Toups |
|
$46,800 |
|
$304,457 |
|
$351,257 |
(1) |
|
Mr. Schar, who as our executive Chairman is also one of our named executive officers,
receives no additional compensation for his service as a director. His compensation as a
named executive officer is disclosed above in the Summary Compensation Table. |
|
(2) |
|
Mr. Johnson, the Audit Committee Chairman, is paid an annual retainer equal to $36,000 per
annum for serving as a director. All other non-employee Board members are paid a $26,000
annual retainer. The differential paid to Mr. Johnson recognizes additional duties imposed
upon him as the Audit Committee Chairman due to the passage of the Sarbanes-Oxley Act of
2002. Non-employee Board members are paid fees of $1,600 for each Board and Committee
meeting attended during 2006. Reasonable incidental travel and out-of-pocket business
expenses are reimbursed as incurred in accordance with the policies to which all of our
executive officers and employees are subject. |
|
(3) |
|
The amounts disclosed represent the stock option compensation expense that we recognized in
our financial statements for each of the Board members during 2006 pursuant to SFAS 123(R).
The total charge includes stock option grants issued to Mssrs. Bartlett, Johnson, Moran,
Preiser, Slye and Toups on May 3, 2001; a stock option grant issued to Mr. Butler on May 1,
2002; stock option grants issued to each of the directors, except Mr. Donahue, on July 28,
2005; and stock options issued to Mr. Donahue on January 1, 2006. See footnote 4 below for
the directors outstanding equity awards as of December 31, 2006. |
|
|
|
For the May 3, 2001 grants, the fair value valuation assumptions are as follows: i)
the estimated option life is 10 years, ii) the risk free interest rate was 5.5% (based
on a U.S. Treasury Strip due in a number of years equal to the stock option term),
iii) the expected volatility equals 42.4%, and iv) the estimated dividend yield is 0%. |
|
|
|
|
For the May 1, 2002 grant, the fair value valuation assumptions are as follows: i)
the estimated option life is 10 years, ii) the risk free interest rate was 5.5% (based
on a U.S. Treasury Strip due in a number of years equal to the stock option term),
iii) the expected volatility equals 40.7%, and iv) the estimated dividend yield is 0%. |
|
|
|
|
For the July 28, 2005 grants, the fair value valuation assumptions are as follows:
i) the estimated tranche-weighted option life is 8.7 years, ii) the risk free interest
rate was 4.1% (based on a U.S. Treasury Strip due in a number of years equal to the
stock option term), iii) the expected volatility equals 34%, and iv) the estimated
dividend yield is 0%. |
|
|
|
|
For the January 1, 2006 grant, the aggregate grant date fair value of the
award, computed in accordance with SFAS 123(R), was $472,136. The fair value
valuation assumptions are as follows: i) the tranche-weighted estimated option life
is 8.4 years, ii) the risk free interest rate was 4.5% (based on a U.S. Treasury
Strip due in a number of years equal to the estimated option life), iii) the expected
volatility equals 34%, and iv) the estimated dividend yield is 0%. |
37
(4) |
|
The following table sets forth the outstanding stock option awards for our directors at
December 31, 2006, excluding Mr. Schars outstanding grant awards which are disclosed in the
above Outstanding Equity Awards at December 31, 2006 table for the named executive officers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
|
|
|
|
Number of |
|
Number of |
|
Plan Awards: |
|
|
|
|
|
|
Securities |
|
Securities |
|
Number of |
|
|
|
|
|
|
Underlying |
|
Underlying |
|
Securities |
|
|
|
|
|
|
Unexercised |
|
Unexercised |
|
Underlying |
|
Option |
|
|
|
|
Options |
|
Options |
|
Unexercised |
|
Exercise |
|
Option |
|
|
(#) |
|
(#) |
|
Unearned |
|
Price |
|
Expiration |
Name |
|
Exercisable |
|
Unexercisable |
|
Options (#) |
|
($) |
|
Date |
C. Scott Bartlett, Jr.: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Plan (a) |
|
|
7,875 |
|
|
|
|
|
|
|
|
|
|
$ |
49.06 |
|
|
|
05/25/09 |
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
Robert C. Butler: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Option Plan (d) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
369.75 |
|
|
|
04/30/12 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
Timothy M. Donahue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Option Plan (e) |
|
|
|
|
|
|
|
|
|
|
1,355 |
|
|
$ |
702.00 |
|
|
|
12/31/15 |
|
Manuel H. Johnson: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Plan (a) |
