Company Name: NVR, Inc.
Public Availability Date: January 24, 2008
Document Sections:
INQUIRY LETTER
APPENDIX 1
APPENDIX 2
INQUIRY LETTER
STAFF REPLY LETTER
[INQUIRY LETTER]
December 28, 2007
BY HAND DELIVERY
U.S. Securities and Exchange Commission
Division of Corporation Finance
Office of Chief Counsel
100 F Street, N.E.
Washington, D.C. 20549
Re: NVR, Inc. - Shareholder Proposal Submitted by Amalgamated Bank LongView
MidCap 400 Index Fund
Ladies and Gentlemen:
We are writing on behalf of NVR, Inc. pursuant to Rule 14a-8(j) under the
Securities Exchange Act of 1934 to notify the Commission of NVR's intention to
exclude from its proxy materials for its 2008 annual meeting of shareholders a
shareholder proposal (the "Proposal") received from the Amalgamated Bank
LongView MidCap 400 Index Fund (the "Proponent"). We also request confirmation
that the staff will not recommend to the Commission that enforcement action be
taken if NVR excludes the Proposal from its 2008 proxy materials in reliance on
Rule 14a-8(i)(7).
A copy of the Proposal, the Proponent's supporting statement and the related
correspondence between the Proponent, its representative and NVR (including a
letter from NVR's President and CEO to the Proponent's representative regarding
NVR's current committee structure, management and internal control processes in
place to review NVR's regulatory, litigation and compliance risks associated
with its mortgage lending operations) are attached as Exhibit 1.
In accordance with Rule 14a-8(j), we have enclosed six copies of this letter,
including the exhibit. A copy of this letter also is being provided
simultaneously to the Proponent's representative.
NVR currently intends to file definitive copies of its proxy materials with the
Commission on or about March 19, 2008.
The Company
NVR is one of the largest homebuilders in the Washington, D.C. and Baltimore,
Maryland metropolitan areas. NVR's primary business is the construction and sale
of single-family detached homes, townhomes and condominium buildings. NVR also
operates a mortgage banking business through NVR Mortgage Finance, Inc. ("NVRM"),
its wholly owned subsidiary. NVRM originates mortgage loans almost exclusively
for persons who buy homes from NVR. NVRM sells all of its mortgage loans into
the secondary markets. For the year ended December 31, 2006, NVRM contributed
approximately $107 million, or 1.7%, of NVR's total revenues of $6.2 billion.
The Proposal
The Proposal requests that NVR's shareholders approve the following resolution:
"RESOLVED: The shareholders of NVR, Inc. (the "Company") request that the board
of directors establish a new Compliance Committee, to be composed of independent
directors, that would conduct a thorough review of the Company's regulatory,
litigation and compliance risks with respect to its mortgage lending operations
and report to shareholders within six months of the 2008 annual meeting as to
the committee's findings and recommendations, as well as the progress made
towards implementing those recommendations. This report should be prepared at
reasonable cost and may omit confidential information."
Rule 14a-8(i)(7)
Rule 14a-8(i)(7) permits the exclusion of a shareholder proposal that "deals
with a matter relating to the company's ordinary business operations." According
to the Commission's release accompanying the 1998 amendments to Rule 14a-8, the
underlying policy of the ordinary business exclusion is "to confine the
resolution of ordinary business problems to management and the board of
directors, since it is impracticable for shareholders to decide how to solve
such problems at an annual meeting." See Release No. 34-40018 (May 21, 1998).
The Commission's 1998 release established two "central considerations"
underlying the ordinary business exclusion. The first is that "certain tasks are
so fundamental to management's ability to run a company on a day-to-day basis
that they could not, as a practical matter, be subject to direct shareholder
oversight." The second is that a proposal should not "seek[] to `micro-manage'
the company by probing too deeply into matters of a complex nature upon which
shareholders, as a group, would not be in a position to make an informed
judgment."
A shareholder proposal that calls on the board of directors to issue a report to
shareholders is excludable under Rule 14a-8(i)(7) as relating to an ordinary
business matter if the subject matter of the report relates to the company's
ordinary business operations. See Release No. 34-20091 (August 16, 1983).
