<PAGE>
RULE NO. 424(b)(5)
REGISTRATION NO. 33-69436
PROSPECTUS SUPPLEMENT
(TO PROSPECTUS DATED APRIL 6, 1998)
$145,000,000
NVR, Inc.
8% Senior Notes due 2005
----------- NVR
The 8% Senior Notes due 2005 (the "Notes") are being offered by NVR, Inc.
("NVR" or the "Company"). The Notes will mature on June 1, 2005. Interest on
the Notes will be payable semiannually on June 1 and December 1 of each year,
commencing June 1, 1998.
The Company may redeem the Notes, in whole or in part, at any time on or
after June 1, 2003 at the redemption prices set forth in this Prospectus
Supplement, together with accrued and unpaid interest on the Notes. In the
event of a Change of Control (as defined), the Company is required to offer to
repurchase all of the Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, prior to June 1, 2001, the Company may redeem
up to 35% of the aggregate principal amount of the Notes issued under the
Indenture governing the Notes at a redemption price equal to 108% of the
principal amount of the Notes so redeemed, plus accrued and unpaid interest
thereon, if any, to the redemption date with the net cash proceeds of one or
more Public Equity Offerings (as defined); provided, however, that at least
$113,750,000 aggregate principal amount of the Notes remains outstanding
immediately after giving effect to any such redemption (excluding any Notes
held by the Company).
The Notes are senior unsecured obligations of the Company, ranking equally
in right of payment with the Company's other existing and future senior
unsecured indebtedness. The Notes will be guaranteed on a senior unsecured
basis by NVR Homes, Inc. ("NVR Homes") and, under certain circumstances, by
other subsidiaries of the Company (collectively, the "Subsidiary Guarantors").
The Notes are effectively subordinated to all existing and future indebtedness
and other liabilities, including trade payables, of the Company's subsidiaries
other than the Subsidiary Guarantors. As of December 31, 1997, on a pro forma
basis after giving effect to the application of the estimated net proceeds
from the sale of the Notes to refinance outstanding indebtedness, the
aggregate amount of indebtedness of the Company would have been approximately
$145 million, the aggregate amount of indebtedness of the Subsidiary
Guarantors would have been approximately $11 million and the aggregate amount
of indebtedness of the Company's subsidiaries other than the Subsidiary
Guarantors would have been approximately $108 million, substantially all of
which constitutes indebtedness of the Company's mortgage banking operations
which is non-recourse to the Company and NVR Homes. Although the Indenture
contains certain limitations on the future incurrence of indebtedness by the
Company and its Restricted Subsidiaries (as defined), the Company and its
subsidiaries will be able to incur significant additional indebtedness,
including senior indebtedness ranking equally with the Notes and, under
certain circumstances, senior secured indebtedness. See "Capitalization" and
"Description of Notes--Certain Covenants."
The Company's common stock, par value $.01 per share, is traded on the
American Stock Exchange under the symbol "NVR." The Company has applied for
listing of the Notes on the American Stock Exchange.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE S-7 FOR A DISCUSSION OF CERTAIN MATTERS
THAT SHOULD BE CONSIDERED PRIOR TO AN INVESTMENT IN THE NOTES.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS TO WHICH IT RELATES. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
The Underwriters have agreed to purchase the Notes from the Company at
98.75% of their principal amount (resulting in $143,187,500 aggregate proceeds
to the Company, before deducting expenses payable by the Company estimated at
$388,000), plus accrued interest, if any, from April 14, 1998 to the date of
delivery, subject to the terms and conditions as set forth in the Underwriting
Agreement.
The Underwriters propose to offer the Notes from time to time for sale in
one or more negotiated transactions, or otherwise, at market prices prevailing
at the time of sale, at prices related to such prevailing market prices or at
negotiated prices. For further information with respect to the plan of
distribution and any discounts, commissions or profits on resale that may be
deemed underwriting discounts or commissions, see "Underwriting" herein. The
Company has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
-----------
The Notes are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of the Notes will be made through the book-
entry facilities of The Depository Trust Company against payment therefor in
same day funds on or about April 14, 1998.
-----------
Salomon Smith Barney
Credit Suisse First Boston
Friedman, Billings, Ramsey & Co., Inc.
April 8, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE NOTES,
INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING
TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE>
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Prospectus Supplement and the accompanying Prospectus. In
this Prospectus Supplement and the accompanying Prospectus, except as the
context otherwise requires, NVR, Inc. and its subsidiaries are referred to
collectively as "NVR" or the "Company" and the financial and operating data
reflect the consolidated results of such entities for the periods indicated.
THE COMPANY
NVR, Inc. ("NVR" or the "Company") is a leading homebuilder with a
substantial market position in each of the markets it serves. The Company
believes that it was the seventh largest single family homebuilder in the U.S.
in 1997. NVR constructs and sells single-family detached homes, townhomes and
condominiums primarily to entry level and move-up buyers. NVR's homes range
from approximately 985 to 5,410 square feet, with two to five bedrooms, and are
priced from approximately $70,000 to $640,000. In 1997, the Company's average
home price was approximately $187,700. The Company operates under three
tradenames: Ryan Homes, NVHomes and Fox Ridge Homes. Ryan Homes builds
moderately priced homes in sixteen metropolitan areas located in Maryland,
Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Delaware and Tennessee, and markets its homes primarily to first-time
buyers. NVHomes builds homes exclusively in the Washington, D.C. and Baltimore
metropolitan areas, and markets its homes primarily to move-up buyers. Fox
Ridge builds moderately priced homes in Nashville, Tennessee and markets its
homes primarily to first-time and first-time move-up buyers. For the year ended
1997, the Company had homebuilding revenues and EBITDA (as defined) of $1.2
billion and $83.7 million, respectively.
NVR has been the leading homebuilder in the Washington, D.C. market for more
than a decade and has been one of the two leading homebuilders in the Baltimore
market during the same period. The Company's market share in 1997 in these
markets was over 14% and 17%, respectively, which was in each case more than
twice the size of its next largest competitor. NVR is also the leading
homebuilder in Pittsburgh, Pennsylvania, Richmond, Virginia, and Rochester and
Syracuse, New York, the number two ranked homebuilder in Wilmington, Delaware,
and southern New Jersey, and the number three ranked homebuilder in Charlotte,
North Carolina and Buffalo, New York. With the acquisition of Fox Ridge Homes
in October 1997, the Company believes it is now the leading homebuilder in
Nashville, Tennessee.
In addition, NVR provides a number of mortgage-related services through its
national mortgage banking operations, which operate in over 15 states in all
regions of the United States. In 1997, NVR's mortgage banking business closed
approximately 12,300 loans with an aggregate principal amount of approximately
$1.5 billion. NVR's mortgage banking business sells all of the mortgage loans
and the related mortgage servicing rights as the mortgages are closed. In 1997,
NVR's mortgage banking operations originated mortgage loans for approximately
66% of NVR's homebuyers as well as a significant number of third party loans.
In 1997, NVR's homebuyers accounted for approximately 43% of the aggregate
dollar amount of loans closed.
Homebuilding revenues increased from $821 million in 1994 to $1.2 billion in
1997, an increase of 41%, while the Company's homebuilding operating income
grew 54% from $42.5 million to $65.5 million over the same period. NVR settled
6,107 homes in 1997, 5,695 in 1996, 4,857 in 1995, and 4,715 in 1994. At
December 31, 1997, the Company had 3,195 units in backlog with an estimated
aggregate sales value of approximately $624 million, compared with backlog
units and dollars at December 31, 1996 of 2,466 and approximately $453 million,
respectively.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Conservative Operating Strategy--NVR is not in the land business and does not
engage in speculative land buying or any land development. In addition, the
Company generally constructs homes on a pre-sold basis for
S-1
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the ultimate customer, rather than engaging in speculative building. NVR
obtains finished lots for its homebuilding operations by acquiring control over
the lots through option contracts with land developers. Purchasing finished
lots through options reduces the financial requirements and risks associated
with direct land ownership. NVR generally seeks to maintain control over an
inventory of lots sufficient to provide for the next 18 to 24 months of
projected home sales.
High Inventory Turnover--NVR's strategy is to maximize inventory turnover.
This is accomplished by purchasing finished lots under option, not engaging in
speculative land buying or land development, generally only starting a house
once it has been sold to a customer, efficiently building homes in 100 days or
less on average and minimizing the number of speculative housing units and
owned model homes. Management believes that the Company maintains one of the
highest inventory turnover rates in the industry, which is approximately 5
times per year. Rapid inventory turnover enables the Company to operate with
less capital, thereby enhancing rates of return on equity and total capital.
Leading Market Positions--NVR's objective is to obtain and maintain a leading
market position in each of the markets it serves. The Company believes that
regional leadership provides certain valuable efficiencies and competitive
advantages, including better access to finished building lots, favorable terms
with subcontract labor and a recognized name with the consumer. The Company
believes that having a leading market position, combined with a high inventory
turnover strategy, minimizes the adverse effects of regional economic cycles
and provides the Company with both stability and growth opportunities.
Focused Product to Diverse Customer Base--The Company's strategy is to offer
a limited number of house types within each of its numerous market segments.
The market segments served by NVR span a wide range of prices, square footage
and house styles. The Company believes that serving many different types of
homebuyers limits the risk caused by heavy reliance on any one market segment
or price range. In addition, the Company believes that focusing on a limited
product line with high consumer appeal within each of its various market
segments results in significant construction efficiencies, leading to higher
margins and faster inventory turns.
Control of Overhead and Operating Expenses--The Company continually seeks to
minimize overhead expenses in an effort to control its costs and to provide
flexibility to respond to the cyclical nature of its business. The Company does
this by centralizing many of its administrative functions and by limiting the
number of middle management positions.
Experienced Management--The Company plans to continue its strategy of
retaining a loyal and experienced management team. NVR's seven top executives
average over 19 years with the Company. The Company has a decentralized system
of management, employing regional profit center managers, whose combined
experience in the homebuilding business average over 15 years. Each profit
center manager supervises the day-to-day activities of that profit center, and
is supported by NVR's centralized administrative services.
RECENT DEVELOPMENTS
NVR has reached a nonbinding agreement in principle with BankBoston N.A.
("BankBoston"), the agent bank under its $60 million working capital credit
facility, regarding a restructuring of the working capital credit facility.
Pursuant to the terms of such agreement in principle, (a) NVR, Inc. would be
the borrower under the credit facility instead of NVR's homebuilding
subsidiary, NVR Homes, (b) the facility would provide for borrowings of up to
$100 million (with an initial committed amount of $60 million) on an unsecured
basis, (c) NVR Homes would guarantee the facility, (d) the facility would be
scheduled to expire in May 2001, and (e) NVR would reorganize its corporate
structure by merging NVR Homes, NVR Financial Services, Inc. and NVR, Inc. NVR
intends to complete the restructuring by May 1999. In the event NVR does not
complete the restructuring by that time, the facility would expire in November
1999. As a result of the restructuring, the parent company, NVR, Inc., would
conduct its homebuilding business directly and would conduct its mortgage
banking business through its direct wholly owned subsidiary, NVR Mortgage
Finance, Inc. There can be no assurance that the restructuring of the facility
or the corporate reorganization will be consummated as described, or at all.
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<PAGE>
THE OFFERING
Securities Offered........ $145,000,000 principal amount of 8% Senior
Notes due 2005 (the "Notes").
Maturity.................. June 1, 2005.
Interest Payment Dates.... Interest on the Notes will be payable
semiannually on June 1 and December 1 of each
year, commencing June 1, 1998.
Optional Redemption....... The Company may redeem the Notes, in whole or
in part, at any time on or after June 1, 2003
at the redemption prices set forth in this Pro-
spectus Supplement, together with accrued and
unpaid interest on the Notes. In the event of a
Change of Control (as defined) the Company is
required to offer and repurchase all of the
Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and un-
paid interest, if any, to the date of repur-
chase. In addition, prior to June 1, 2001, the
Company may redeem up to 35% of the aggregate
principal amount of the Notes issued under the
Indenture governing the Notes at a redemption
price equal to 108% of the principal amount of
the Notes so redeemed, plus accrued and unpaid
interest thereon, if any, to the redemption
date with the net cash proceeds of one or more
Public Equity Offerings (as defined); provided,
however, that at least $113,750,000 aggregate
principal amount of the Notes remains outstand-
ing immediately after giving effect to any such
redemption (excluding any Notes held by the
Company).
Ranking................... The Notes are senior unsecured obligations of
the Company, ranking equally in right of pay-
ment with the Company's other existing and fu-
ture senior unsecured indebtedness. The Notes
will be guaranteed on a senior unsecured basis
by NVR Homes, Inc. ("NVR Homes") and, under
certain circumstances, other subsidiaries of
the Company (collectively, the "Subsidiary
Guarantors"). The Notes are effectively subor-
dinated to all existing and future indebtedness
and other liabilities, including trade
payables, of the Company's subsidiaries other
than the Subsidiary Guarantors. As of December
31, 1997, on a pro forma basis after giving ef-
fect to the application of the estimated net
proceeds from the sale of the Notes to refi-
nance outstanding indebtedness, the aggregate
amount of indebtedness of the Company would
have been approximately $145 million, the ag-
gregate amount of indebtedness of the Subsidi-
ary Guarantors would have been approximately
$11 million and the aggregate amount of indebt-
edness of the Company's Subsidiaries other than
the Subsidiary Guarantors would have been ap-
proximately $108 million (substantially all of
which constitutes indebtedness of the Company's
mortgage banking operations which is non-re-
course to the Company and NVR Homes). Such
mortgage banking indebtedness had increased by
approximately $25 million as of the date of
this Prospectus Supplement. Although the Inden-
ture contains certain limitations on the future
incurrence of indebtedness by the Company and
its Restricted Subsidiaries (as defined), the
Company and its subsidiaries will be able to
incur significant additional indebtedness, in-
cluding senior
S-3
<PAGE>
indebtedness ranking equally with the Notes
and, under certain circumstances, senior se-
cured indebtedness. See "Capitalization" and
"Description of Notes--Certain Covenants."
Certain Covenants......... The Indenture covering the Notes contains limi-
tations on the ability of the Company and its
Restricted Subsidiaries to incur indebtedness,
pay dividends and make distributions, make
loans and investments, enter into transactions
with affiliates, effect certain asset sales,
incur certain liens, merge or consolidate with
any other person, or transfer all or substan-
tially all of their properties and assets.
These covenants are subject to a number of im-
portant qualifications and limitations. See
"Description of Notes--Certain Covenants."
Risk Factors.............. Prospective purchasers of the Notes should
carefully consider the factors discussed in de-
tail elsewhere in this Prospectus Supplement
under the caption "Risk Factors."