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
$ |
49.06 |
|
|
|
05/25/09 |
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
William A. Moran: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Plan (a) |
|
|
3,125 |
|
|
|
|
|
|
|
|
|
|
$ |
49.06 |
|
|
|
05/25/09 |
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
David A. Preiser: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
George E. Slye: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
John M. Toups: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1998 Plan (a) |
|
|
12,500 |
|
|
|
|
|
|
|
|
|
|
$ |
49.06 |
|
|
|
05/25/09 |
|
2000 Option Plan (b) |
|
|
4,250 |
|
|
|
12,750 |
|
|
|
|
|
|
$ |
189.00 |
|
|
|
05/02/11 |
|
1998 Option Plan (c) |
|
|
|
|
|
|
|
|
|
|
1,100 |
|
|
$ |
907.75 |
|
|
|
07/27/15 |
|
|
|
|
(a) |
|
The options were granted on May 26, 1999. The exercise price of the options was equal
to the market value of the underlying stock on the date of grant. The applicable director
received a grant of 12,500 options, which vested 25% on each of December 31, 2002, 2003,
2004 and 2005, with vesting based solely upon continued services being provided as a
director. |
|
(b) |
|
The options were granted on May 3, 2001. The exercise price of the options was equal
to the market value of the underlying stock on the date of grant. The applicable director
received a grant of 17,000 options, which vest in 25% increments on each of December 31,
2006, 2007, 2008 and 2009, with vesting solely based upon continued services being
provided as a director on the vesting dates. |
|
(c) |
|
The options were granted on July 28, 2005. The exercise price of the options was
equal to the market value of the underlying stock on the date of the respective grants.
The options vest in 25% increments in each of 2010, 2011, 2012 and 2013 if the EPS Target
(as defined above in footnote b to the Outstanding Equity Awards at December 31, 2006
table for the named executive officers) is achieved and contingent on continued services
being provided as a director on the vesting dates. |
38
|
|
|
(d) |
|
The options were granted on May 1, 2002. The exercise price of the options was equal
to the market value of the underlying stock on the date of grant. The applicable director
received a grant of 17,000 options, which vest in 25% increments on each of December 31,
2006, 2007, 2008 and 2009, with vesting based solely upon continued services being
provided as a director on the vesting dates. |
|
(e) |
|
The options were granted on January 1, 2006. The exercise price of the options was
equal to the market value of the underlying stock on the date of the respective grants.
The options vest in 25% increments on each of December 31, 2010, 2011, 2012 and 2013 if
the EPS Target (as defined above in footnote b to the Outstanding Equity Awards at
December 31, 2006 table for the named executive officers) is achieved and contingent on
continued services being provided as a director on the vesting dates. |
Stock Holding Requirements
To link the interests of our Board of Directors with our shareholders, we adopted stock
ownership guidelines in 2000. These guidelines require the members of our Board of Directors to
acquire and continuously hold a specified minimum level of our shares for so long as they serve as
directors. Under our holding requirements, Board members must acquire and hold shares with a
total fair market value equal to five times the annual board retainer fee, which is $130,000 for
all of the Board members, with the exception of Mr. Johnson whose holding requirement is $180,000
due to his higher annual board retainer. Board members must satisfy the holding requirement
within three years of first becoming subject to the holding requirements, and at a minimum, have
satisfied one-third of the requirement after one year, and two-thirds of the requirement after two
years. All members of our Board of Directors are in compliance with our stock ownership
guidelines.
39
Approval of Independent Auditors
(Proposal 2)
At the Annual Meeting, our Board of Directors will recommend shareholder ratification of
the appointment of KPMG LLP as our independent auditor for the year 2007. If the appointment is
not ratified, the Board will consider whether it should select another independent auditor.
Representatives of KPMG LLP are expected to be present at the meeting to respond to shareholders
questions and will have an opportunity to make a statement if they so desire.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR
THE APPROVAL OF KPMG LLP AS NVRS INDEPENDENT AUDITORS FOR 2007.