Accordingly, the staff has consistently permitted the exclusion of shareholder
proposals that request the issuance of a report where the subject matter of the
requested report relates to an ordinary business matter. See ACE Limited (March
19, 2007) (allowing exclusion of proposal requesting a report relating to the
company's strategy and actions regarding climate change); Bear Stearns Companies
Inc. (February 14, 2007) (allowing exclusion of proposal requesting a
"Sarbanes-Oxley Right-to-Know" report); Pfizer Inc. (January 13, 2006) (allowing
exclusion of proposal requesting a report on the risks of liability arising from
the distribution of the company's products); General Electric Company (January
13, 2006) (allowing exclusion of proposal requesting a report on evaluating the
risk of damage to GE's brand name and reputation in the United States as a
result of the growing use of foreign outsourcing); Newmont Mining Corporation
(January 12, 2006) (allowing exclusion of proposal requesting a management
report on the reputational and financial risks of the company's operations in
Indonesia); and Eli Lilly and Company (January 11, 2006) (allowing exclusion of
proposal requesting a report on the risk of legal claims arising from the
company's policy of limiting the availability of its product to Canadian
wholesalers or pharmacies that allow purchase of its products by U.S.
residents).
As the Commission stated in its 1998 release, certain shareholder proposals that
relate to a company's ordinary business operations may not be excludable if they
focus on "sufficiently significant social policy issues" that "transcend the
day-to-day business matters" of the company. Examples of matters the staff seems
to have considered to involve "significant social policy issues" include:
Internet censorship and monitoring by foreign governments (see Yahoo! Inc.
(April 13, 2007) (proposal requesting management to institute policies to help
protect freedom of access to the Internet)); human rights issues (see Yahoo!
Inc. (April 16, 2007) (proposal seeking bylaw amendment to establish board
committee on human rights to review implications of company policies for the
human rights of individuals in the US and worldwide)); genetic engineering (see
The Coca-Cola Company (February 7, 2000) (proposal requesting the board to adopt
a policy of removing genetically engineered crops, organisms or products from
all products manufactured or sold by the company)); auditor independence (see
Aon Corporation (February 19, 2004) (proposal requesting the board to adopt a
policy stating that the auditors of the company's financial statements will
perform only audit-related work)); and child labor (see Dillards Inc. (March 13,
1997) (proposal requesting that management prepare a report on the company's
actions to ensure that it does not do business with foreign suppliers using
forced labor, convict labor or child labor)).
In its Staff Legal Bulletins, the staff has stated that the following matters
also involve "significant social policy issues" : shareholder proposals relating
to certain executive compensation issues (see Staff Legal Bulletin No. 14A (July
12, 2002)(stating that proposals focused on equity compensation plans that may
be used to compensate only senior executive officers and directors, or proposals
that seek to obtain shareholder approval of equity plans that would result in
material dilution to existing shareholders, are not excludable pursuant to Rule
14a-8(i)(7))); and certain shareholder proposals relating to the environment or
public health issues (see Staff Legal Bulletin No. 14C (June 28, 2005)(stating
that proposals focused on a company minimizing or eliminating operations that
may adversely affect the environment or the public's health are not excludable
pursuant to Rule 14a-8(i)(7))).
Importantly however, in the 1998 release, the Commission stated that shareholder
proposals that relate to a company's ordinary business operations, but also
raise social policy issues, are to be reviewed on a case-by-case basis to
determine whether the proposal is excludable. In the 1998 release, the
Commission overturned its prior position in Cracker Barrel Old Country Stores,
Inc. (October 13, 1992) which provided that all employment-related shareholder
proposals raising social policy issues would be excludable under the "ordinary
business" exclusion. In doing so, the Commission stated that "[r]eversal of the
Cracker Barrel no-action position will result in a return to a case-by-case
analytical approach" to Rule 14a-8(i)(7). In the context of employment-related
shareholder proposals, the Commission acknowledged there was no bright-line test
to determine when proposals that also raise social issues fall within the scope
of the "ordinary business" exclusion. Instead, the Commission stated that such
"determinations will be made on a case-by-case basis, taking into account
factors such as the nature of the proposal and the circumstances of the company
to which it is directed [emphasis added]."