Use of Proceeds........... The Company intends to use the net proceeds
from the issuance of the Notes to refinance
other debt, including the Company's outstanding
11% Senior Notes due 2003 (the "1993 Notes").
Market.................... The Underwriters have informed the Company that
they intend to make a market for the Notes, as
permitted by applicable law and regulations,
but are not obligated to do so, and may discon-
tinue any market making activity at any time
without notice. The Company has applied for
listing of the Notes on the American Stock Ex-
change; however no assurance can be given as to
such listing or the timing thereof. According-
ly, no assurance can be given as to the liquid-
ity of or trading market for the Notes.
S-4
<PAGE>
SUMMARY FINANCIAL AND OTHER DATA
The following summary statement of operations and balance sheet data for the
three years ended December 31, 1997 have been derived from the Company's
audited consolidated financial statements. This information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
and notes thereto included elsewhere or incorporated by reference herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1997 1996 1995
---------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Homebuilding:
Revenues.................................. $1,154,022 $1,045,930 $ 869,119
Other income.............................. 1,232 1,312 1,577
Cost of sales............................. (995,855) (906,255) (751,035)
Selling, general and administrative....... (87,231) (71,184) (63,200)
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets/goodwill............. (6,635) (7,048) (7,048)
---------- ---------- ---------
Operating income........................ 65,533 62,755 49,413
Interest expense.......................... (16,410) (16,611) (17,166)
---------- ---------- ---------
Homebuilding income..................... 49,123 46,144 32,247
Mortgage Banking:
Mortgage banking fees..................... 25,946 24,029 26,297
Interest income........................... 6,415 5,351 4,744
Other income.............................. 674 47 46
General and administrative................ (23,636) (23,507) (26,747)
Amortization of reorganization value in
excess of amounts allocable to
identifiable assets/goodwill............. (1,088) (1,088) (1,088)
Interest expense.......................... (3,544) (2,249) (2,090)
---------- ---------- ---------
Operating income........................ 4,767 2,583 1,162
Total segment income........................ 53,890 48,727 33,409
Income tax expense.......................... (25,011) (22,946) (17,009)
---------- ---------- ---------
Income before extraordinary gains........... 28,879 25,781 16,400
Extraordinary gain-repurchase of debt (net
of tax expense of $645 for the year ended
December 31, 1995)......................... -- -- 927
---------- ---------- ---------
Net income.................................. $ 28,879 $ 25,781 $ 17,327
========== ========== =========
SELECTED OPERATING DATA:
Homes settled, units........................ 6,107 5,695 4,857
Contracts for sale (net of cancellations),
units...................................... 6,686 5,690 5,606
Backlog, units.............................. 3,195 2,466 2,471
Backlog, dollars............................ $ 623,705 $ 453,211 $ 442,268
OTHER DATA:
Homebuilding EBITDA(1)...................... $ 83,742 $ 74,905 $ 60,412
Interest Incurred(2)........................ 16,410 16,611 17,166
ADJUSTED DATA(3)
Interest Incurred........................... $ 13,524 -- --
Homebuilding EBITDA to Interest Incurred.... 6.2x -- --
Homebuilding indebtedness to Homebuilding
EBITDA..................................... 1.9x -- --
Earnings to fixed charges(4)................ 3.9x -- --
</TABLE>
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<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Homebuilding inventory.............................. $224,041 $171,693 $154,713
Total assets(5)..................................... 564,621 501,165 513,598
Homebuilding indebtedness(5)........................ 139,745 134,129 134,118
Total debt(5)....................................... 248,138 201,592 221,295
Shareholders' equity................................ 144,640 152,010 146,180
</TABLE>
- --------
(1) Homebuilding EBITDA (earnings before interest, taxes, depreciation and
amortization and other non-cash charges) has been computed as described in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Homebuilding Segment." The Company believes that EBITDA
provides a meaningful comparison of operating performance of the
homebuilding segment because it excludes the amortization of certain
intangible assets and other non-cash items. Although the Company believes
the calculation is helpful in understanding the performance of the
homebuilding segment, EBITDA should not be considered a substitute for net
income or cash flow as indicators of the Company's financial performance or
its ability to generate liquidity.
(2) As defined in "Description of Notes--Certain Definitions."
(3) As adjusted to give effect to the issuance and sale by the Company of the
Notes and the application of the estimated net proceeds therefrom to
refinance other debt, including the 1993 Notes. See "Use of Proceeds."
(4) For purposes of computing the adjusted ratio of earnings to fixed charges,
the Company's consolidated earnings have been calculated by adding fixed
charges to pre-tax income from continuing operations assuming the issuance
of the Notes and the application of the proceeds therefrom as described in
"Use of Proceeds." Fixed charges consist of interest costs, whether
expensed or capitalized, the interest component of rental expense and the
amortization of debt issuance costs.
(5) Effective in the fourth quarter of 1996, certain limited purpose financing
subsidiaries are presented on a net basis. Accordingly, balance sheet data
for prior periods have been reclassified to reflect this change. See note 1
to the accompanying NVR consolidated financial statements.
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FORWARD-LOOKING STATEMENTS
Certain statements in this Prospectus Supplement, the accompanying
Prospectus and the information incorporated by reference herein constitute
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). Certain, but not necessarily
all, of such forward-looking statements can be identified by the use of
forward-looking terminology, such as "believes," "expects," "may," "will,"
"should" or "anticipates" or the negative thereof or other variations thereof
or comparable terminology, or by discussion of strategies, each of which
involves risks and uncertainties. All statements other than statements of
historical facts included herein or therein, including those regarding market
trends, the Company's financial position, business strategy, projected plans
and objectives of management for future operations, are forward-looking
statements. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by the forward-
looking statements and there can be no assurance that the reasonable
expectations of the Company reflected in such forward-looking statements are
correct. Such factors include, but are not limited to, general economic and
business conditions, interest rate changes, competition, the availability and
cost of land and other raw materials used by the Company in its homebuilding
operations, shortages of labor, weather related slow downs, building
moratoria, governmental regulation, the ability of the Company to integrate
any acquired businesses, certain conditions in financial markets,
technological problems encountered with the Year 2000 Issue and other factors
over which the Company has little or no control, including those factors
described in "Risk Factors."
RISK FACTORS
Prospective investors should carefully consider the risk factors set forth
below as well as all of the other information set forth or incorporated by
reference in this Prospectus Supplement and in the accompanying Prospectus
before purchasing the Notes.
REAL ESTATE, ECONOMIC, INTEREST RATE AND OTHER CONDITIONS
NVR's business is affected by the risks generally incident to the
residential construction business, including interest rate levels (which
affect the cost and availability of construction financing for NVR and long-
term financing for potential purchasers of homes), the availability of
adequate land in desirable locations on reasonable terms, unexpected changes
in customer preferences, and changes in the national economy and in the local
economies of the markets in which NVR operates. These factors (and thus the
residential construction business) have tended to be cyclical in nature. Any
downturn in the national economy or the local economies of the markets in
which NVR operates could have a material adverse effect on NVR's sales,
profitability and ability to make required payments on its debt obligations,
including the Notes. In particular, during 1997, the Company conducted
approximately 66% of its homebuilding business in the Washington, D.C. and
Baltimore metropolitan areas, and thus is dependent to a significant extent on
the economy and demand for housing in those areas.
High rates of inflation generally affect the homebuilding industry adversely
because of their adverse impact on interest rates. High interest rates not
only increase the cost of borrowed funds to homebuilders but also have a
significant effect on the affordability of permanent mortgage financing to
prospective purchasers. The Company is also subject to potential volatility in
the price of commodities that impact costs of materials used in its
homebuilding business. Increases in prevailing interest rates could have a
material adverse effect on the Company's sales, profitability and ability to
make required payments on its debt obligations, including the Notes.
NVR's financial results also are affected by the risks generally incident to
its mortgage banking business, including interest rate levels, the impact of
government regulation of mortgage loan originations and servicing and the need
to issue forward commitments to fund and sell mortgage loans. NVR's
homebuilding customers accounted for 43% of NVR's mortgage banking business in
1997. NVR's mortgage banking business is therefore
S-7
<PAGE>
affected by the volume of NVR's continuing homebuilding operations. The
Company's mortgage banking business also is affected by interest rate
fluctuations. During periods of declining interest rates, the level of
refinancing of home mortgage loans ordinarily increases, thereby increasing
the fees earned by the Company's mortgage banking business from refinancings.
The Company also may experience marketing losses resulting from daily
increases in interest rates to the extent it is unable to match interest rates
and amounts on loans it has committed to originate with forward commitments
from third parties to purchase such loans. The Company employs procedures
designed to mitigate any such potential losses, but there can be no assurance
that such procedures will be entirely successful in implementation. Increases
in interest rates may have a material adverse effect on the Company's sales,
profitability and ability to make required payments on its debt obligations,
including the Notes. In addition, adverse changes in governmental regulation
may have a negative impact on the Company's mortgage loan origination
business.
AVAILABILITY OF ADEQUATE LOTS
The results of NVR's homebuilding operations are dependent upon the
continuing ability of NVR to control an adequate number of homebuilding lots
in desirable locations. NVR has not experienced significant shortages in the
supply of lots in its principal markets or difficulty in controlling lots
through option contracts in sufficient numbers and in adequate locations to
fulfill its business plan and on terms consistent with its past operations.
There can be no assurance, however, that an adequate supply of building lots
will continue to be available on terms similar to those available in the past,
or that NVR will not be required to devote a greater amount of capital to
controlling building lots than it historically has. Although NVR believes that
it will have adequate capital resources and financing to control a sufficient
number of building lots to fulfill its business plan, there can be no
assurance that NVR's resources and financing will be sufficient. An
insufficient supply of building lots in one or more of the Company's markets
or the inability to purchase or finance building lots on reasonable terms
could have a material adverse effect on the Company's sales, profitability and
ability to make required payments on its debt obligations, including the
Notes.
LEVERAGE; RANKING; POTENTIAL ADVERSE EFFECT OF INDEBTEDNESS ON FUTURE
OPERATIONS
The Company has, and after consummation of this offering of Notes, will
continue to have, significant debt service obligations. As of December 31,
1997, after giving effect to this offering and the application of the proceeds
therefrom, the outstanding consolidated indebtedness of the Company would have
been approximately $265 million, including approximately $108 million of
indebtedness of the Company's mortgage banking operations (substantially all
of which is non-recourse to the Company and NVR Homes). Also, as of December
31, 1997, shareholders' equity would have been approximately $134 million.
The Notes are senior unsecured obligations of the Company, ranking equally
in right of payment with the Company's other existing and future senior
unsecured indebtedness. The Notes will be guaranteed on a senior unsecured
basis by NVR Homes, Inc. ("NVR Homes") and, under certain circumstances, other
subsidiaries of the Company (collectively, the "Subsidiary Guarantors"). The
Notes are effectively subordinated to all existing and future indebtedness and
other liabilities, including trade payables, of the Company's subsidiaries
other than the Subsidiary Guarantors. As of December 31, 1997, on a pro forma
basis after giving effect to the application of the estimated net proceeds
from the sale of the Notes to refinance outstanding indebtedness, the
aggregate amount of indebtedness of the Company would have been approximately
$145 million, the aggregate amount of indebtedness of the Subsidiary
Guarantors would have been approximately $11 million and the aggregate amount
of indebtedness of the Company's Subsidiaries other than the Subsidiary
Guarantors would have been approximately $108 million (substantially all of
which constitutes indebtedness of the Company's mortgage banking operations
which is non-recourse to the Company and NVR Homes). Such mortgage banking
indebtedness had increased by approximately $25 million as of the date of this
Prospectus Supplement. The 1993 Notes are secured by a pledge of the capital
stock of NVR Homes, NVRFS and certain other Subsidiaries, and such entities
have guaranteed the obligations of the Company in respect of the 1993 Notes.
Accordingly, for so long as any of the 1993 Notes remain outstanding, the
holders thereof will have claims against such stock and against such entities
that is prior to any such claim on the part of the Holders of the Notes.
Although the Indenture contains certain limitations on the future incurrence
of indebtedness by the Company and its Restricted
S-8
<PAGE>
Subsidiaries (as defined), the Company and its subsidiaries will be able to
incur significant additional indebtedness, including senior indebtedness
ranking equally with the Notes and, under certain circumstances, senior
secured indebtedness. See "Capitalization" and "Description of Notes--Certain
Covenants."
The Company's ability to make required debt service payments in the future
will be dependent upon the Company's operating results, which are subject to
financial, economic and other factors affecting the Company that are beyond
its control. No assurance can be given that the Company will be able to make
required debt service payments. If the Company is at any time unable to
generate sufficient cash flow from operations to service its debt, it may be
required to seek refinancing for all or a portion of that debt or to obtain
additional financing. There can be no assurance that any such refinancing
would be possible or that any additional financing could be obtained on terms
that are favorable or acceptable to the Company.
The Company's existing working capital facility and the indenture under
which the 1993 Notes have been issued contain financial covenants with which
the Company currently is in compliance and any future working capital
facilities will also contain similar financial covenants. Such working capital
facilities and such indenture also contains or will contain other restrictive
covenants, including limitations on the ability of the Company and its
Restricted Subsidiaries to incur indebtedness, pay dividends and make
distributions, make loans and investments, enter into transactions with
affiliates, effect certain asset sales, incur certain liens, merge or
consolidate with any other person, or transfer all or substantially all of
their properties and assets. Significant losses by the Company or other action
or inaction by the Company or its subsidiaries could result in the violation
of one or more of these covenants which could result in the unavailability of
the liquidity provided by the working capital credit facility or a default
under such indenture, thereby having a material adverse effect on the
Company's sales, profitability and ability to make required payments on its
debt obligations, including the Notes.
ACCESS TO FINANCING
The Company's homebuilding operations are dependent in part on the
availability and cost of working capital financing, and may be adversely
affected by a shortage or an increase in the cost of such financing. The
Company believes that it will be able to meet its needs for working capital
financing from cash generated from operations and from its existing or a
replacement working capital revolving credit facility. If the Company requires
working capital greater than that provided by the working capital credit
facility, it may be required to seek to increase the amount available under
the facility or to obtain other sources of financing. No assurance can be
given that additional or replacement financing will be available on terms that
are favorable or acceptable to the Company.
The Company's current working capital credit facility expires on May 31,
2000. However, NVR has reached a nonbinding agreement in principle with
BankBoston, the agent bank under its current working capital facility
regarding a restructuring of the working capital facility. See "Prospectus
Supplement Summary--Recent Developments." Pursuant to the terms of that
agreement in principle, the restructured facility would be scheduled to expire
in May 2001. Alternatively if the corporate reorganization of the Company does
not occur by May 1999, the facility would expire in November 1999. There can
be no assurance that the Company will be able to consummate the restructuring
of the facility, or if unsuccessful, to extend the current facility or obtain
other sources of financing if either facility expires without being extended.