DISCLOSURE OF FEES PAID OR ACCRUED FOR KPMG LLP DURING THE YEARS ENDED DECEMBER 31:
|
|
|
|
|
|
|
|
|
|
|
2006 |
|
|
2005 |
|
Audit fees: |
|
|
|
|
|
|
|
|
Audit fees and quarterly reviews |
|
$ |
350,190 |
|
|
$ |
327,000 |
|
Section 404 internal control audit |
|
|
283,500 |
|
|
|
270,000 |
|
Comfort letter/ Consents |
|
|
|
|
|
|
9,000 |
|
SEC comment
letter and amended filings |
|
|
33,155 |
|
|
|
|
|
Reimbursable expenses |
|
|
5,524 |
|
|
|
|
|
|
|
|
|
|
|
|
Total audit fees |
|
|
672,369 |
|
|
|
606,000 |
|
|
|
|
|
|
|
|
|
|
Audit-related fees: |
|
|
|
|
|
|
|
|
Employee benefit plan audit |
|
|
30,000 |
|
|
|
28,000 |
|
|
|
|
|
|
|
|
|
|
Tax fees: |
|
|
|
|
|
|
|
|
State tax appeal assistance |
|
|
6,101 |
|
|
|
11,794 |
|
|
|
|
|
|
|
|
|
|
All other fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees |
|
$ |
708,470 |
|
|
$ |
645,794 |
|
|
|
|
|
|
|
|
The Audit Committee annually evaluates what types of audit and non-audit services (permitted
by law) that, subject to certain limits, can be entered into with pre-approval authority granted
by the Audit Committee and will grant that authority, if applicable, pursuant to an Audit
Committee resolution. During 2006, and for 2006 only, the Audit Committee delegated to our
Chairman of the Audit Committee (the Chairman), CEO and CFO, together or separately, in our name
and on our behalf, the authority, subject to individual cost limits, to engage KPMG LLP to perform
1) accounting guidance and technical assistance for the implementation of newly issued accounting
pronouncements and standards, 2) accounting guidance and technical assistance related to the
application of existing accounting pronouncements and standards to our transactions, and 3) SEC
registration statement comfort letters and consents, together in an aggregate amount for all
services not to exceed 50% of the annual audit fee, provided that the Chairman, the CEO
and CFO reported any such audit-related or non-audit services to the full Audit Committee at its
next regularly scheduled meeting. During 2006, $23,460 of the $33,155 related to our SEC comment
letter and amended filings was paid pursuant to the delegated authority granted by the Audit
Committee.
40
During 2005, and for 2005 only, the Audit Committee delegated to our Chairman, CEO and CFO,
together or separately, in our name and on our behalf, the authority, subject to individual cost
limits, to engage KPMG LLP to perform 1) accounting guidance and technical assistance for the
implementation of newly issued accounting pronouncements and standards, 2) accounting guidance and
technical assistance related to the application of existing accounting pronouncements and
standards to our transactions, 3) assistance in the process of gathering documentation for tax
audits and management of them prior to receipt of a potential assessment, 4) assistance in the
resolution of assessments from tax audits, 5) assistance in the development and implementation of
tax saving strategies and 6) SEC registration statement comfort letters and consents; together in
an aggregate amount for all services not to exceed 50% of the annual audit fee, provided that the
Chairman, the CEO and CFO reported any such audit-related or non-audit services to the full Audit
Committee at its next regularly scheduled meeting. During 2005, only the $9,000 KPMG consent fee
related to our 2005 Stock Option Plan and $3,294 of the $11,794 for state tax appeal assistance
were paid pursuant to the delegated authority granted by the Audit Committee.
41
AMENDMENT TO RESTATED ARTICLES OF INCORPORATION
(Proposal 3)
Proposed Amendment
Our Board of Directors has approved, declared advisable and recommends that the shareholders
approve an amendment to our Restated Articles of Incorporation to provide for a majority voting
standard in uncontested elections of directors and a plurality voting standard in contested
elections of directors, both based on votes cast at a meeting where a quorum is present.
A copy of the Restated Articles of Incorporation marked to show this amendment is attached to
this Proxy Statement as Appendix B.
We are incorporated in the Commonwealth of Virginia, and Section 13.1-669 of the Virginia
Stock Corporation Act (Voting for directors; cumulative voting) provides that unless otherwise
provided in the articles of incorporation, directors are elected by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a quorum is present.
Currently, our Restated Articles of Incorporation are silent as to a voting standard. Thus,
our directors are currently elected by a plurality of the votes cast by the shares entitled to vote
pursuant to the Virginia Stock Corporation Act. The proposed amendment to the Restated Articles of
Incorporation provides that, except with respect to the filling of vacancies as provided in our
Bylaws and unless otherwise required by law, each director shall be elected in an uncontested
election of directors by a majority of the votes cast by the shares entitled to vote in the
election. If, however, the number of nominees for director exceeds the number of directors to be
elected, each director shall continue to be elected by a plurality of the votes cast by the shares
entitled to vote in the election. A majority of the votes cast means that the number of shares
voted for a director must exceed the number of shares voted against that director.
Our Board of Directors has approved certain conforming amendments to our Bylaws that would
become effective following shareholder approval of this amendment to our Restated Articles of
Incorporation. The amendments to the Bylaws do not require shareholder approval.