The Risks and Liabilities Associated with Mortgage Lending are Matters Relating
to NVR's Ordinary Business Operations
The Proposal requests that a newly-formed committee of NVR's board of directors
conduct a review of the company's "regulatory, litigation and compliance risks
with respect to its mortgage lending operations" and issue a report to
shareholders as to the committee's findings and recommendations. The staff has
consistently taken the position that a report relating to an internal assessment
of the risks and liabilities of a company's business operations is excludable
under Rule 14a-8(i)(7). In SLB No. 14C, the staff stated that "[t]o the extent
that a proposal and supporting statement focus on the company engaging in an
internal assessment of the risks or liabilities that the company faces as a
result of its operations...we concur with the company's view that there is a
basis for it to exclude the proposal under rule 14a-8(i)(7) as relating to an
evaluation of risk." As noted above, in SLB No. 14C, the staff went on to state
that a proposal calling for a report relating to the minimization or elimination
of operations that might have an adverse effect on the public health or the
environment are not excludable.
The Proposal does not in any way seek a report on the cost of minimizing or
eliminating NVR's mortgage lending business, but instead explicitly asks for a
report relating to the risks and liabilities associated with that business. For
that reason alone, the Proposal is excludable under Rule 14a-8(i)(7). However,
even if the Proposal sought a report on the possibility of minimizing or
eliminating NVR's mortgage lending business, the report still would relate to
NVR's ordinary business operations, and not to the environment, the public
health or any other significant policy issue. The Proposal requests that a
committee of the board conduct a "thorough review," or assessment, of the
"regulatory, litigation and compliance risks with respect to [NVR's] mortgage
lending operations." In other words, the Proposal seeks an internal analysis of
the risks associated with the core of NVRM's business operations - the
origination of mortgage loans for buyers of NVR's homes and the resultant sale
of these loans into the secondary market.
We recognize that the presence of widespread public debate regarding an issue is
among the factors to be considered in determining whether proposals concerning
that issue "transcend the day-to-day business matters" of a company (see SLB No.
14A). While the recent turmoil in the housing and mortgage markets has generated
much press and calls for regulatory relief (as noted by the Proponent in its
supporting statement), the staff has said that such "debate" is only one factor
to be considered by the staff and is not dispositive of whether a matter
addresses "ordinary business" or "significant social policy." Where a company's
operations are controversial, attract publicity, or are themselves the subject
of public debate, those operations may transcend ordinary business.
In Beazer Homes USA, Inc. (November 30, 2007), for example, the staff did not
permit exclusion of a shareholder proposal requesting that the board of
directors of the company prepare a report evaluating the company's mortgage
practices where the company was the subject of several regulatory, federal, SEC
and internal investigations relating to its mortgage origination business and
the company had announced that it may need to restate its financial statements
as a result of problems in its mortgage lending unit. Events such as those
affecting Beazer Homes clearly are not "confined to the resolution of ordinary
business problems," nor do they concern matters that are "so fundamental to
management's ability to run a company on a day-to-day basis that they could not,
as a practical matter, be subject to direct shareholder oversight." In NVR's
case, in contrast, the company's mortgage lending operations are not the subject
of public debate or regulatory scrutiny. Instead, NVR's mortgage lending is
simply part of its day-to-day business operations.
The staff has consistently allowed exclusion of shareholder proposals that seek
an evaluation of the risks or liabilities associated with ordinary business
operations, including operations that come considerably closer to raising a
significant policy issue than NVR's mortgage lending business. As noted above,
in Pfizer, the staff allowed exclusion of a shareholder proposal that requested
that the board of directors prepare a report on the "effects on the long-term
economic stability of the company and on the risks of liability to legal claims"
arising from the company's policy of distributing its products through foreign
wholesalers or pharmacies. Similarly, in ACE Limited, the staff permitted
exclusion of a shareholder proposal that requested a report describing the
"company's strategy and actions relative to climate change."
Clearly, where a proposal relates solely to the financial implications of the
company's business operations and the company's management of its business
risks, the proposal is excludable. See, e.g., Dow Chemical Co. (February 23,
2005) (allowing exclusion of proposal requesting the company's management to
prepare a report on the risks to the company, its reputation and its finances
resulting from, among other things, various litigation issues), American
International Group, Inc. (February 19, 2004) (allowing exclusion of proposal
requesting that the board of directors prepare a report on the effects of
HIV/AIDS, tuberculosis and malaria pandemics on the company's business strategy
as relating to ordinary business operations), Newmont Mining Corporation
(February 4, 2004) (allowing exclusion of proposal requesting the board of
directors to publish a report on the risk to the company's operations,
profitability and reputation from its social and environmental liabilities as
relating to ordinary business operations). Accordingly, the proposal is properly
excludable pursuant to Rule 14a-8(i)(7).