If the Company is at any time unsuccessful in obtaining sufficient capital to
fund its planned homebuilding expenditures, its homes under construction at
that time may be significantly delayed. Any such delay could result in cost
increases and could have a material adverse effect on the Company's future
results from operations and cash flows.
The Company's mortgage banking operations are dependent on the availability,
cost and other terms of additional mortgage warehouse financing, and may be
adversely affected by any shortage or increased cost of such financing.
Although the Company believes that its needs for mortgage warehouse financing
will be met by its existing mortgage warehouse arrangements and repurchase
agreements, no assurance can be given that any additional or replacement
financing will be available on terms that are favorable or acceptable to the
Company. The Company's mortgage banking operations are also dependent upon the
securitization market for mortgage-backed securities, and could be materially
adversely affected by any fluctuation or downturn in such market.
S-9
<PAGE>
REGULATORY AND ENVIRONMENTAL MATTERS RELATED TO HOMEBUILDING
The Company and its competitors are subject to various local, state and
federal statutes, ordinances, rules and regulations concerning zoning,
building design, construction and similar matters, including local regulations
that impose restrictive zoning and density requirements in order to limit the
number of homes that can eventually be built within the boundaries of a
particular area. The Company has from time to time been subject to, and may
also be subject in the future to, periodic delays in its homebuilding projects
due to building moratoria in the areas in which it operates. Changes in
regulations that restrict homebuilding activities in one or more of the
Company's principal markets could have a material adverse effect on the
Company's sales, profitability and ability to make required payments on its
debt obligations, including the Notes.
The Company and its competitors are subject to a variety of local, state and
federal statutes, ordinances, rules and regulations concerning the protection
of health and the environment. The Company is also subject to a variety of
environmental conditions that can affect its business and its homebuilding
projects. The particular environmental laws that apply to any given
homebuilding site vary greatly according to the location and environmental
condition of the site and the present and former uses of the site and
adjoining properties. Environmental laws and conditions may result in delays,
may cause the Company to incur substantial compliance and other costs, and can
prohibit or severely restrict homebuilding activity in certain environmentally
sensitive regions or areas, thereby adversely affecting the Company's sales,
profitability and ability to make required payments on its debt obligations,
including the Notes.
COMPETITION AND MARKET FACTORS
The housing industry is highly competitive. NVR competes with numerous
homebuilders of varying size, ranging from local to national in scope, some of
whom have greater financial resources than NVR. The Company also faces
competition from the home resale market. NVR's homebuilding operations compete
primarily on the basis of price, location, design, quality, service and
reputation. NVR's homebuilding operations historically have been one of the
market leaders in each of the markets where NVR operates.
The mortgage banking industry is also highly competitive, both for loan
origination at the time a property is sold, and for refinancings. The
Company's main competition comes from other national, regional and local
mortgage bankers, thrifts and banks in each of these markets. NVR's mortgage
banking operations compete primarily on the basis of customer service, variety
of products offered, interest rates offered, prices of ancillary services and
relative financing availability and costs.
There can be no assurance that the Company will continue to compete
successfully in its homebuilding or mortgage banking operations.
RISK OF MATERIAL AND LABOR SHORTAGES
The Company is not presently experiencing any serious material or labor
shortages; however, the residential construction business has in the past,
from time to time, experienced serious material and labor shortages, including
shortages in insulation, drywall, certain carpentry work, cement, as well as
fluctuating lumber prices and supply. In addition, high employment levels and
strong construction market conditions could restrict the labor force available
to the Company and its subcontractors in one or more of the Company's markets.
Delays in construction of homes, or material increases in costs, resulting
from these shortages could have a material adverse effect upon the Company's
sales, profitability and ability to make required payments on its debt
obligations, including the Notes.
ABSENCE OF ACTIVE TRADING MARKET FOR THE NOTES
The Notes are newly issued securities for which there is no established
trading market, and the Notes may not be widely distributed. The Underwriters
have informed the Company that they intend to make a market for the Notes, as
permitted by applicable law and regulations, but are not obligated to do so,
and any Underwriter
S-10
<PAGE>
may discontinue any market making activity at any time without notice.
Accordingly, no assurance can be given as to the liquidity of, trading market
for, or secondary market prices for the Notes. To the extent that an active
market for the Notes does not develop, the liquidity of, trading market for,
or secondary market prices for the Notes may be adversely affected. The
Company has applied for listing of the Notes on the American Stock Exchange;
however, there can be no assurance that the Notes will be listed or as to the
timing thereof.
CHANGE OF CONTROL
Upon a Change of Control (as defined in the Indenture governing the Notes),
the Company will be required to offer to repurchase all of the outstanding
Notes at 101 percent of their principal amount, plus accrued and unpaid
interest to the date of repurchase. There can be no assurance that the Company
will have sufficient funds available or will be permitted by its other debt
agreements to repurchase the Notes upon the occurrence of a Change of Control.
In addition, a Change of Control may require the Company to offer to
repurchase other outstanding indebtedness and may cause a default under the
Company's working capital credit facility. An inability to repurchase all of
the Notes tendered would constitute an event of default under the Indenture.
The Change of Control purchase feature of the Notes may in certain
circumstances make more difficult or discourage a takeover of the Company, and
thus the removal of incumbent management. See "Description of Notes--
Repurchase of Notes Upon Change of Control."
FRAUDULENT CONVEYANCE RISK
The Notes are senior unsecured obligations of the Company and will be
guaranteed by NVR Homes, a direct, wholly owned subsidiary of the Company,
and, under certain circumstances, other Subsidiary Guarantors in addition to
NVR Homes. The incurrence by the Company of the indebtedness evidenced by the
Notes and by the Subsidiary Guarantors of the obligations represented by the
Subsidiary Guarantees is subject to review under relevant U.S. federal and
state fraudulent conveyance statutes ("Fraudulent Conveyance Statutes") in a
bankruptcy case or a lawsuit by or on behalf of creditors of the Company or
the Subsidiary Guarantors. The statutes generally provide that if a court
determines that at the time the Notes were issued and the proceeds applied,
(i) the Company issued the Notes and applied the proceeds with the intent of
hindering, delaying or defrauding creditors or (ii) the Company or a
Subsidiary Guarantor received less than a reasonably equivalent value or fair
consideration for issuing the Notes or the Subsidiary Guarantee, respectively,
and, after so applying the proceeds, the Company or the Subsidiary Guarantor
(A) was insolvent or rendered insolvent by reason of such transactions, (B)
was engaged in a business or transaction for which its assets constituted
unreasonably small capital or (C) intended to incur, or believed that it would
incur, debts beyond its ability to pay as they matured (as the foregoing terms
are defined in or interpreted under Fraudulent Conveyance Statutes), such
court could subordinate all or a part of the Notes or the Subsidiary Guarantee
to existing and future indebtedness of the Company or the Subsidiary
Guarantor, recover any payments made on the Notes or the Subsidiary Guarantee
or take other action detrimental to the holders of the Notes, including, under
certain circumstances, invalidating the Notes or the Subsidiary Guarantee.
Based upon the financial and other information currently available to it,
each of the Company and NVR Homes believes that the indebtedness and
obligations evidenced by the Notes and the Subsidiary Guarantee will be
incurred and proceeds of the Notes will be used for proper purposes and in
good faith. Each of the Company and NVR Homes believes that at the time of,
and after giving effect to, the incurrence of the indebtedness and obligations
evidenced by the Notes and the Subsidiary Guarantee, it will be solvent and
will have sufficient capital to carry on its business and that it will pay its
debts as they mature. No assurances can be given, however, that a court would
concur with such beliefs and positions. The measure of insolvency for these
purposes will vary depending upon the law of the jurisdiction being applied.
Generally, a company will be considered insolvent for these purposes if the
company is unable to pay its debts as they become due in the usual course of
its business or the sum of the company's debts is greater than all of the
company's property at a fair valuation or if the present fair salable value of
the company's assets is less than the amount that will be required to pay its
probable liability on its existing debts as they become absolute and mature.
In rendering their opinion on the validity of
S-11
<PAGE>
the Notes and the Guarantee, counsel for the Company and NVR Homes and counsel
for the Underwriters will express no opinion as to the effect of Fraudulent
Conveyance Statutes or laws affecting the enforcement of creditors' rights
generally.
The holders of the Notes will have the benefit of the Guarantee of NVR Homes
and, under certain circumstances, of other Subsidiary Guarantors in addition
to NVR Homes. However, each Subsidiary Guarantee will be limited to the
maximum amount which the Subsidiary Guarantor is permitted to guarantee under
applicable law. As a result, the Subsidiary Guarantor's liability under its
Subsidiary Guarantee could be reduced to zero, depending upon the amount of
other obligations of the Subsidiary Guarantor. Notwithstanding such
provisions, such Subsidiary Guarantee may be subject to review by a court
under relevant Fraudulent Conveyance Statutes and, if a court makes certain
findings, it could take certain actions detrimental to the holders of the
Notes. The Subsidiary Guarantee may also be released under certain
circumstances. See "Description of Notes--Subsidiary Guarantees."
USE OF PROCEEDS
The net proceeds (after deducting underwriting discounts and commissions and
estimated offering expenses) from the issuance of the Notes are estimated to
be approximately $142.8 million. The Company intends to apply such net
proceeds to refinance other debt, including the Company's remaining 1993
Notes. The 1993 Notes were issued in the original principal amount of $160
million at an interest rate of 11% and are scheduled to mature in 2003.
Currently there is $120 million in principal amount of the 1993 Notes in the
public market. The Company intends to commence a tender offer to repurchase
the remaining 1993 Notes promptly following consummation of this offering. The
Company has agreed in the Indenture to call any remaining 1993 Notes in
December 1998, the time at which the 1993 Notes first become redeemable, at a
purchase price of 105.5% of the principal amount thereof in accordance with
the terms of the indenture governing the 1993 Notes, and to maintain, at all
times prior to completion of such redemption, Investments in Cash Equivalents
(as such terms are defined in the Indenture) at least equal to the lesser of
(i) $80.0 million, and (ii) the outstanding principal amount of 1993 Notes not
theretofore redeemed or repurchased. In addition, the Company has irrevocably
exercised its option to purchase, effective in May 1999, certain office
buildings, which will thereby extinguish the Company's obligations under the
capital lease pertaining to these buildings. The capital lease has annual
imputed interest of 13.83% per year and was carried on the Company's balance
sheet at December 31, 1997 as a liability in an amount of $8.3 million (which
is net of a $3.4 million debt discount that is being amortized to interest
expense over the life of the lease). Pending the purchase, the Company will
irrevocably deposit in escrow with the Trustee the minimum amount necessary to
exercise the purchase option (approximately $12 million). Pending the closing
of the Company's tender offer for, and any subsequent redemption of, the 1993
Notes, the Company intends to hold the remaining net proceeds from the
issuance of the Notes in cash and short-term investments.
S-12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1997, on an historical and as adjusted basis to reflect the issuance by
the Company of the Notes and the application of the estimated net proceeds
from the issuance of the Notes as described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash.................................................. $ 41,684 $ 41,599
======== ========
Debt:
Homebuilding indebtedness
Notes Payable..................................... $ 5,728 $ 5,728
Other term debt................................... 14,017 5,627
11% Senior Notes due 2003......................... 120,000 --
8% Notes due 2005................................ -- 145,000
-------- --------
Total homebuilding debt......................... 139,745 156,355
Mortgage banking indebtedness(1).................... 108,393 108,393
-------- --------
Total debt...................................... 248,138 264,748
-------- --------
Shareholders' equity:
Common Stock........................................ 200 200
Paid in capital..................................... 164,731 164,731
Retained earnings(2)................................ 75,977 65,580
Less treasury stock at cost......................... (96,268) (96,268)
-------- --------
Total shareholders' equity...................... 144,640 134,243
-------- --------
Total capitalization.................................. $392,778 $398,991
======== ========
</TABLE>
- --------
(1)Mortgage banking indebtedness is non-recourse to NVR, Inc. and NVR Homes.
(2) The change in retained earnings results from recognition of an
extraordinary loss, net of income tax benefit, upon the early
extinguishment of the debt being repaid with the proceeds of the offering
of the Notes.
S-13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NVR, Inc. is a holding company that operates in two business segments:
homebuilding and mortgage banking. The results of these two segments are
discussed separately below. Holding company general and administrative
expenses are fully allocated to the homebuilding and mortgage banking segments
in the information presented below.
HOMEBUILDING SEGMENT
Homebuilding revenues for 1997 increased 10.3% to $1,154,022 from $1,045,930
in 1996. The increase in revenues was primarily due to a 7.2% increase in the
number of homes settled from 5,695 in 1996 to 6,107 in 1997 and to a 2.7%
increase in the average settlement price from $182.7 in 1996 to $187.7 in
1997. New orders for 1997 increased 17.5% to 6,686 compared with 5,690 in
1996. The increase in new orders is attributed to a more favorable interest
rate environment in the current year compared to the prior year, and to sales
associated with the Company's expansion markets. Homebuilding revenues for
1996 increased 20.3% to $1,045,930 from $869,119 in 1995. The increase in
revenues was primarily due to a 17.3% increase in the number of homes settled
from 4,857 in 1995 to 5,695 in 1996 and to a 2.8% increase in the average
settlement price from $177.7 in 1995 to $182.7 in 1996. New orders for 1996
increased 1.5% to 5,690 compared with 5,606 in 1995.
Gross profit margins increased to 13.7% in 1997 compared to 13.4% in 1996.
The increase in gross profit margins from that experienced in 1996 was
primarily attributable to more favorable market conditions in certain of the
Company's markets, fewer additional weather-related costs incurred in the
construction of homes as a result of mild winter weather conditions in NVR's
principal markets in the first quarter of 1997 as compared to the first
quarter of 1996, and continued emphasis on controlling construction costs.
Gross profit margins decreased to 13.4% in 1996 compared to 13.6% in 1995. The
decrease in gross profit margins in 1996 from the 1995 year was primarily
attributable to more competitive market conditions in certain of the Company's
markets and, to a lesser extent, higher lumber costs.
SG&A expenses for 1997 increased $16,047 to $87,231 from $71,184 in 1996,
and as a percentage of revenues increased to 7.8% in 1997 from 6.8% in 1996.
The dollar increase is partially due to increased costs that correspond to the
aforementioned increase in revenues, and costs incurred to grow the Company's
expansion markets to full operational levels. Further, the higher SG&A is also
attributable to an increase of approximately $6,000 for a noncash expense
associated with an equity based management incentive plan, and to a non-
recurring $1,600 incentive payment earned by the Company's Board of Directors
pursuant to the terms of the Company's Plan of Reorganization that became
effective on September 30, 1993. SG&A expenses for 1996 increased $7,984 to
$71,184 from $63,200 in 1995, but as a percentage of revenues decreased from
7.3% in 1995 to 6.8% in 1996. The dollar increase in SG&A expenses in 1996 was
primarily due to increased costs that correspond to the aforementioned
increase in revenues.