Our Board of Directors has also approved a director resignation policy that would become
effective upon shareholder approval of the Restated Articles of Incorporation and which would be
included in our Corporate Governance Guidelines. The director resignation policy would require a
nominee who already serves as a director to tender his or her resignation if he or she fails to
receive the required number of votes for re-election. The Nominating Committee will promptly
consider the resignation offer of any such director and recommend to the Board whether to accept
the tendered resignation or reject it. The Board will act on and publicly disclose its decision
with respect to the Nominating Committees recommendation no later than 90 days following the
submission of the resignation offer. The Board expects that any director who tenders his
or her resignation pursuant to this Policy will not participate in the Nominating Committee
recommendation or Board action regarding whether to accept or reject the tendered resignation.
Our directors believe the proposed amendment to adopt majority voting in the election of
directors provides a greater level of accountability of directors to shareholders and reflects
corporate governance best practice. If approved by the shareholders, this new standard will be
effective with the next election of directors in 2008.
42
Required Vote
The affirmative vote of holders of a majority of the outstanding shares of our common stock is
required for approval of this amendment to the Restated Articles of Incorporation of NVR, Inc.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS VOTING FOR
THE APPROVAL OF AMENDING NVRS RESTATED ARTICLES OF
INCORPORATION.
Shareholder Proposals
Our bylaws were amended in 2005 by the Board to add advance notice provisions for
shareholder proposals to be presented at any annual meeting, including director nominations.
Proposals of holders of Common Stock intended to be considered for our next annual meeting of
Shareholders must be received by us no earlier than November 22, 2007, and no later than December
22, 2007, and must comply with applicable rules of the Securities and Exchange Commission in order
to be considered. We must receive on or before November 22, 2007 proposals of holders of Common
Stock intended to be included in our proxy statement for our next annual meeting of Shareholders.
Other Matters
Management knows of no other business to be presented for action at the Annual Meeting, other
than those items listed in the notice of the Annual Meeting referred to herein. If any other
business should properly come before the Annual Meeting, or any adjournment thereof, it is intended
that the proxies will be voted in accordance with the best judgment of the persons acting
thereunder.
Our Annual Report on Form 10-K for 2006, including consolidated financial statements and other
information, accompanies this Proxy Statement but does not form a part of the proxy soliciting
material. A complete list of the shareholders of record entitled to vote at our Annual Meeting
will be open and available for examination by any shareholder, for any purpose germane to the
Annual Meeting, between 9:00 a.m. and 5:00 p.m. at our offices at 11700 Plaza America Drive, Suite
500, Reston, Virginia 20190, from April 20, 2007 through May 3, 2007 and at the time and place of
the Annual Meeting.
Copies of our most recent Annual Report on Form 10-K, including the financial statements and
schedules thereto, which we are required to file with the SEC, will be provided without charge upon
the written request of any shareholder. Such requests may be sent to Investor Relations, NVR,
Inc., 11700 Plaza America Drive, Suite 500, Reston, Virginia, 20190. Our SEC filings are also
available to the public from our website at http://www.nvrinc.com, and the SECs website at
http://www.sec.gov.
|
|
|
|
|
|
By Order of the Board of Directors,
|
|
|
/s/ James M. Sack
|
|
|
James M. Sack |
|
|
Secretary and General Counsel |
|
|
Reston, Virginia
March 22, 2007
43
Appendix A
NVR, Inc.