Compliance with Federal and State Laws Involves Ordinary Business
To the extent that the Proposal's call for an assessment of "regulatory,
litigation and compliance risks" and seeks an evaluation of NVRM's compliance
with the myriad federal and state laws that govern its mortgage lending
business, the proposal relates to NVR's ordinary business operations. The staff
has consistently permitted companies to exclude shareholder proposals that
relate to a company's compliance with state and federal regulatory requirements.
In Bear Stearns Companies Inc. (February 14, 2007), the staff permitted Bear
Stearns to exclude a shareholder proposal requesting a report assessing the
costs and benefits of the company's compliance with the Sarbanes-Oxley Act and
the impact of the Act on the company's operations. The staff's response
specifically noted the proposal required an assessment of the company's legal
compliance program, an element of ordinary business operations. Similarly, in
Monsanto Company (November 3, 2005), the staff allowed Monsanto to exclude a
shareholder proposal that sought to establish an ethics committee to oversee the
company's compliance with its corporate governance policies and applicable laws,
rules and regulations of federal, state and local governments. See also
Willamette Industries (March 20, 2001) (allowing exclusion of proposal that
requested a report on the company's environmental compliance program).
As the Proponent notes in its supporting statement, the recent turmoil in the
housing and mortgage markets has prompted calls for regulatory and legislative
action, and also has resulted in private litigation. The supporting statement
notes that there is increased interest on the part of state and federal
regulators in enforcing existing laws affecting homebuilders and mortgage
originators, and that some members of Congress and state legislatures have
considered measures that would affect these companies. In addition, the
supporting statement cites recent litigation pending under the Real Estate
Settlement Procedures Act, the Truth in Lending Act and the Home Ownership
Equity Protection Act, as well as state anti-predatory lending statues. As
evidenced by the staff's Bear Stearns Companies letter, however, the possibility
of increased enforcement of regulations and statutes and the possible enactment
of additional regulations and statutes alone do not remove regulatory and legal
compliance from the realm of ordinary business operations.
Conclusion
For the reasons set forth above, it is our view that NVR may exclude the
Proposal from its proxy materials under Rule 14a-8(i)(7), and we request
confirmation that the staff will not recommend any enforcement action to the
Commission if NVR so excludes the Proposal.
When a written response to this letter becomes available, please fax the letter
to me at (202) 637-5910 and to the Proponent at (202) 315-3552. Should the staff
have any questions in the meantime, please feel free to call me at (202)
637-5737.
Sincerely,
/s/
Alan L. Dye
cc: Cornish F. Hitchcock
Gene Bredow
Enclosures
[APPENDIX 1]
November 19 2007
Mr. James M. Sack
Corporate Secretary
NVR, Inc.
11700 Plaza America, Inc.
Reston, Virginia 20190
Bv UPS
Re: Shareholder proposal for 2008 annual meeting
Dear Mr. Sack:
On behalf of the Amalgamated Bank LongView MidCap 400 Index Fund (the "Fund") I
submit the enclosed shareholder proposal for inclusion in the proxy statement
that NVR, Inc. (the "Company") plans to circulate to shareholders in
anticipation of the 2008 annual meeting. The proposal is being submitted under
SEC Rule 14a-8 and relates to the Company's board committee practices.
The Fund is an S&P MidCap 400 index fund located at 275 Seventh Avenue. New
York, N.Y. 10001. The Fund has beneficially owned more than $2000 worth of the
Company's common stock for more than a year. A letter confirming ownership is
being submitted under separate cover. The Fund plans to continue ownership
through the date of the 2008 annual meeting, which a representative plans to
attend.
We would be pleased to discuss with you the issues presented by this proposal.
Please do not hesitate to contact me if there is anything further that I can
provide.