Backlog units and dollars were 3,195 and $623,705, respectively, at December
31, 1997 compared to backlog units of 2,466 and dollars of $453,211 at
December 31, 1996. The increase in backlog dollars and units was primarily due
to a 33.5% increase in new orders for the six months ended December 31, 1997
as compared to the six months ended December 31, 1996. Backlog units and
dollars were 2,466 and $453,211, respectively, at December 31, 1996 compared
to backlog units of 2,471 and dollars of $442,268 at December 31, 1995. The
increase in backlog dollars was primarily due to a 2.6% increase in the
average sales prices during 1996 as compared to the same 1995 period.
The Company believes that earnings before interest, taxes, depreciation and
amortization and other noncash charges ("EBITDA") provides a meaningful
comparison of operating performance of the homebuilding
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<PAGE>
segment because it excludes the amortization of certain intangible assets and
other non-cash items. Although the Company believes the calculation is helpful
in understanding the performance of the homebuilding segment, EBITDA should
not be considered a substitute for net income or cash flow as indicators of
the Company's financial performance or its ability to generate liquidity.
CALCULATION OF HOMEBUILDING EBITDA:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Operating income................................ $65,533 $62,755 $49,413
Depreciation.................................... 3,588 2,863 2,211
Amortization of excess reorganization
value/goodwill................................. 6,635 7,048 7,048
Other non-cash items............................ 7,986 2,239 1,740
------- ------- -------
Homebuilding EBITDA............................. $83,742 $74,905 $60,412
======= ======= =======
% of Homebuilding revenues...................... 7.3% 7.2% 7.0%
</TABLE>
Homebuilding EBITDA in 1997 was 11.8% higher than in 1996, and as a
percentage of revenues increased from 7.2% in 1996 to 7.3% in 1997.
Homebuilding EBITDA in 1996 was 24.0% higher than in 1995, and as a percentage
of revenues increased from 7.0% to 7.2%.
MORTGAGE BANKING SEGMENT
The mortgage banking segment generated operating income of $4,767 for the
year ended December 31, 1997 compared to operating income of $2,583 during the
year ended December 31, 1996 and operating income of $1,162 during the year
ended December 31, 1995. Mortgage loan closings were $1,485,763, $1,243,945
and $1,092,676 during the respective years ended December 31, 1997, 1996 and
1995. The increases in operating income and mortgage loan closings were
achieved despite continued strong price competition.
Mortgage banking fees increased $1,917 when comparing 1997 and 1996 and
decreased $2,268 when comparing 1996 and 1995. A summary of mortgage banking
fees is noted below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
MORTGAGE BANKING FEES:
Net gain on sale of loans.......................... $16,731 $14,401 $ 8,320
Servicing.......................................... 1,733 4,894 7,128
Title services..................................... 6,413 5,928 5,315
Gain (loss) on sale of servicing................... 1,069 (1,194) 5,534
------- ------- -------
$25,946 $24,029 $26,297
======= ======= =======
</TABLE>
Effective during the second quarter of 1997, the mortgage banking operations
sold the remaining portion of its core mortgage servicing portfolio. The sale
of the core mortgage servicing portfolio and the ongoing sale of servicing
rights on a flow basis are the result of the concentration of the mortgage
banking operations on the primary business of providing mortgage financing and
related services to NVR and other home buyers.
Mortgage banking fees in 1997 were higher in comparison to 1996, primarily
as a result of higher gain on sale of loans. The higher gain on sale of loans
can be attributed to increased loan closings and higher servicing values
realized through the sale of mortgage servicing rights. These gains were
partially offset by the lower servicing fee revenues resulting from the
reduction in the mortgage servicing portfolio. Operating income was higher in
1997 in comparison to 1996 as a result of the increase in mortgage loan
closings noted above and other income from a joint venture which effectively
began operations during 1997.
Mortgage banking fees in 1996 were lower in comparison to 1995, which was
primarily attributable to the loss on sale of servicing rights and lower
servicing fee revenues resulting from the reduction in the mortgage loan
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<PAGE>
servicing portfolio. These lower revenues were partially offset by the
improved marketing results on the sale of mortgage loans and higher servicing
values realized through the sale of mortgage servicing rights recognized under
Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting for
Mortgage Servicing Rights. Operating income was higher in 1996 in comparison
to 1995 as a result of the cost cutting measures enacted by the mortgage
banking group during 1996 and the increase in mortgage loan closings noted
above.
SEASONALITY
The results of NVR's homebuilding operations generally reflect the
seasonality of the housing market in the Middle Atlantic region of the United
States. NVR historically has entered into more sales contracts in this region
during the first and second quarters, and the highest numbers of settlements
historically have occurred in the second, third and fourth quarters. Because
NVR's mortgage banking operations generate part of their business from NVR's
homebuilding operations and from other homebuilders affected by seasonality,
to the extent that homebuilding is affected by seasonality, mortgage banking
operations may also be affected. The existence of mortgage banking and title
services offices outside of the Middle Atlantic region and the existence of
third-party business tend to reduce the effects of seasonality on the results
of NVR's operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, Reporting Comprehensive Income, and SFAS No. 131, Disclosures about
Segments of an Enterprise and Related information. Both statements are
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial statements. Based on
the nature of the Company's operations, Management does not expect that, upon
adoption of SFAS No. 130, future reported comprehensive income will differ
materially from future reported net income. SFAS No. 131 establishes standards
for the way that public enterprises report information about operating
segments in annual and interim financial statements. Adoption of SFAS No. 131
will have no impact on the Company's results of operations or financial
condition.
YEAR 2000 ISSUE
The Year 2000 Issue is the risk that computer programs using two-digit date
fields will fail to properly recognize the year 2000, with the result being
business interruptions due to computer system failures by the Company's
software or hardware or that of government entities, service providers and
vendors. The Company has developed a plan to assess the Company's exposure
with respect to the Year 2000 Issue, and currently is in the process of
performing its review. Based on a preliminary assessment, management does not
believe that the Company's exposure to the Year 2000 Issue will have a
material effect on its financial position or results of operations.
LIQUIDITY AND CAPITAL RESOURCES
NVR's homebuilding segment generally provides for its working capital cash
requirements using cash generated from operations and a credit facility. The
homebuilding segment currently has available a $60,000 unsecured working
capital revolving credit agreement that expires in May 2000 to fund its
working capital needs, under which no amounts were outstanding at December 31,
1997. NVR has reached a nonbinding agreement in principle with BankBoston, the
agent bank under its current working capital facility regarding a
restructuring of the working capital credit facility. Pursuant to the terms of
such agreement in principle, (a) NVR, Inc. would be the borrower under the
credit facility instead of NVR's homebuilding subsidiary, NVR Homes, (b) the
facility would provide for borrowings of up to $100 million (with an initial
committed amount of $60 million) on an unsecured basis, (c) NVR Homes would
guarantee the facility, (d) the facility would be scheduled to expire in May
2001, and (e) NVR would reorganize its corporate structure by merging NVR
Homes, NVR Financial Services, Inc. and NVR, Inc. NVR intends to complete the
restructuring by May 1999. In the event NVR does not complete the
restructuring by that time, the facility would expire in November 1999. As a
result of the restructuring, the parent company, NVR, Inc., would conduct its
homebuilding business directly and would
S-16
<PAGE>
conduct its mortgage banking business through its wholly owned subsidiary, NVR
Mortgage Finance, Inc. There can be no assurance that the restructuring of the
facility or the corporate reorganization will be consummated as described, or
at all.
NVR's mortgage banking segment provides for its mortgage origination and
other operating activities using cash generated from operations as well as
various short-term credit facilities. NVR Mortgage Finance, Inc. ("NVR
Finance") has available a $125,000 mortgage warehouse facility to fund its
mortgage origination activities, under which $77,765 was outstanding at
December 31, 1997. NVR Finance from time to time enters into various gestation
and repurchase agreements. NVR Finance currently has available an aggregate of
$145,000 of borrowing capacity in such uncommitted and committed facilities.
There was an aggregate of $30,628 outstanding under such gestation and
repurchase agreements at December 31, 1997. All of such facilities and
obligations are secured by the assets financed without recourse to the Company
or any of its subsidiaries.
On January 20, 1998, the Company filed the Registration Statement of which
this Prospectus is a part for the issuance of up to $400 million of the
Company's debt securities. The Registration Statement was declared effective
on February 27, 1998, and provides that debt securities may be offered from
time to time in one or more series, and in the form of senior or subordinated
debt. Prior to completion of the Offering, no debt securities will have been
issued under the Registration Statement.
Various debt agreements limit the ability of NVR's subsidiaries to transfer
funds to NVR in the form of dividends, loans or advances. NVR's subsidiaries
had net assets (after intercompany eliminations) of $261,806 as of December
31, 1997, that were so restricted, substantially all of which limitations were
under the existing Credit Agreement, which the Company intends to restructure
as described above.
As shown in NVR's consolidated statement of cash flows for the year ended
December 31, 1997, NVR's operating activities used cash of $15,025 for this
period. The cash was used primarily to increase homebuilding inventory due to
a general increase in the Company's business activity. Further, cash was also
used due to an increase in mortgage loans held for sale which was related to a
19% increase in mortgage loan closings during 1997 compared to fiscal year
1996's loan closing volume.
Net cash provided by investing activities was $19,165 for the year ended
December 31, 1997. The primary sources of cash were principal payments on and
proceeds from the sale of mortgage-backed securities, which are primarily used
for the redemption of bonds as discussed below, and proceeds from the sale of
mortgage servicing rights. The primary use of cash for investment activities
involved the Company's acquisition of Fox Ridge Homes, Inc. on October 31,
1997. NVR Fox Ridge, Inc. ("Fox Ridge"), a wholly owned subsidiary of NVR
Homes, Inc., itself wholly owned by NVR, purchased substantially all of the
assets and assumed certain liabilities of Fox Ridge Homes, Inc. ("FRH"), a
homebuilder in Nashville, Tennessee. In addition to Fox Ridge assuming
approximately $11,000 of FRH's construction debt plus certain other
liabilities, Fox Ridge paid to FRH $14,250 in cash at settlement on October
31, 1997, and issued a note payable for the remaining $4,750 purchase price.
The note bears interest at 200 basis points above the federal funds target
rate, and will be paid in three annual installments on October 31, 1998, 1999,
and 2000, including accrued interest.
Net cash used for financing activities was $33,195 for the year ended
December 31, 1997. Cash was primarily used for NVR's purchase of approximately
2.8 million shares of its common stock for an aggregate purchase price of
$45,545 during the year ended December 31, 1997. The Company may, from time to
time, repurchase additional shares of its common stock, pursuant to repurchase
authorizations by the Board of Directors and subject to the restrictions
contained within the Company's debt agreements. NVR had net borrowings under
the mortgage banking credit lines of approximately $40,930 used to finance
mortgage loan inventory. The Company also repaid the $11,000 construction loan
assumed in the acquisition of Fox Ridge noted above. Cash was also used for
the redemption of collateralized bonds using cash provided by the related
mortgage backed securities as discussed above.
The Company believes that internally generated cash and borrowings available
under credit facilities will be sufficient to satisfy near and long term cash
requirements for working capital and debt service in both its homebuilding and
mortgage banking operations.
S-17
<PAGE>
BUSINESS
GENERAL
NVR, Inc. ("NVR" or the "Company") is a leading homebuilder with a
substantial market position in each of the markets it serves. The Company
believes that it was the seventh largest single family homebuilder in the U.S.
in 1997. NVR constructs and sells single-family detached homes, townhomes and
condominiums primarily to entry level and move-up buyers. NVR's homes range
from approximately 985 to 5,410 square feet, with two to five bedrooms, and
are priced from approximately $70,000 to $640,000. In 1997, the Company's
average home price was approximately $187,700. The Company operates under
three tradenames: Ryan Homes, NVHomes and Fox Ridge Homes. Ryan Homes builds
moderately priced homes in sixteen metropolitan areas located in Maryland,
Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Delaware and Tennessee, and markets its homes primarily to first-time
buyers. NVHomes builds homes exclusively in the Washington, D.C. and Baltimore
metropolitan areas, and markets its homes primarily to move-up buyers. Fox
Ridge builds moderately priced homes in Nashville, Tennessee and markets its
homes primarily to first-time and first-time move-up buyers. For the year
ended 1997, the Company had homebuilding revenues and EBITDA (as defined) of
$1.2 billion and $83.7 million, respectively.
NVR has been the leading homebuilder in the Washington, D.C. market for more
than a decade and has been one of the two leading homebuilders in the
Baltimore market during the same period. The Company's market share in 1997 in
these markets was over 14% and 17%, respectively, which was in each case, more
than twice the size of its next largest competitor. NVR is also the leading
homebuilder in Pittsburgh, Pennsylvania, Richmond, Virginia; and Rochester and
Syracuse, New York, the number two ranked homebuilder in Wilmington, Delaware,
and southern New Jersey, and the number three ranked homebuilder in Charlotte,
North Carolina and Buffalo, New York. With the acquisition of Fox Ridge Homes
in October 1997, the Company believes it is now the leading homebuilder in
Nashville, Tennessee.
In addition, NVR provides a number of mortgage-related services through its
national mortgage banking operations, which operate in over 15 states in all
regions of the United States. In 1997, NVR's mortgage banking business closed
approximately 12,300 loans with an aggregate principal amount of approximately
$1.5 billion. NVR's mortgage banking business sells all of the mortgage loans
and the related mortgage servicing rights as the mortgages are closed. In
1997, NVR's mortgage banking operations originated mortgage loans for
approximately 66% of NVR's homebuyers as well as a significant number of third
party loans. In 1997, NVR's homebuyers accounted for approximately 43% of the
aggregate dollar amount of loans closed.
Homebuilding revenues increased from $821 million in 1994 to $1.2 billion in
1997, an increase of 41%, while the Company's homebuilding operating income
grew 54% from $42.5 million to $65.5 million over the same period. NVR settled
6,107 homes in 1997, 5,695 in 1996, 4,857 in 1995, and 4,715 in 1994. At
December 31, 1997, the Company had 3,195 units in backlog with an estimated
aggregate sales value of approximately $624 million, compared with backlog
units and dollars at December 31, 1996 of 2,466 and approximately $453
million, respectively.
NVR, Inc., formed in 1980 as NVHomes, Inc., is a holding company that
currently operates, through its subsidiaries, in two business segments,
homebuilding and mortgage banking. Segment information for NVR's homebuilding
and mortgage banking businesses is included in note 3 to NVR's consolidated
financial statements.