Nominating Committee Policies and Procedures for the Consideration of
Board of Director Candidates
The following amended and restated policies and procedures were adopted by the NVR, Inc. (the
Company) Nominating Committee (the Committee) on November 1, 2005:
I. |
|
Policy Regarding Director Candidates Recommended by Security Holders. |
|
A. |
|
The Company will consider all director candidates recommended by
shareholders owning at least 5% of the Companys outstanding shares at all times
during the preceding year that meet the qualifications established by the Board of
Directors (the Board). |
II. |
|
Director Minimum Qualifications. |
|
A. |
|
Each director nominee is evaluated in the context of the full Boards
qualifications as a whole, with the objective of establishing a Board that can best
perpetuate the success of the Companys business and represent shareholder interests
through the exercise of sound judgment. Each director nominee will be evaluated
considering the relevance to the Company of the director nominees respective skills
and experience, which must be complementary to the skills and experience of the other
members of the Board; |
|
|
B. |
|
A substantial majority of the Board shall be independent as defined by the
applicable exchange on which the Companys shares are listed. The Audit, Compensation,
Corporate Governance, Nominating and Qualified Legal Compliance Committees will be
comprised solely of independent directors; |
|
|
C. |
|
Director nominees must possess a general understanding of marketing, finance
and other elements relevant to the success of a large publicly-traded company in
todays business environment, and an understanding of the Companys business on an
operational level; |
|
|
D. |
|
Each director may be assigned committee responsibilities. A director nominees
educational and professional backgrounds must be consistent with the director nominees
committee assignment (e.g., director nominees who will be assigned to the audit
committee must be financially literate as defined within the Companys Audit Committee
Charter); |
|
|
E. |
|
Director nominees must demonstrate a willingness to devote the appropriate time
to fulfilling Board duties; |
44
|
F. |
|
Director nominees shall not represent a special interest or special interest
group whose agenda is inconsistent with the Companys goals and objectives or whose
approach and methods are inconsistent with what the Board believes is in the best
interest of the Companys shareholders; and |
|
|
G. |
|
Director nominees shall not be a distraction to the Board, nor shall a director
nominee be disruptive to the achievement of the Companys business mission, goals and
objectives. |
III. |
|
Procedures for Consideration of Security Holder Nominations. |
|
A. |
|
Security holder nominations must include ALL of the information described in
paragraphs C. through H. below and must be received in its entirety by the
120th calendar day before the date of the companys proxy statement released
to security holders in connection with the previous years annual meeting to be
considered for the next scheduled annual meeting of shareholders; |
|
|
B. |
|
Security holder nominations must be in writing and submitted via registered
mail or overnight delivery service to the Nominating Committee Chairman at the
Companys corporate headquarters address; |
|
|
C. |
|
Supporting documentation must be submitted that allows the Nominating Committee
to verify ownership of not less than 5% of the Companys outstanding shares at all
times during the immediately preceding year; |
|
|
D. |
|
The shareholder must submit an affidavit from the director nominee stating that
if elected, the director nominee is willing and able to serve on the Companys Board
for the full term to which the director nominee would be elected. The affidavit must
also acknowledge that the director nominee is aware of, has read and understands the
Companys Code of Ethics, Standards of Business Conduct, Corporate Governance
Guidelines, and Board of Director Committee Charters (collectively, the Corporate
Governance Documents), and further that the director nominee acknowledges that, if
elected, the director nominee is subject to and will abide by the Corporate Governance
Documents; |
|
|
E. |
|
The director nominee must submit a signed independence questionnaire. This
questionnaire shall be distributed to the director nominee upon receipt of a properly
delivered security holder director nomination request, and must be returned within five
days of receipt via registered mail or overnight delivery service to the Companys
Corporate Secretary and Nominating Committee Chairman, or designee;
|
45
|
F. |
|
The shareholder must submit documentation as to the director nominees
qualifications, which at a minimum must include: |
|
1. |
|
A complete biography; |
|
|
2. |
|
Full employment history, including current primary occupation; |
|
|
3. |
|
A signed consent form and waiver authorizing the Company to
perform a full background investigation of the director nominee, including
criminal and credit history, from a security firm acceptable to the Company in
its sole discretion, an original report of which must be sent directly from the
security firm to the Companys Corporate Secretary and Nominating Committee
Chairman, or designee; |
|
|
4. |
|
Documentation of educational levels attained, complete with
official transcripts issued directly by the educational institution and sent
directly from the educational institution to the Companys Corporate Secretary
and Nominating Committee Chairman, or designee. The Nominating Committee may
waive this requirement if the security firm performing the background
investigation verifies that the director nominee completed the educational
levels indicated by the director nominee; |
|
|
5. |
|
Disclosure of all special interests and all political and
organizational affiliations; and |
|
|
6. |
|
A complete list of clients if the director nominee is a
consultant, attorney or other professional service provider; |
|
G. |
|
The shareholder must submit any additional information required to be included
in the Companys proxy statement for director nominees which determination will be made
by the Company in its sole and absolute discretion (including, without limitation,
information regarding business experience, involvement in legal proceedings, security
ownership and transactions with the Company or management); and |
|
|
H. |
|
The information submitted by the security holder must include relevant contact
information (e.g., address, phone numbers) for the submitting shareholder and the
director nominee. |
IV. |
|
Identification and Evaluation of Director Candidates. |
|
A. |
|
For directors standing for reelection, the Nominating Committee may consider: |
|
1. |
|
The general qualifications as noted above; |
|
|
2. |
|
The directors attendance at Board and Committee meetings; and |
|
|
3. |
|
The directors participation and contributions to Board
activities. |
|
B. |
|
The Nominating Committee may consider the following when identifying and
evaluating an individual who is not currently a Company director: |
|
1. |
|
Use of outside executive search firms or referrals, as
appropriate; and |
|
|
2. |
|
Consideration of the Companys minimum director qualifications
as noted above in light of the specific qualifications possessed by the
individual being considered; and |
|
C. |
|
Regardless of the source of the nomination, individuals being considered for
nomination to the Companys Board, who are not currently directors, must provide to the
Company the information described in Section III, paragraphs D H. |
46
Appendix B
EXHIBIT A
RESTATED ARTICLES OF INCORPORATION
OF
NVR, INC.