Very truly yours,
/s/
Cornish F. Hitchcock
[APPENDIX 2]
RESOLVED: The shareholders of NVR. Inc. (the "Company") request that the board
of directors establish a new Compliance Committee, to be composed of independent
directors, that would conduct a thorough review of the Company's regulatory,
litigation and compliance risks with respect to its mortgage lending operations
and report to shareholders within six months of the 2008 annual meeting as to
the committee's findings and recommendations, as well as the progress made
towards implementing those recommendations. This report should be prepared at
reasonable cost and may omit confidential information.
SUPPORTING STATEMENT
The recent turmoil in the housing and mortgage markets has wiped out billions of
dollars in shareholder value at housing-related companies.
In its August 13, 2007 issue, BUSINESS WEEK suggested that certain business
practices among the nation's largest homebuildersparticularly within their
mortgage or financing affiliatesmay have contributed to the recent collapse of
the mortgage and housing markets. A specific concern is the conflict of interest
that may occur if a home builder's mortgage affiliate issues mortgages to home
buyers who may not be able to repay their obligations.
NVR has a subsidiary (NVR Mortgage Finance, Inc.) that focuses almost
exclusively on serving NVR's customer base and originates mortgage loans for
many of NVR homebuyers.
Concerns about housing financing practices have prompted calls for more
regulatory and legislative action, as well as litigation. Reports in the news
media indicate an increased interest by state and federal regulators in
enforcing existing laws affecting home builders and mortgage originators, with a
possibility of new regulations. In addition, some Members of Congress have
indicated an interest in imposing a fiduciary obligation on originators and
possibly placing non-bank lenders under federal oversight. At the state level,
legislatures in a number of states are considering measures that target
deceptive lending, foreclosure or fraud.
Litigation is also pending under the Real Estate Settlement Procedures Act, the
Truth in Lending Act, and the Home Ownership Equity Protection Act, as well as
state anti-predatory lending statues.
As shareholders, we are concerned about the damage to long-term share-holder
value that can result from litigation, regulatory costs and reputational injury
at companies that lack adequate compliance procedures and active oversight by
the board. Although the board currently has an Qualified Legal Compliance
Committee, its charter focuses more on securities and fiduciary violations more
than the types of issues presented by this proposal. Given the current public
scrutiny of homebuilders and their business practices, we believe that it is
important for a new board committee to undertake a thorough investigation of the
Company's practices in this area and to avoid or mitigate any conflicts that
might arise.
We urge you to vote FOR this proposal.
[INQUIRY LETTER]
January 23, 2008
BY HAND DELIVERY
Office of the Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Re: NVR, Inc.Shareholder Proposal Submitted by Amalgamated Bank LongView MidCap
400 Index Fund - Review of Risks Associated with NVR's Mortgage Lending
Operations
Ladies and Gentlemen:
We previously submitted to the staff a letter, dated December 28, 2007,
requesting the staff's concurrence that the shareholder proposal referenced
above may be excluded from the NVR's 2008 proxy materials under Rule
14a-8(i)(7).
On January 23, 2008, the Proponent informed NVR of its withdrawal of the
Proposal. Attached as Exhibit 1 is a copy of correspondence from the Proponent
confirming that the Proposal has been withdrawn. Accordingly, NVR also hereby
withdraws its request for a noaction letter relating to the Proposal.
In accordance with Rule 14a-8(j), we have enclosed six copies of this letter,
including the exhibit. A copy of this letter also is being provided
simultaneously to the Proponent's representative.
If you have any questions or require additional information, please do not
hesitate to contact me at (202) 637-5737.
Sincerely,
/s/
Alan L. Dye
cc: Cornish F. Hitchcock
Enclosure
[STAFF REPLY LETTER]
January 24, 2008
Alan L. Dye
Hogan & Hartson LLP
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
Re: NVR, Inc.
Dear Mr. Dye:
This is in regard to your letter dated January 23,
2008 concerning the shareholder proposal submitted by the Amalgamated Bank
LongView MidCap 400 Index Fund for inclusion in NVR's proxy materials for its
upcoming annual meeting of security holders. Your letter indicates that the
proponent has withdrawn the proposal, and that NVR therefore withdraws its
December 28, 2007 request for a no-action letter from the Division. Because the
matter is now moot, we will have no further comment.
Sincerely,
/s/
Gregory Belliston Attorney-Adviser
cc: Cornish F. Hitchcock
Attorney at Law
1200 G Street, NW, Suite 800
Washington, DC 20005
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