BUSINESS STRATEGY
The Company's business strategy includes the following key elements:
Conservative Operating Strategy--NVR is not in the land business and does
not engage in speculative land buying or any land development. In addition,
the Company generally constructs homes on a pre-sold basis for
S-18
<PAGE>
the ultimate customer, rather than engaging in speculative building. NVR
obtains finished lots for its homebuilding operations by acquiring control
over the lots through option contracts with land developers. Purchasing
finished lots through options reduces the financial requirements and risks
associated with direct land ownership. NVR generally seeks to maintain control
over an inventory of lots sufficient to provide for the next 18 to 24 months
of projected home sales.
High Inventory Turnover--NVR's strategy is to maximize inventory turnover.
This is accomplished by purchasing finished lots under option, not engaging in
speculative land buying or land development, generally only starting a house
once it has been sold to a customer, efficiently building homes in 100 days or
less on average and minimizing the number of speculative housing units and
owned model homes. Management believes that the Company maintains one of the
highest inventory turnover rates in the industry, which is approximately 5
times per year. Rapid inventory turnover enables the Company to operate with
less capital, thereby enhancing rates of return on equity and total capital.
Leading Market Positions--NVR's objective is to obtain and maintain a
leading market position in each of the markets it serves. The Company believes
that regional leadership provides certain valuable efficiencies and
competitive advantages, including better access to finished building lots,
favorable terms with subcontract labor and a recognized name with the
consumer. The Company believes that having a leading market position, combined
with a high inventory turnover strategy, minimizes the adverse effects of
regional economic cycles and provides the Company with both stability and
growth opportunities.
Focused Product to Diverse Customer Base--The Company's strategy is to offer
a limited number of house types within each of its numerous market segments.
The market segments served by NVR span a wide range of prices, square footage
and house styles. The Company believes that serving many different types of
homebuyers limits the risk caused by heavy reliance on any one market segment
or price range. In addition, the Company believes that focusing on a limited
product line with high consumer appeal within each of its various market
segments results in significant construction efficiencies, leading to higher
margins and faster inventory turns.
Control of Overhead and Operating Expenses--The Company continually seeks to
minimize overhead expenses in an effort to control its costs and to provide
flexibility to respond to the cyclical nature of its business. The Company
does this by centralizing many of its administrative functions and by limiting
the number of middle management positions.
Experienced Management--The Company plans to continue its strategy of
retaining a loyal and experienced management team. NVR's seven top executives
average over 19 years with the Company. The Company has a decentralized system
of management, employing regional profit center managers, whose combined
experience in the homebuilding business average over 15 years. Each profit
center manager supervises the day-to-day activities of that profit center, and
is supported by NVR's centralized administrative services.
HOMEBUILDING
Products
NVR offers single-family detached homes, townhomes, and condominium
buildings with many different basic home designs which have a variety of
elevations and numerous other options. Homes built by NVR combine traditional
or colonial exterior designs with contemporary interior designs and amenities.
NVR's homes range from 985 to 5,410 square feet, with two to five bedrooms,
and are priced from approximately $70,000 to $640,000.
S-19
<PAGE>
Markets
The following table summarizes settlements and contracts for sales of homes
for each of the last three years by region:
<TABLE>
<CAPTION>
CONTRACTS FOR SALE
SETTLEMENTS (NET OF CANCELLATIONS)
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
----------------------- -----------------------
REGION 1997 1996 1995 1997 1996 1995
------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Washington/Baltimore......... 3,774 3,834 3,375 4,084 3,751 3,842
Other(1)..................... 2,333 1,861 1,482 2,602 1,939 1,764
------- ------- ------- ------- ------- -------
Total........................ 6,107 5,695 4,857 6,686 5,690 5,606
======= ======= ======= ======= ======= =======
</TABLE>
- --------
(1) Includes Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Tennessee and Delaware.
Construction
Construction work on NVR's homes is performed by independent subcontractors
under fixed-price contracts. The work of subcontractors is performed under the
supervision of NVR employees who monitor quality control. NVR uses many
independent subcontractors representing the building trades in its various
markets and is dependent neither on any single subcontractor nor on a small
number of subcontractors.
Sales and Marketing
NVR's preferred marketing method is for customers to visit a furnished model
home featuring many built-in options and a landscaped lot. The garages of
these homes are usually converted into temporary sales centers where
alternative facades and floor plans are displayed and designs for other models
are available for review. Sales representatives are compensated largely on a
commission basis.
Regulation
NVR and its subcontractors must comply with various federal, state and local
zoning, building, pollution, environmental, advertising and consumer credit
statutes, rules and regulations, as well as other regulations and requirements
in connection with its construction and sales activities. All of these
regulations have increased the cost required to market NVR's products.
Counties and cities in which NVR builds homes have at times declared
moratoriums on the issuance of building permits and imposed other restrictions
in the areas in which sewage treatment facilities and other public facilities
do not reach minimum standards. To date, restrictive zoning laws and
imposition of moratoriums have not had a material adverse effect on NVR's
construction activities. However, there is no assurance that such restrictions
will not adversely affect NVR in the future.
Competition and Market Factors
The housing industry is highly competitive. NVR competes with numerous
homebuilders of varying size, ranging from local to national in scope, some of
whom have greater financial resources than NVR. The Company also faces
competition from the home resale market. NVR's homebuilding operations compete
primarily on the basis of price, location, design, quality, service and
reputation. NVR's homebuilding operations historically have been one of the
market leaders in each of the markets where NVR operates.
The housing industry is cyclical and is affected by consumer confidence
levels, prevailing economic conditions and interest rates. In addition, a
variety of other factors affect the housing industry and the demand for new
homes, including the availability and increases in the cost of land, labor and
materials, changes in consumer preferences, demographic trends and the
availability of mortgage finance programs.
S-20
<PAGE>
NVR is dependent upon building material suppliers for a continuous flow of
raw materials. Whenever possible, NVR utilizes standard products available
from multiple sources. Such raw materials have been generally available in
adequate supply.
MORTGAGE BANKING
NVR provides a number of mortgage related services to its homebuilding
customers and to other customers through its mortgage banking operations. The
mortgage banking operations of NVR also include separate companies which
broker title insurance and perform title searches in connection with mortgage
loan closings for which they receive commissions and fees.
NVR's mortgage banking business sells all of the mortgage loans it closes to
investors in the secondary markets, rather than holding them for investment.
NVR's wholly owned subsidiary, NVR Mortgage Finance, Inc. ("NVR Finance") is
an approved seller/servicer for FNMA, GNMA, FHLMC, VA and FHA mortgage loans.
The size of its servicing portfolio has decreased to approximately $224
million in principal amount of loans being serviced at the end of 1997, from
$579 million at the end of 1996, due to the sale of its core mortgage
servicing portfolio during 1997. NVR's mortgage banking operations intend to
sell future originated mortgage servicing rights on a flow basis in order to
concentrate its mortgage banking operations on the primary business of
providing mortgage financing to NVR and other homebuyers.
Mortgage-Backed Securities
NVR has a limited purpose financing subsidiary to facilitate the financing
of long-term mortgage loans through the sale of bonds collateralized by
mortgage-backed securities, including certificates guaranteed as to the full
and timely payment of principal and interest by FNMA, and certificates
guaranteed as to payment of principal and interest by GNMA and FHLMC. The
issuance of mortgage-collateralized bonds has in the past facilitated NVR's
ability, through its mortgage-banking subsidiaries, to provide home mortgage
financing to its customers. There have been no bonds issued since 1988.
Competition and Market Factors
NVR's mortgage banking operations operate in 15 states and have 23 offices.
Their main competition comes from national, regional, and local mortgage
bankers, thrifts and banks in each of these markets. NVR's mortgage banking
operations compete primarily on the basis of customer service, variety of
products offered, interest rates offered, prices of ancillary services and
relative financing availability and costs.
Regulation
NVR Finance, as an approved seller/servicer of FNMA, GNMA, FHLMC, FHA and
VA, is subject to the rules, regulations and guidelines of, and examinations
by, those agencies, which restrict certain activities of NVR Finance. NVR
Finance is currently eligible and expects to remain eligible to participate in
such programs; however, any significant impairment of its eligibility could
have a material adverse impact on its operations. In addition, NVR Finance is
subject to regulation at the state and federal level with respect to specific
origination, selling and servicing practices.
Employees
At December 31, 1997, NVR employed 2,013 full-time persons, of whom 630 were
officers and management personnel, 145 were technical and construction
personnel, 363 were sales personnel, 383 were administrative personnel and 492
were engaged in various other service and labor activities. None of the
Company's employees are subject to a collective bargaining agreement, and the
Company has never experienced a work stoppage. Management believes that its
employee relations are good.
S-21
<PAGE>
MANAGEMENT
The directors and executive officers of the Company, their ages and
positions with the Company and a brief description of their business
experience are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Dwight C. Schar............ 56 Chairman of the Board, President and Chief
Executive Officer of NVR
William J. Inman........... 50 President of NVR Financial Services, Inc.
Paul C. Saville............ 42 Senior Vice President Finance and Chief
Financial Officer of NVR
James M. Sack.............. 47 Vice President, Secretary and General Counsel
of NVR
Dennis M. Seremet.......... 42 Vice President and Controller of NVR
</TABLE>
Dwight C. Schar has been chairman of the board, president and chief
executive officer of NVR since September 30, 1993.
William J. Inman has been president of NVR Financial Services, Inc.
("NVRFS") since September 30, 1993 and NVR Mortgage Finance, Inc. since
January 1992.
Paul C. Saville has been senior vice president finance, chief financial
officer and treasurer of NVR since September 30, 1993.
James M. Sack has been vice president, secretary and general counsel of NVR
since September 30, 1993.
Dennis M. Seremet has been vice president and controller of NVR since April
1, 1995. Prior to that, Mr. Seremet served in various capacities with the
Company and its predecessor entities.
Messrs. Schar, Inman, Saville and Sack were each executive officers of NVR
L.P., a master limited partnership which, together with certain affiliates,
was reorganized as the Company in September 1993 pursuant to a plan of
reorganization under the federal bankruptcy laws.
S-22
<PAGE>
DESCRIPTION OF NOTES
The Notes offered hereby constitute a series of Debt Securities (which are
more fully described in the accompanying Prospectus) to be issued pursuant to
an indenture (as supplemented by a supplemental indenture with respect to the
Notes, the "Indenture") between the Company and Bank of New York, as trustee
(the "Trustee"). The following description of the particular terms of the
Notes supplements, and to the extent inconsistent therewith replaces, the
description of the general terms and provisions of the Debt Securities set
forth in the Prospectus, to which description reference is hereby made. The
terms of the Notes include those provisions contained in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended (the "TIA"). The Notes are subject to all such terms, and
holders of Notes are referred to the Indenture and the TIA for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Indenture, including the definitions therein of certain
defined terms used below and not otherwise defined below. Copies of the
Indenture and the Notes have been or will be filed by the Company with the
Securities and Exchange Commission (the "SEC"). As used in this section
"Description of Notes," the "Company" refers to NVR, Inc., exclusive of its
Subsidiaries.
GENERAL
The Notes will be general unsecured obligations of the Company and limited
to an aggregate principal amount of $175,000,000, of which an aggregate
principal amount of $145,000,000 will be issued in the Offering. Additional
Notes may be issued from time to time subject to the limitations set forth
under "Certain Covenants--Limitations on Indebtedness." The Notes will bear
interest from the date the Notes are first issued at the rate per annum shown
on the cover page of this Prospectus Supplement, payable semiannually on June
1 and December 1 of each year, commencing June 1, 1998, to Holders of record
at the close of business on May 15 or November 15, as the case may be,
immediately preceding each such interest payment date. The Notes will mature
on June 1, 2005, and will be issued in denominations of $1,000 and integral
multiples thereof.
For purposes of the Indenture, the Subsidiaries of the Company are divided
into two categories--Restricted Subsidiaries, which are generally subject to
the restrictive covenants set forth in the Indenture, and Unrestricted
Subsidiaries, which generally are not. The Company's homebuilding operations
are conducted through Restricted Subsidiaries, while the Company's mortgage
banking operations are conducted through Unrestricted Subsidiaries. However,
NVR Financial Services, Inc. ("NVRFS"), which is a direct, wholly owned
subsidiary of the Company and which acts as a holding company for the
Unrestricted Subsidiaries conducting the Company's mortgage banking
operations, will be a Restricted Subsidiary. The Company's payment obligations
under the Indenture and the Notes will be guaranteed (the "Subsidiary
Guarantees") on a senior, unsecured basis by NVR Homes, Inc. ("NVR Homes") and
by each of the Company's existing and future Restricted Subsidiaries that
guarantees any other Indebtedness of the Company (the "Subsidiary
Guarantors"). Unrestricted Subsidiaries and Restricted Subsidiaries that do
not guarantee such other Indebtedness or (except to the limited extent
permitted by the Indenture) incur Indebtedness will not act as Subsidiary
Guarantors for purposes of the Indenture. As of the date hereof, NVR Homes is
the only Restricted Subsidiary that is required to act as a Subsidiary
Guarantor.
RANKING
The Notes will rank senior in right of payment to all future Indebtedness of
the Company and the Subsidiary Guarantors that is, by its terms, expressly
subordinated in right of payment to the Notes and the Subsidiary Guarantees,
as applicable, and pari passu in right of payment with all existing and future
unsecured Indebtedness and other obligations of the Company and the Subsidiary
Guarantors that are not so subordinated. Secured creditors of the Company and
the Subsidiary Guarantors will have a claim on the assets which secure the
obligations of the Company and the Subsidiary Guarantors to such creditors
prior to claims of Holders against those assets. In addition, any right of the
Company and its creditors, including the Holders, to participate in the assets
of any of the Company's Subsidiaries (except Subsidiary Guarantors) upon any
liquidation of any such
S-23
<PAGE>
Subsidiary will be subject to the prior claims of the creditors of such
Subsidiary. Therefore, the claims of creditors of the Company, including the
Holders, will be effectively subordinated to all existing and future
Indebtedness and other obligations, including trade payables, of the Company's
Subsidiaries (except Subsidiary Guarantors). However, see "Risk Factors--
Fraudulent Conveyance Risk" relating to the enforceability of Subsidiary
Guarantees. As of December 31, 1997, on a pro forma basis after giving effect
to the application of the estimated net proceeds from the sale of the Notes to
refinance outstanding indebtedness, the aggregate amount of indebtedness of
the Company would have been approximately $145 million, the aggregate amount
of indebtedness of the Subsidiary Guarantors would have been approximately $11
million and the aggregate amount of indebtedness of the Company's Subsidiaries
other than the Subsidiary Guarantors would have been approximately $108
million (substantially all of which constitutes indebtedness of the Company's
mortgage banking operations which is non-recourse to the Company and NVR
Homes). Such mortgage banking indebtedness had increased by approximately $25
million as of the date of this Prospectus Supplement. The 1993 Notes are
secured by a pledge of the capital stock of NVR Homes, NVRFS and certain other
Subsidiaries, and such entities have guaranteed the obligations of the Company
in respect of the 1993 Notes. Accordingly, for so long as any of the 1993
Notes remain outstanding, the holders thereof will have claims against such
stock and against such entities that is prior to any such claim on the part of
the Holders of the Notes.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Indenture and the Notes will be
jointly and severally guaranteed on a senior basis by the Subsidiary
Guarantors. The Subsidiary Guarantees will rank pari passu in right of payment
with all existing and future senior Indebtedness of the Subsidiary Guarantors,
including the obligations of the Subsidiary Guarantors under the Bank Credit
Facility and any successor credit facility. The obligations of each Subsidiary
Guarantor under its Subsidiary Guarantee will be limited so as not to
constitute a fraudulent conveyance under applicable law. See, however, "Risk
Factors--Fraudulent Conveyance Risk."