1. Name. The name of the corporation is NVR, Inc. (herein called the Corporation).
2. Purposes. The purpose or purposes for which the Corporation is
organized are to transact any or all lawful business for which corporations may be incorporated
under the Virginia Stock Corporation Act.
3. Registered Office and Agent. The post office address of the registered office of the
Corporation is 8270 Greensboro Drive, Suite 810, McLean, Virginia 22102. The name of the county in
which the registered office is located is the County of Fairfax. The name of the registered agent
of the Corporation is James M. Sack, who is Secretary of the Corporation and a member of the
Virginia State Bar, and whose business office is the same as the registered office of the
Corporation.
4. Capital Stock.
(a) The aggregate number of shares of all classes
of stock which the
Corporation shall have authority to issue is seventy-five million (75,000,000) shares, with a par
value of one cent ($.01) per share, of which 60,000,000 shall be Common Stock and 15,000,000 shares
shall be preferred stock, which shall have such designations and such preferences, limitations, and
relative rights as may be established by one or more amendments of these Articles of Incorporation
adopted by the Board of Directors or the shareholders in accordance with the Virginia Stock
Corporation Act.
(b) The Corporation shall not issue any nonvoting equity securities provided that this
provision, which is included in these Articles of Incorporation in compliance with section
1123(a)(6) of the United States Bankruptcy Code of 1978, as amended, shall have no force or effect
beyond that required by such section 1123(a)(6) and shall be effective only for so long as such
section 1123(a)(6) is in effect and applicable to the Corporation.
5. Reserved.
6. No Preemptive Rights. No shareholder of the Corporation shall have any preemptive rights
to purchase, subscribe for or otherwise acquire any stock or other securities of the Corporation,
whether now or hereafter authorized, and any and all preemptive rights are hereby denied.
47
7. Directors.
(a) The number of directors of the Corporation shall be no less than seven and no more than
thirteen, as determined from time to time by the Board of Directors by resolution. The Board of
Directors of the Corporation shall be divided into three classes that are as equal in number as
possible. The initial directors of the first class (Class I) shall hold office for a term expiring
at the 1994 annual meeting of shareholders; the initial directors of the second class (Class II)
shall hold office for a term expiring at the 1995 annual meeting of shareholders; and the initial
directors of the third class (Class III) shall hold office for a term expiring at the 1996 annual
meeting of shareholders. At each annual meeting of shareholders after 1994, the successors to the
class of directors whose terms then shall expire shall be identified as being of the same class as
the directors they succeed and elected to hold office for a term expiring at the third succeeding
annual meeting of shareholders. Any reduction of the authorized number of directors will not have
the effect of removing any director prior to the expiration of such directors term. The existence
of a vacancy on the board of directors shall not affect the validity of any action taken by the
board of directors during the pendency of such vacancy.
(b) Directors shall be removed only for cause and only by the affirmative vote of holders of
shares of the Corporation having a majority of the votes entitled to be cast in the election of
directors in accordance with procedures set forth in the bylaws, not inconsistent with these
Articles of Incorporation. For purposes of this Article 7, cause shall mean, with regard to any
director, (i) a directors continuing, willful failure, or physical inability, to perform the
duties required of his or her position, (ii) gross negligence or breach of fiduciary duty by a
director in the performance of his or her duties as a director, (iii) the conviction or plea of
nolo contendere to a crime by a director that constitutes a felony under the laws of the United
States, or any state thereof, which results or was intended to result directly or indirectly in
gain or personal enrichment by such director at the expense of the Corporation or involves moral
turpitude, or (iv) material breaches (following notice and an opportunity to cure) of any covenants
by the director contained in any agreement between the director and the Corporation or any
subsidiary.