The Indenture will provide that no Subsidiary Guarantor may consolidate with
or merge with or into (whether or not such Guarantor is the surviving Person)
another corporation, Person or entity (other than the Company or another
Guarantor), unless (i) subject to the provisions of the following paragraph,
the Person formed by or surviving any such consolidation or merger (if other
than the Subsidiary Guarantor) assumes all of the obligations of such
Subsidiary Guarantor under the Notes and the Indenture pursuant to a
supplemental indenture, in form and substance reasonably satisfactory to the
Trustee (provided that this requirement will not apply to a substantially
concurrent merger of, NVR, Inc., NVR Homes and NVRFS); and (ii) immediately
after giving effect to such transaction, no Default or Event of Default
exists.
The Indenture will provide that, in the event of (i) a sale or other
disposition of all or substantially all of the assets of any Subsidiary
Guarantor, by way of merger, consolidation or otherwise, or (ii) a sale,
distribution or other disposition of all of the capital stock of any
Subsidiary Guarantor, including, without limitation, a distribution of all of
the capital stock of any Subsidiary Guarantor to stockholders of the Company
in a transaction that complies with the covenant described below under "--
Restricted Payments," such Subsidiary Guarantor (in the event of a sale or
other disposition, by way of such a merger, consolidation, distribution or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
Person acquiring the property (in the event of a sale or other disposition of
all or substantially all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Cash Proceeds of such sale or other disposition are
applied in accordance with the applicable provisions of the Indenture. See
"Certain Covenants--Limitations on Asset Sales."
REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after June 1, 2003, at the redemption prices
(expressed as a percentage of principal amount) set forth below, plus
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<PAGE>
accrued and unpaid interest thereon, if any, to the redemption date, if
redeemed during the 12-month period beginning on June 1 of the years indicated
below:
<TABLE>
<CAPTION>
REDEMPTION YEAR PRICE
--------------- --------
<S> <C>
2003............................................................ 104.000%
2004............................................................ 102.000%
2005............................................................ 100.000%
</TABLE>
In addition, prior to June 1, 2001, the Company may redeem up to 35% of the
aggregate principal amount of the Notes issued under the Indenture at a
redemption price equal to 108% of the principal amount of the Notes so
redeemed, plus accrued and unpaid interest thereon, if any, to the redemption
date with the net cash proceeds of one or more Public Equity Offerings;
provided, however, that (x) at least $113,750,000 aggregate principal amount
of all Notes issued under the Indenture remains outstanding immediately after
giving effect to any such redemption (excluding any Notes held by the Company)
and (y) notice of any such redemption is given within 60 days of the
applicable Public Equity Offering.
Selection of the Notes or portions thereof for redemption pursuant to the
foregoing shall be made by the Trustee pro rata or by lot or by such other
method as the Trustee shall determine to be fair and appropriate. Notice of
redemption will be mailed via courier guaranteeing overnight delivery at least
30 days but not more than 60 days before the redemption date to each Holder
whose Notes are to be redeemed at the registered address of such Holder. On
and after the redemption date, interest ceases to accrue on the Notes or
portions thereof called for redemption.
There will be no sinking fund for the Notes.
REPURCHASE OF NOTES UPON CHANGE OF CONTROL
In the event that a Change of Control has occurred, each Holder will have
the right, at such Holder's option, subject to the terms and conditions of the
Indenture, to require the Company to repurchase all or any part of such
Holder's Notes (provided that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on the date that is no later than 60
Business Days (unless a later date is required by applicable law) after the
occurrence of such Change of Control (the "Change of Control Payment Date"),
at a cash price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any (the "Change of Control Purchase Price"), to the
Change of Control Payment Date.
The Company shall notify the Trustee within ten Business Days after the
Company becomes aware of the occurrence of a Change of Control. Within 20
Business Days after the occurrence of a Change of Control, the Company will
make an unconditional offer (a "Change of Control Offer") to all Holders of
Notes to purchase all of the Notes at the Change of Control Purchase Price by
sending written notice of a Change of Control Offer, by first class mail, to
each Holder at its registered address, with a copy to the Trustee.
On or before the Change of Control Payment Date, the Company will (i) accept
for payment Notes or portions thereof properly tendered pursuant to the Change
of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the Change of Control Purchase Price (together with accrued
and unpaid interest) of all Notes so tendered and (iii) deliver to the Trustee
Notes so accepted together with an Officers' Certificate listing the Notes or
portions thereof being purchased by the Company. The Paying Agent will
promptly mail to the Holders of Notes so accepted payment in an amount equal
to the Change of Control Purchase Price (together with accrued and unpaid
interest), and the Trustee will promptly authenticate and mail or deliver to
such Holders a new Note equal in principal amount to any unpurchased portion
of the Note surrendered. Any Note not so accepted will be promptly mailed or
delivered by the Company to the Holder thereof. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
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<PAGE>
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of the Company, and, thus, the removal of incumbent
management. To the extent applicable and if required by law, the Company will
comply with Section 14 of the Exchange Act and the provisions of Regulation
14E and any other tender offer rules under the Exchange Act and other
securities laws, rules and regulations which may then be applicable to any
offer by the Company to purchase the Notes at the option of Holders upon a
Change of Control.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company on a consolidated basis. Although there is a
developing body of case law interpreting the phrase "substantially all," there
is not a precise established definition of the phrase under applicable law.
Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company on a
consolidated basis to another Person or group may be uncertain.
The Bank Credit Facility contains, and instruments governing the Company's
future senior Indebtedness, including the credit facility contemplated by the
nonbinding agreement in principle described above in "Prospectus Supplement
Summary--Recent Developments." may contain, prohibitions of certain events
that would constitute a Change of Control. In addition, the exercise by
holders of Notes of their right to require the Company to repurchase the Notes
could cause a default under the Bank Credit Facility or such other senior
Indebtedness, even if the Change of Control itself does not, due to the
financial effect of such repurchase on the Company. Finally, the Company's
ability to pay cash to the holders of Notes upon a repurchase may be limited
by the Company's then existing financial resources. See "Risk Factors--Change
of Control."
CERTAIN COVENANTS
The following is a summary of certain covenants that will be contained in
the Indenture. Such covenants will be in addition to those specified in the
accompanying Prospectus and will be applicable (unless waived or amended as
permitted by the Indenture) so long as any of the Notes are outstanding or
until the Notes are defeased pursuant to provisions described under "Discharge
of Indenture."
Limitations on Restricted Payments. The Indenture will provide that until
the Notes are rated Investment Grade by both Rating Agencies, after which time
the following covenant no longer will be binding on the Company or any
Restricted Subsidiary:
(a) neither the Company nor any of its Restricted Subsidiaries will,
directly or indirectly, make any Restricted Payment, if, after giving
effect thereto on a pro forma basis:
(i) the Company could not Incur $1.00 of additional Indebtedness
pursuant to provisions described in paragraph (b) under "Certain
Covenants--Limitations on Indebtedness";
(ii) a Default or an Event of Default would occur or be continuing;
or
(iii) the aggregate amount of all Restricted Payments, including such
proposed Restricted Payment, made by the Company and its Restricted
Subsidiaries, from and after the Issue Date and on or prior to the date
of such Restricted Payment, shall exceed the sum (the "Basket") of:
(A) 50% of Consolidated Net Income of the Company for the period
(taken as one accounting period), commencing with the first full
fiscal quarter which includes the Issue Date, to and including the
fiscal quarter ended immediately prior to the date of each
calculation for which internal financial statements are available
(or, if Consolidated Net Income for such period is negative, then
minus 100% of such deficit); plus
(B) 100% of the amount of any Indebtedness of the Company or a
Restricted Subsidiary Incurred after the Issue Date that is
converted into or exchanged for Qualified Capital Stock of the
Company after the Issue Date; plus
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(C) to the extent that any Restricted Investment made after the
date of the Indenture is sold for cash or otherwise reduced or
liquidated or repaid for cash, in whole or in part, the lesser of
(1) the cash return of capital with respect to such Restricted
Investment (less the cost of disposition, if any) and (2) the
initial amount of such Restricted Investment; plus
(D) unless accounted for pursuant to clause (B) above, 100% of the
aggregate net proceeds (after payment of reasonable out-of-pocket
expenses, commissions and discounts incurred in connection
therewith) received by the Company from the sale or issuance (other
than to a Subsidiary of the Company) of its Qualified Capital Stock
after the Issue Date and on or prior to the date of such Restricted
Payment; plus
(E) with respect to any Unrestricted Subsidiary that is
redesignated as a Restricted Subsidiary after the Issue Date in
accordance with the definition of Unrestricted Subsidiary (so long
as the designation of such Subsidiary as an Unrestricted Subsidiary
was treated as a Restricted Payment made after the Issue Date and
only to the extent not included in the calculation of Consolidated
Net Income), an amount equal to the lesser of (x) the book value in
accordance with GAAP of the Company's or a Restricted Subsidiary's
Investment in such Subsidiary, and (y) the Designation Amount at the
time of such Subsidiary's designation as an Unrestricted Subsidiary;
plus
(F) 100% of tax benefits, if any, for the period (taken as one
accounting period), commencing with the first full fiscal quarter
which includes the Issue Date, realized by the Company from stock
option exercises and from the issuance of the Company's Qualified
Capital Stock pursuant to equity-based employee benefit plans that
are recorded as an increase to shareholders' equity in accordance
with GAAP; plus
(G) $50,000,000.
(b) The foregoing clause (a) does not prohibit:
(i) the payment of any dividend within 60 days after the date of its
declaration if such dividend could have been made on the date of its
declaration in compliance with the foregoing provisions;
(ii) the payment of cash dividends or other distributions to any
Equity Investor or joint venture participant of a Restricted Subsidiary
with respect to a class of Capital Stock of such Restricted Subsidiary
or joint venture owned by such Equity Investor or joint venture
participant so long as the Company or its Restricted Subsidiaries
simultaneously receive a dividend or distribution with respect to their
Investment in such Restricted Subsidiary or joint venture either in
U.S. Legal Tender or the same form as the dividend or distribution
received by such Equity Investor or joint venture participant and in
proportion to their proportionate interest in the same class of Capital
Stock of such Restricted Subsidiary (or in the case of a joint venture
that is a partnership or a limited liability company, as provided for
in the documentation governing such joint venture), as the case may be;
(iii) repurchases or redemptions of Capital Stock of the Company from
any former directors, officers and employees of the Company in the
aggregate up to $3,000,000 during any calendar year (provided, however,
that any amounts not used in any calendar year may be used in any
subsequent year); or
(iv) the retirement of Capital Stock of the Company or the retirement
of Indebtedness of the Company, in exchange for or out of the proceeds
of a substantially concurrent sale (other than a sale to a Subsidiary
of the Company) of, other shares of its Qualified Capital Stock and the
retirement of Capital Stock or Indebtedness of a Restricted Subsidiary
in exchange for or out of the proceeds of a substantially concurrent
sale of its Qualified Capital Stock, provided that, in each case, the
amount of any such proceeds is excluded for purposes of clause
(a)(iii)(D) above.
Any Restricted Payment made in accordance with clauses (i) and (iii) of this
paragraph shall reduce the Basket. In calculating the Basket, any Restricted
Payment not made in cash and any non-cash amounts received for purposes of
clause (D) shall be valued at fair market value as determined in good faith by
the Board of
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Directors, whose determination shall be conclusive and whose resolution with
respect thereto shall be delivered to the Trustee promptly after the adoption
thereof.
Limitations on Indebtedness. The Indenture will provide that:
(a) neither the Company nor any of its Restricted Subsidiaries may,
directly or indirectly, Incur any Indebtedness except (i) Non-Recourse
Indebtedness Incurred in the ordinary course of business; (ii) Indebtedness
evidenced by Notes and the Subsidiary Guarantees issued on the Issue Date;
(iii) Indebtedness of the Company solely to any Subsidiary Guarantor,
Indebtedness of any Subsidiary Guarantor to any other Subsidiary Guarantor
or to the Company or Indebtedness of any Restricted Subsidiary that is not
a Subsidiary Guarantor to the Company or to any Restricted Subsidiary,
provided that neither the Company nor any Restricted Subsidiary shall
become liable to any Person with respect to such Indebtedness other than
the Company or a Restricted Subsidiary; (iv) Refinancing Indebtedness
(including any subsequent refinancing, extension, renewal, replacement or
refunding thereof that satisfies the conditions set forth in the definition
of "Refinancing Indebtedness") (A) of any Indebtedness permitted to be
Incurred pursuant to clauses (ii) or (iv) of this paragraph (a) or the
immediately following paragraph (b) or (B) of any Indebtedness to the
extent outstanding on the Issue Date (other than under the Bank Credit
Facility, the 1993 Notes or Capitalized Lease Obligations being repaid
using proceeds from the sale of the Notes); (v) Indebtedness Incurred
solely in respect of performance, completion, guaranty and similar bonds
and similar purpose undertakings and Indebtedness under any earnest money
notes, tenders, bids, leases, statutory obligations, surety and appeal
bonds, progress statements, government contracts, letters of credit, escrow
agreements and other obligations of like nature and deposits made to secure
performance of any of the foregoing, in each case in the ordinary course of
business; (vi) Indebtedness incurred by the Company or any Subsidiary
Guarantor under the Bank Credit Facility in an aggregate principal amount
not to exceed $100,000,000 at any time, less the aggregate amount of all
proceeds of sales or dispositions of assets applied to permanently reduce
the outstanding amount (or, in the case of a revolving credit facility the
committed amount) of such Indebtedness pursuant to the covenant entitled
"Limitations on Asset Sales," and guaranties thereof by Subsidiary
Guarantors; (vii) (A) Indebtedness which represents the assumption by the
Company or a Restricted Subsidiary of Indebtedness of a Restricted
Subsidiary permitted to be Incurred pursuant to the terms of the Indenture,
and (B) Indebtedness of a Subsidiary Guarantor represented by guaranties in
respect of Indebtedness of the Company or another Subsidiary Guarantor
permitted to be Incurred pursuant to the Indenture and (C) Indebtedness of
the Company represented by guaranties in respect of Indebtedness of a
Subsidiary Guarantor permitted to be Incurred pursuant to the Indenture;
(viii) other Indebtedness outstanding on the Issue Date, including the 1993
Notes; (ix) purchase money obligations and Capitalized Lease Obligations;
and (x) Indebtedness of the Company or any Subsidiary Guarantor to any
Unrestricted Subsidiary or any Restricted Subsidiary that is not a
Subsidiary Guarantor in an aggregate amount not to exceed $20,000,000 at
any one time outstanding.
(b) Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries that are Subsidiary Guarantors may Incur Indebtedness, in each
case, if, at the time such Indebtedness is Incurred: (i) no Default or
Event of Default shall have occurred and be continuing or would occur after
giving effect to such transaction, and (ii) immediately after giving effect
thereto (without duplication) on a pro forma basis, either (A) the
Consolidated Fixed Charge Coverage Ratio of the Company on the date of such
Incurrence is at least equal to 2.0 to 1 or (B) the ratio of Indebtedness
of the Company and its Restricted Subsidiaries on a consolidated basis on
the date of such Incurrence (excluding for purposes of such calculation
other Indebtedness specifically permitted to be Incurred pursuant to clause
(i) or clause (v) of the preceding paragraph), to Consolidated Net Worth of
the Company is less than 3.25 to 1.
The Indenture will also provide that neither the Company nor any Restricted
Subsidiary will incur any Indebtedness that is contractually subordinated in
right of payment to any other Indebtedness of the Company or such Restricted
Subsidiary unless such Indebtedness is also contractually subordinated in
right of payment to the Notes on substantially identical terms; provided,
however, that no Indebtedness of the Company or a Restricted Subsidiary shall
be deemed to be contractually subordinated in right of payment to any other
Indebtedness of the Company solely by virtue of being unsecured.
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Furthermore, for purposes of determining compliance with this covenant in
the event that an item of proposed Indebtedness meets the criteria of more
than one of the categories described in clauses (i) through (x) of paragraph
(a) above as of the date of incurrence thereof, or is entitled to be Incurred
pursuant to paragraph (b) of this covenant as of the date of incurrence
thereof, the Company shall, in its sole discretion, classify such item of
Indebtedness on the date of its Incurrence in any manner that complies with
this covenant.
Limitations on Transactions with Affiliates. The Indenture will provide that
until the Notes are rated Investment Grade by both Rating Agencies, after
which time the following covenant no longer will be binding on the Company or
any Restricted Subsidiary:
(a) neither the Company nor any of its Restricted Subsidiaries may,
directly or indirectly, make any loan, advance, guaranty or capital
contribution to or for the benefit of, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or for the benefit
of, or purchase or lease any property or assets from, or enter into or
amend any contract, agreement or understanding with, or for the benefit of
any Affiliate (each an "Affiliate Transaction"), except for (i) Restricted
Payments otherwise permitted under the Indenture, and (ii) transactions,
the terms of which are at least as favorable as the terms which could be
obtained by the Company or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis with Persons who
are not Affiliates.
(b) In addition, (i) with respect to any Affiliate Transaction or series
of related Affiliate Transactions with an aggregate value in excess of
$5,000,000, such transaction must first be approved by a majority of the
Disinterested Directors and (ii) with respect to any Affiliate Transaction
or related series of Affiliate Transactions with an aggregate value in
excess of $25,000,000, the Company must first deliver to the Trustee a
favorable written opinion from an investment banking firm of national
reputation as to the fairness from a financial point of view of such
transaction to the Company or such Restricted Subsidiary, as the case may
be, or with respect to transactions involving real property, a
determination of value by a licensed real estate appraisal firm that is of
regional standing in the region in which the subject property is located
and which has professionals that are MAI certified.
(c) Notwithstanding the foregoing, Affiliate Transactions shall not
include (i) transactions exclusively between or among the Company and one
or more Restricted Subsidiaries or between or among one or more Restricted
Subsidiaries, (ii) any contract, agreement or understanding with, or for
the benefit of, or planned for the benefit of, employees, officers or
directors of the Company or any Restricted Subsidiary (in their capacity as
such) that has been approved by the Board of Directors (or a committee
thereof) or is in the ordinary course of business and consistent with past
practice, (iii) issuances of Qualified Capital Stock of the Company to
members of the Board of Directors, officers and employees of the Company or
its Subsidiaries pursuant to plans approved by the stockholders or the
Board of Directors (or a committee thereof) or is in the ordinary course of
business and consistent with past practice of the Company, (iv) home sales
and readily marketable mortgage loans to employees, officers and directors
of the Company and Subsidiaries in the ordinary course of business, (v)
payment of regular fees and reimbursement of expenses to members of the
Board of Directors who are not employees of the Company and reimbursement
of expenses and payment of wages and other compensation to officers and
employees of the Company or any of its Subsidiaries or loans or advances in
respect thereof, (vi) contractual arrangements in effect on the Issue Date
and renewals and extensions thereof not involving modifications materially
adverse to the Company or any Restricted Subsidiary, (vii) Restricted
Payments or Permitted Investments otherwise made in compliance with the
Indenture or (viii) the advancement of general and administrative expenses
of the Company and its Subsidiaries that are reimbursed in the ordinary
course of business.
Limitations on Asset Sales. The Indenture will provide that, subject to the
"Limitations on Mergers, Consolidations and Sales of Assets" covenant and
until the Notes are rated Investment Grade by both Rating Agencies, after
which time the following covenant no longer will be binding on the Company,
neither the Company nor any Restricted Subsidiary may, directly or indirectly,
consummate an Asset Sale, unless the Company (or such Restricted Subsidiary,
as the case may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value (reasonably evidenced by a good faith
resolution of the Board of
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Directors or the board of directors or comparable governing body of such
Restricted Subsidiary, whose resolution shall be conclusive) of the assets
sold or otherwise disposed of, provided that the aggregate fair market value
of the consideration received from any Asset Sale that is not in the form of
cash or Cash Equivalents will not, when aggregated with the fair market value
of all other noncash consideration received by the Company and its Restricted
Subsidiaries from all previous Asset Sales since the Issue Date that has not
been converted into cash or Cash Equivalents, exceed 10% of the Consolidated
Net Assets of the Company at the time of the Asset Sale under consideration;
and, provided, further, however, that the amount of (x) any liabilities of the
Company or any Restricted Subsidiary (other than liabilities that are Incurred
in connection with or in contemplation of such Asset Sale) that are assumed by
the transferee of any such assets and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are promptly converted by the Company or such Restricted Subsidiary into
cash, shall be deemed to be cash (to the extent of the cash received) for
purposes of this provision.
Within 180 days after the receipt of any Net Cash Proceeds from an Asset
Sale, the Company may apply such Net Cash Proceeds in its sole discretion (a)
to permanently repay Indebtedness under the Bank Credit Facility (and to
permanently reduce the commitment thereunder for purposes of clause (a)(vi) of
the "Limitations on Indebtedness" covenant) or (b) to acquire all or
substantially all of the assets of, or Capital Stock representing a majority
of the voting power in the election of directors or other governing body of,
another Permitted Business, (c) to make a capital expenditure or (d) to
acquire other assets not classified as current under GAAP that are used or
useful in a Permitted Business. Pending the final application of any such Net
Cash Proceeds, the Company may temporarily reduce revolving credit borrowings
or otherwise invest such Net Cash Proceeds in any manner that is not
prohibited by the Indenture. Any Net Cash Proceeds from Asset Sales that are
not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds." When the aggregate amount of
Excess Proceeds exceeds $10,000,000, the Company will be required to make an
offer to all Holders of Notes and all holders of other Indebtedness that is
pari passu with the Notes containing provisions similar to those set forth in
the Indenture with respect to offers to purchase or redeem with the proceeds
of sales of assets (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes and such other pari passu Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price for the Notes in cash in an
amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of purchase, in accordance with the
procedures set forth in the Indenture and such other pari passu Indebtedness.
To the extent that any Excess Proceeds remain after consummation of an Asset
Sale Offer, the Company may use such Excess Proceeds for any purpose not
otherwise prohibited by the Indenture. If the aggregate principal amount of
Notes and such other pari passu Indebtedness tendered into such Asset Sale
Offer surrendered by Holders thereof exceeds the amount of Excess Proceeds,
the Trustee shall select the Notes and such other pari passu Indebtedness to
be purchased on a pro rata basis. Upon completion of such offer to purchase
(and without regard to whether all Excess Proceeds are used therefor), the
amount of Excess Proceeds shall be reset at zero.
Any Asset Sale Offer will be conducted by the Company in compliance with
applicable law, including, without limitation, Section 14(e) of the Exchange
Act and Rule 14e-1 thereunder, if applicable.
Limitations on Restrictions Affecting Restricted Subsidiaries. The Indenture
will provide that the Company will not, and will not permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or suffer to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a)(i) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries on its
Capital Stock or with respect to any other interest or participation in, or
measured by, its profits, or (ii) pay any Indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) make loans or advances to the Company
or any of is Restricted Subsidiaries, (c) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, or (d) guarantee
the Notes or any Indebtedness issued in exchange for, or the proceeds of which
are used to extend, refinance, renew, replace, or refund the Notes, except for
such encumbrances or restrictions described in (a) through (d) above existing
under or by reasons of (i) Existing Indebtedness as in effect on the date of
the Indenture, (ii) applicable law or regulation, (iii) any instrument
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governing Acquired Indebtedness as in effect at the time of acquisition, which
encumbrance or restriction is not applicable to any person, or the properties
or assets of any person, other than the person, or the properties or assets of
the person, so acquired, provided that the Consolidated Net Income of such
person shall not be taken into account in determining whether such acquisition
was permitted by the terms of the Indenture, (iv) by reason of customary non-
assignment provisions or prohibitions on subletting in leases or other
contracts entered into in the ordinary course of business, (v) Refinancing
Indebtedness permitted under clause (iv) of paragraph (a) of the covenant
entitled "Limitations on Indebtedness", provided that the restrictions
contained in the agreements governing such Refinancing Indebtedness are no
more restrictive than those contained in the agreements governing the
Indebtedness being refinanced, or (vi) with respect to clause (c) above, (A)
purchase money obligations, Non-Recourse Indebtedness and Capital Lease
Obligations for property acquired or leased in the ordinary course of
business, (B) any agreement restricting the sale or other disposition of
properties securing Indebtedness permitted by the Indenture if such agreement
does not expressly restrict the ability of a Restricted Subsidiary to pay
dividends or make loans or advances to the Company, (C) restrictions or
encumbrances contained in any security agreements permitted by the Indenture
securing Indebtedness permitted by the Indenture to the extent that such
restrictions or encumbrances restrict the transfer of assets (or proceeds
thereof) subject to such security agreement, or (D) any restrictions or
encumbrances with respect to a Restricted Subsidiary imposed pursuant to an
agreement which has been entered into for the sale or disposition of the
Capital Stock or assets of such Restricted Subsidiary or such an agreement
which has been entered into for the sale or disposition of assets of the
Company to the extent otherwise permitted by the Indenture, including in
connection with any Asset Sale, as applicable only to such assets or Capital
Stock to be sold, or (vii) customary agreements entered into in the ordinary
course of business restricting the ability of a joint venture to make
distributions or payments of cash or property to participants in such joint
venture.
Reports to Holders of Notes. The Company shall deliver to the Trustee and
each Holder, within 15 days after the same are filed with the SEC, copies of
all reports and information (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe), if any,
exclusive of exhibits, which the Company and the Subsidiary Guarantors are
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act or pursuant to the immediately following sentence. So long as any Notes
remain outstanding, the Company and the Subsidiary Guarantors shall file with
the SEC such reports as may be required pursuant to Section 13 of the Exchange
Act in respect of a security registered pursuant to Section 12 of the Exchange
Act. If the Company or the Subsidiary Guarantors are not subject to the
requirements of Section 13 or 15(d) of the Exchange Act (or otherwise required
to file reports pursuant to the immediately preceding sentence), the Company
shall deliver to the Trustee and to each Holder, within 15 days after the
Company and the Subsidiary Guarantors would have been required to file such
information with the SEC were they required to do so, financial statements,
including any notes thereto (and, in the case of a fiscal year end, an
auditors' report by an independent certified public accounting firm of
established national reputation), and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," substantially equivalent to
that which they would have been required to include in such quarterly or
annual reports, information, documents or other reports if they had been
subject to the requirements of Section 13 or 15(d) of the Exchange Act.
Notwithstanding the foregoing, to the extent then permitted by federal
securities laws or regulations or "no-action" letters interpreting such laws
or regulations, separate financial statements and other information of the
Subsidiary Guarantors shall not be required. The Company and the Subsidiary
Guarantors shall also comply with the other provisions of TIA Section 314(a).
Limitations on Liens. The Indenture will provide that the Company may not
and may not permit any Restricted Subsidiary to Incur, or suffer to exist any
Lien (other than Permitted Liens) upon any of its property or assets, whether
now owned or hereafter acquired.
Payments for Consent. Neither the Company nor any of its Subsidiaries shall,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder of the Notes for or as an
inducement to any consent, waiver or amendment of any terms or provisions of
the Indenture or the Notes unless such consideration is offered and paid to
all Holders of the Notes that so consent, waive or agree to amend in the time
frame set forth in the solicitation documents relating to such consent, waiver
or agreement.
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Limitations on Mergers, Consolidations and Sales of Assets.
(a) The Company shall not consolidate with or merge with or into, any
other Person, or transfer all or substantially all of its assets to, any
entity unless permitted by law and unless (i) the resulting, surviving or
transferee entity, which shall be a corporation, partnership, limited
liability company or other entity organized and existing under the laws of
the United States or a State thereof or the District of Columbia, assumes
by supplemental indenture, in a form reasonably satisfactory to the
Trustee, all of the obligations of the Company under the Notes and the
Indenture, (ii) immediately after giving effect to, and as a result of,
such transaction, no Default or Event of Default shall have occurred and be
continuing, (iii) immediately after giving effect to such transaction on a
pro forma basis, the net worth of the surviving or transferee entity on a
stand-alone basis is at least equal to the Consolidated Net Worth of the
Company immediately prior to such transaction; and (iv) the Company or the
surviving or transferee entity thereof would immediately thereafter be
permitted to Incur at least $1.00 of additional Indebtedness pursuant to
the provisions described in paragraph (b) under the covenant described
above under "Limitations on Indebtedness." The provisions of clause (iii)
or clause (iv) above shall not apply to a transaction or series of related
transactions in which the sole participants are Restricted Subsidiaries of
the Company or to a transaction between the Company and one or more of its
Restricted Subsidiaries, subject to any limitations on mergers involving
Subsidiary Guarantors.