(c) Except with respect to the filling of vacancies as provided in the
Corporations Bylaws, and unless otherwise required by law, each director shall be elected by a
majority of the votes cast by the shares entitled to vote in the election at a meeting at which a
quorum is present; provided that if the number of nominees exceeds the number of directors to be
elected, each director shall be elected by a plurality of the votes cast by the shares entitled to
vote in the election at a meeting at which a quorum is present. For purposes of this Article 7(c),
a majority of the votes cast means that the number of shares voted for a director must exceed the
number of shares voted against that director.
48
8. Indemnification.
(a) The Corporation shall to the fullest extent
permitted by the laws of
the Commonwealth of Virginia, as presently in effect or as the same hereafter may be amended and
supplemented, indemnify an individual who is or was a director or officer of the Corporation
or any constituent corporation or other business entity absorbed by the Corporation in a merger or
consolidation, or, at the request of the Corporation or such other corporation or business entity,
any other corporation or business entity and who was, is, or is threatened to be made a named
defendant or respondent in any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative or investigative and whether formal or informal
(collectively, a proceeding) by reason of the fact that such individual is or was a director or
officer of the Corporation, against any obligation to pay a judgment, settlement, penalty, fine
(including any excise tax assessed with respect to any employee benefit plan) or other liability
and reasonable expenses (including counsel fees) incurred with respect to such a proceeding, except
such liabilities and expenses as are incurred because of such directors or officers willful
misconduct or knowing violation of the criminal law. The Corporation is authorized to contract in
advance to indemnify and make advances and reimbursements for expenses to any of its directors or
officers to the same extent provided in this Article 8. The Corporation also shall have the
authority to indemnify any of its employees or agents, upon a determination of the board of
directors that such indemnification is appropriate, to the same extent as the indemnification of
its directors and officers permitted in this Article 8.
(b) Unless a determination has been made that indemnification is not permissible, the
Corporation shall make advances and reimbursements for expenses reasonably incurred by a director
or officer in a proceeding as described above upon receipt of an undertaking from such director or
officer to repay the same if it is ultimately determined that such director or officer is not
entitled to indemnification. Such undertaking shall be an unlimited, unsecured general obligation
of the director or officer and shall be accepted without reference to such directors or officers
ability to make repayment.
(c) The
determination that indemnification under this Article is permissible, the authorization of such indemnification (if applicable), and the evaluation as to
the reasonableness of expenses in a specific case shall be made as provided by law. The
termination of a proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not of itself create a presumption that a director or officer
acted in such a manner as to make him ineligible for indemnification.
(d) For the purposes of this Article 8, every reference to a director or officer shall
include, without limitation, (i) every director or officer of the Corporation, (ii) an individual
who, while a director or officer, is or was serving at the Corporations request as a director,
officer, partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise, (iii) an individual
who formerly was a director or officer of the Corporation or occupied any of the other positions
referred to in clause (ii) of this sentence, and (iv) the estate, personal representative, heirs,
executors and administrators of a director or officer of the Corporation or other person referred
to herein. Service as a director, officer, partner, trustee, employee or agent of another foreign
or domestic corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise controlled by the Corporation shall be deemed service at the request of the Corporation.
A director or officer shall be deemed to be serving an employee benefit plan at the Corporations
request if such persons duties to the Corporation also impose duties on, or otherwise involve
services by, such person to the plan or to participants in or beneficiaries of the plan.
49
(e) Indemnification pursuant to this Article 8 shall not be exclusive of any other right of
indemnification to which any person may be entitled, including indemnification pursuant to a valid
contract, indemnification by legal entities other than the Corporation and indemnification under
policies of insurance purchased and maintained by the Corporation or others. No person shall be
entitled to indemnification by the Corporation, however, to the extent such person is actually
indemnified by another entity, including an insurer. In addition to any insurance which may be
maintained on behalf of any director, officer, or other person, the Corporation is authorized to
purchase and maintain insurance against any liability it may have under this Article 8 to protect
any of the persons named above against any liability arising from their service to the Corporation
or any other entity at the Corporations request, regardless of the Corporations power to
indemnify against such liability. The provisions of this Article 8 shall not be deemed to preclude
the Corporation from entering into contracts otherwise permitted by law with any individuals or
entitles other than those named in this Article 8.
(f) The provisions of this Article 8 shall be applicable from and after its adoption even
though some or all of the underlying conduct or events relating to a proceeding may have occurred
before such adoption. No amendment, modification or repeal of this Article 8 shall diminish the
rights provided hereunder to any person arising from conduct or events occurring before the
adoption of such amendment, modification or repeal. If any provision of this Article 8 or its
application to any person or circumstance is held invalid by a court of competent jurisdiction, the
invalidity shall not affect other provisions or applications of this Article 8, and to this end the
provisions of this Article 8 are severable.
9. Limitation of Liability of Officers and Directors. Except as otherwise provided by the
laws of the Commonwealth of Virginia, as presently in effect or as the same hereafter may be
amended and supplemented, no damages shall be assessed against an officer or director in any
proceeding brought by or in the right of the Corporation or brought by or on behalf of shareholders
of the Corporation. The liability of an officer or director shall not be eliminated as provided in
this Article 9 if the officer or director engaged in willful misconduct or a knowing violation of
the criminal law or any federal or state securities law, including, without limitation, any laws
prohibiting insider trading or manipulation of the market for any security. The provisions of this
Article 9 shall be applicable from and after its adoption even though some or all of the underlying
conduct or events relating to a proceeding may have occurred before such adoption.
10. Amendment. These articles or incorporation may be amended by the affirmative vote of a
majority of the entire board of directors, to the extent permitted by the Virginia Stock
Corporation Act, or by the affirmative vote of holders of a majority of the outstanding shares of
the Corporation, or, if more than one voting group is entitled to vote separately on such
amendment, a majority of the outstanding shares in such voting group, at a meeting at which a
quorum is present with respect to each voting group eligible to vote separately on such amendment;
provided that the provisions of Article 7 shall not be amended prior to May 1, 1995 unless the
amendment shall have been approved and recommended to the shareholders by all directors then in
office.
11. Perpetual Existence. The duration of the Corporation shall be
perpetual.
12. Certain
Transactions. The Corporation shall not be subject to Article 14 (Affiliate Transactions) or Article 14.1 (Control Share Acquisitions) of the Virginia Stock
Corporation Act.
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MR
A SAMPLE DESIGNATION (IF ANY) ADD 1 ADD 2 ADD 3 ADD 4
ADD 5 ADD 6
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000004
XXXXXXXXXXXXXX |
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000000000.000000
ext 000000000.000000 ext 000000000.000000 ext |
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000000000.000000
ext 000000000.000000 ext 000000000.000000 ext
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Using a blank
ink pen, mark your votes with an X as shown in this
example. Please do not write outside the designated
areas. |
x |
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Annual Meeting Proxy Card
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6
PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM
PORTION IN THE ENCLOSED ENVELOPE.
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A |
Proposals The Board of Directors recommends a vote FOR all the nominees listed and FOR Proposals 2 - 3.
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1. |
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Election of Directors: |
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For |
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Withhold |
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For |
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Withhold |
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For |
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Withhold |
+ |
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01 - Manuel H. Johnson
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02 - David A. Preiser
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03 - Paul W. Whetsell
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04 - John M. Toups
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Abstain |
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Ratification of appointment of KPMG LLP as independent auditors for the year ending December 31, 2007. |
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4.
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In their discretion, the proxies are authorized to vote upon any other business that may properly come before the meeting. |
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Approval of an amendment to
NVRs restated articles of incorporation to provide for majority voting of our directors in uncontested elections. |
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Change of Address Please print new address below.
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Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below |
Please
sign exactly as name(s) appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
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Date
(mm/dd/yyyy) Please print date below.
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Signature 1 Please keep
signature within the box.
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Signature 2 Please keep
signature within the box. |
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6 PLEASE FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. 6
Proxy NVR, Inc.
Proxy
for the Annual Meeting of Shareholders
May 4, 2007
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints James M. Sack, Dennis M. Seremet and Robert W. Henley, or any
of them, as proxies (and if the undersigned is a proxy, as substitute proxies), each with the power
to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on
the reverse side, all shares of common stock of NVR, Inc. held of record by the undersigned on
March 1, 2007 at the Annual Meeting of Shareholders to be held at NVRs Corporate Headquarters, 11700
Plaza America Drive, Suite 500, Reston, Virginia, 20190, on Friday, May 4, 2007 at 11:30 A.M. and
at any adjournments or postponements thereof.
If there are shares allocated to the undersigned in the NVR, Inc. Profit Sharing Trust Plan or the
Employee Stock Ownership Plan, the undersigned hereby directs the Trustee to vote all full and
fractional shares as indicated on the reverse of this card. Shares for which no voting instructions
are received by May 1, 2007 will be voted by the Trustee in the same proportion as all other shares
which have been voted.
This proxy when properly executed will be voted as directed. If no direction is given with respect
to a particular proposal, this proxy will be voted FOR the election of the four nominees for
director, FOR items 2 AND 3 AND otherwise in the discretion of the proxies.
PLEASE MARK, DATE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
CONTINUED AND TO BE SIGNED ON THE REVERSE