(b) For purposes of clause (a), the sale, lease, conveyance, assignment,
transfer, or other disposition of all or substantially all of the
properties and assets of one or more Subsidiaries of the Company, which
properties and assets, if held by the Company instead of such Subsidiaries,
would constitute all or substantially all of the properties and assets of
the Company, on a consolidated basis, shall be deemed to be the transfer of
all or substantially all of the properties and assets of the Company.
Thereafter such successor corporation or corporations shall succeed to and
be substituted for the Company with the same effect as if it had been named
herein as the "Company" and all such obligations of the predecessor
corporation shall terminate.
Guarantees of Certain Indebtedness. The Company will not permit any of its
Restricted Subsidiaries other than the Subsidiary Guarantors, directly or
indirectly, to guarantee the payment of any Indebtedness under the Bank Credit
Facility, any other credit facility, or any other Indebtedness of the Company
or any other Restricted Subsidiary, unless such Restricted Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture
evidencing a Subsidiary Guarantee of the Notes. Neither the Company nor any
Subsidiary Guarantor shall be required to make a notation on the Notes to
reflect any such subsequent Subsidiary Guarantee. Nothing in this covenant
shall be construed to permit any Restricted Subsidiary of the Company to incur
Indebtedness otherwise prohibited by the covenant described above under the
caption "Limitations on Indebtedness."
Maintenance of Consolidated Net Worth. The Indenture will provide that the
Company is required to furnish to the Trustee an officers' certificate within
55 days after the end of any fiscal quarter (100 days after the end of any
fiscal year) notifying the Trustee that the Company's Consolidated Net Worth
has declined below $80.0 million (the "Minimum Required Net Worth") at the end
of any fiscal quarter in which the Company's Consolidated Net Worth has so
declined. If, on the last day of each of any two consecutive fiscal quarters
(the last day of the second fiscal quarter being referred to herein as a
"Deficiency Date"), the Company's Consolidated Net Worth is less than the
Minimum Required Net Worth, then the Company is required, no later than 65
days after each such Deficiency Date (110 days if such Deficiency Date is the
last day of the Company's fiscal year), to make an offer to all Holders of
Notes to purchase (a "Purchase Offer") 10% of the aggregate principal amount
of the Notes theretofore issued under the Indenture (the "Offer Amount") at a
purchase price equal to 100% of the principal amount of the Notes, plus
accrued interest to the date of purchase. The Purchase Offer is required to
remain open for a period of 20 Business Days following its commencement,
except to the extent otherwise permitted by applicable law (as extended, the
"Offer Period") and the Company is required to purchase the Offer Amount of
the Notes on a designated date no later than one Business Day after the
termination of the Offer Period, or if less than the Offer Amount of Notes
shall have been tendered, all Notes then tendered; provided, however, that the
Company will not be obligated to purchase any of such Notes unless
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Holders of Notes of at least 10% of the Offer Amount shall have tendered and
not subsequently withdrawn their Notes for repurchase. If the aggregate
principal amount of Notes tendered exceeds the Offer Amount, the Company is
required to purchase the Notes tendered to it pro rata among the Notes
tendered (with such adjustments as may be appropriate so that only Notes in
denominations of $1,000 and integral multiples thereof shall be purchased).
The Company will comply with all applicable federal and state securities laws
in connection with each Purchase Offer. In no event will the failure of the
Company's Consolidated Net Worth to equal or exceed the Minimum Required Net
Worth at the end of the fiscal quarter be counted toward the making of more
than one Purchase Offer. The Company may reduce the principal amount of Notes
to be purchased pursuant to the Purchase Offer by subtracting 100% of the
principal amount (excluding premium) of Notes acquired by the Company
subsequent to the Deficiency Date through purchase (otherwise than pursuant to
this provision, the covenant entitled "Repurchase of Notes Upon Change of
Control" or the covenant entitled "Limitations on Asset Sales"), optional
redemption or exchange and surrender for cancellation.
The Bank Credit Facility contains, and the credit facility contemplated by
the agreement in principle described above in "Prospectus Supplement Summary--
Recent Developments" may contain, prohibitions on the ability of the Company
to make such a Purchase Offer. There can be no assurance that the Company will
be able to make or consummate the Purchase Offer contemplated by this
covenant. However, failure to make or consummate a required Purchase Offer
would constitute an Event of Default under the Indenture.
EVENTS OF DEFAULT
"Event of Default," wherever used herein, means any one of the following
events, which are applicable to the Notes instead of the Events of Default
specified in the accompanying Prospectus:
(a) default in the payment of interest on the Notes as and when the same
becomes due and payable and the continuance of any such failure for 30
days;
(b) default in the payment of all or any part of the principal or
premium, if any, on the Notes when and as the same become due and payable
at maturity, redemption, by declaration of acceleration or otherwise;
(c) failure by the Company or a Restricted Subsidiary, as the case may
be, to comply with provisions described in this Prospectus Supplement under
the headings "Repurchase of Notes Upon Change of Control," "Limitations on
Asset Sales," "Limitations on Restricted Payments," "Limitations on
Indebtedness," "Maintenance of Consolidated Net Worth," "Limitations on
Mergers, Consolidations and Sales of Assets" or "Guarantees of Certain
Indebtedness";
(d) default in the observance or performance of, or breach of, any
covenant, agreement or warranty of the Company contained in the Notes or
the Indenture (unless specifically dealt with elsewhere), and continuance
of such default or breach for a period of 60 days after there has been
given, by registered or certified mail, to the Company by the Trustee, or
to the Company and the Trustee by Holders of at least 25% in aggregate
principal amount of the outstanding Notes, a written notice specifying such
default or breach, requiring it to be remedied and stating that such notice
is a "Notice of Default" under the Indenture;
(e) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudging the Company or any of its Significant
Subsidiaries as bankrupt or insolvent, or approving as properly filed a
petition in an involuntary case or proceeding seeking reorganization of the
Company or any of its Significant Subsidiaries under any bankruptcy or
similar law, or a decree, judgment or order of a court of competent
jurisdiction directing the appointment of a receiver, liquidator, trustee,
or assignee in bankruptcy or insolvency of the Company, any of its
Significant Subsidiaries, or of the property of any such Person, or the
winding up or liquidation of the affairs of any such Person, shall have
been entered, and the continuance of any such decree, judgment or order
unstayed and in effect for a period of 90 consecutive days;
(f) the Company or any of its Significant Subsidiaries shall institute
proceedings to be adjudicated a voluntary bankrupt (including conversion of
an involuntary proceeding into a voluntary proceeding), or shall consent to
the filing of a bankruptcy proceeding against it, or shall file a petition
or answer or consent to the
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filing of any such petition, or shall consent to the appointment of a
Custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of it or any of its assets or property, or shall make a general
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due, or shall, within
the meaning of any Bankruptcy Law, become insolvent, or fail generally to
pay its debts as they become due;
(g) (i) the acceleration of any Indebtedness (other than Non-Recourse
Indebtedness) of the Company or any of its Restricted Subsidiaries (in
accordance with the terms of such Indebtedness and after giving effect to
any applicable grace period set forth in the documents governing such
Indebtedness) that has an outstanding principal amount of $25,000,000 or
more individually or in the aggregate to be immediately due and payable;
and (ii) the failure by the Company or any of its Restricted Subsidiaries
to make any principal, premium, interest or other required payment in
respect of Indebtedness (other than Non-Recourse Indebtedness) of the
Company or any of its Restricted Subsidiaries with an outstanding aggregate
principal amount of $25,000,000 or more individually or in the aggregate
(after giving effect to any applicable grace period set forth in the
documents governing such Indebtedness);
(h) one or more final nonappealable judgments (in the amount not covered
by insurance or not reserved for) or the issuance of any warrant of
attachment against any portion of the property or assets (except with
respect to Non-Recourse Indebtedness) of the Company or any Restricted
Subsidiary, which are $10,000,000 or more individually or in the aggregate,
at any one time rendered against the Company or any of its Restricted
Subsidiaries by a court of competent jurisdiction and not bonded, satisfied
or discharged for a period (during which execution shall not be effectively
stayed) of (i) 45 days after the judgment (which, if there is more than one
judgment, causes such judgments to exceed $10,000,000 in the aggregate)
becomes final and such court shall not have ordered or approved, and the
parties shall not have agreed upon, the payment of such judgment at a later
date or dates or (ii) 60 days after all or any part of such judgment is
payable pursuant to any court order or agreement between the parties; and
(i) any Subsidiary Guarantee of the Notes shall be held in a judicial
proceeding to be unenforceable or invalid or shall, except as permitted by
the Indenture, cease for any reason to be in full force and effect, or any
Guarantor, or any Person acting on behalf of a Guarantor, shall deny or
disaffirm its obligations in respect of the Notes.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in sub-clauses (e) or (f) above relating to the Company),
then in each such case, unless the principal of all of the Notes shall have
already become due and payable, either the Trustee or the holders of 25% in
aggregate principal amount of the Notes then outstanding, by notice in writing
to the Company (and to the Trustee if given by the Holders) (an "Acceleration
Notice"), may declare all principal, determined as set forth below, including
in each case accrued interest thereon, to be due and payable immediately. If
an Event of Default specified in sub-clauses (e) or (f) above occurs relating
to the Company, all principal and accrued and unpaid interest thereon will be
immediately due and payable on all outstanding Notes without any declaration
or other act on the part of the Trustee or the Holders. The Holders of a
majority in principal amount of the Notes then outstanding by written notice
to the Trustee and the Company may waive any Default or Event of Default
(other than any Default or Event of Default in payment of principal or
interest) on the Notes under the Indenture. Holders of a majority in principal
amount of the then outstanding Notes may rescind an acceleration and its
consequence (except an acceleration due to nonpayment of principal or interest
on the Notes) if the rescission would not conflict with any judgment or decree
and if all existing Events of Default (other than the non-payment of
accelerated principal) have been cured or waived.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, holders
of a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided, however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the Holders notice of any continuing Default or Event of Default
(except any Default or Event of Default in payment of principal, premium or
interest on the Notes) if the Trustee determines that withholding such notice
is in the Holders' interest.
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The Company is required to deliver to the Trustee an annual statement
regarding compliance with the Indenture. Such statement must indicate if any
Officer of the Company is aware of any Default or Event of Default, specifying
such Default or Event of Default and what action the Company is taking or
proposes to take with respect thereto. In addition, the Company is required to
deliver to the Trustee prompt written notice of the occurrence of any Default
or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company or any Guarantor under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws and it is the view of the Commission that such a
waiver is against public policy.
DISCHARGE OF INDENTURE
The Indenture will permit the Company to terminate all of its obligations
under the Indenture, other than the obligation to pay interest on and the
principal of the Notes and certain other obligations, at any time by (i)
depositing in trust with the Trustee, under an irrevocable trust agreement,
money or U.S. government obligations in an amount sufficient to pay principal
of and interest on the Notes to their maturity or redemption; and (ii)
complying with certain other conditions, including delivery to the Trustee of
an opinion of counsel or a ruling received from the Internal Revenue Service
to the effect that Holders will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of such right and
will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case otherwise.
In addition, the Indenture will permit the Company to terminate all of its
obligations under the Indenture (including the obligations to pay interest on
and the principal of the Notes and certain other obligations), at any time by
(i) depositing in trust with the Trustee, under an irrevocable trust
agreement, money or U.S. government obligations in an amount sufficient to pay
principal of and interest on the Notes to their maturity or redemption; and
(ii) complying with certain other conditions, including delivery to the
Trustee of an opinion of counsel or a ruling received from the Internal
Revenue Service to the effect that Holders will not recognize income, gain or
loss for federal income tax purposes as a result of the Company's exercise of
such right and will be subject to federal income tax on the same amount and in
the same manner and at the same times as would have been the case otherwise,
which opinion of counsel is based upon a change in the applicable federal tax
law since the date of the Indenture.
In addition to the provisions described in the accompanying Prospectus, the
Indenture will permit the Company to terminate all of its obligations under
the Indenture (including the obligations to pay interest on and the principal
of the Notes and certain other obligations), at any time that all of the Notes
have become due and payable or will become due and payable within one year,
either by the terms of such Notes or upon redemption (and if upon redemption
the Company has deposited with the Trustee irrevocable instructions to redeem
such Notes) by (i) depositing in trust with the Trustee, under an irrevocable
trust agreement, money or U.S. government obligations in an amount sufficient
to pay principal of and interest on the Notes to their maturity or redemption,
and (ii) complying with certain other conditions, including delivery to the
Trustee of an opinion of counsel that all conditions precedent to termination
have been complied with.
BOOK ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered Global Note (the
"Global Note"). The Global Note will be deposited on or about the Issue Date
with, or on behalf of, The Depository Trust Company (the "Depositary") and
registered in the name of Cede & Co., as nominee of the Depositary (such
nominee being referred to herein as the "Global Note Holder").
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The Depositary has advised the Company that is a limited-purpose trust
company which was created to hold securities for its participating
organizations (collectively, the "Participants" or the "Depositary's
Participants") and to facilitate the clearance and settlement of transactions
in such securities between Participants through electronic book-entry changes
in accounts of its Participants. The Depositary's Participants include
securities brokers and dealers (including the Underwriters), banks and trust
companies, clearing corporations and certain other organizations. Access to
the Depositary's system is also available to other entities such as banks,
brokers, dealers and trust companies (collectively, the "Indirect
Participants" or the "Depositary's Indirect Participants") that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) ownership of the Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary (with respect to the interests of the
Depositary's Participants), the Depositary's Participants and the Depositary's
Indirect Participants. Prospective purchasers are advised that the laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer Notes
will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole owner or holder of such Notes
outstanding under the Indenture. Except as provided below, owners of Notes
will not be entitled to have Notes registered in their names, will not receive
or be entitled to receive physical delivery of Notes in definitive form, and
will not be considered the owners or holders thereof under the Indenture for
any purpose, including with respect to the giving of any directions,
instructions or approvals to the Trustee thereunder. As a result, the ability
of a Person having a beneficial interest in Notes represented by the Global
Note to pledge such interest to Persons or entities that do not participate in
the Depositary's system or to otherwise take actions in respect of such
interest may be affected by the lack of a physical certificate evidencing such
interest.
Neither the Company, the Trustee, the Paying Agent nor the Notes Registrar
will have any responsibility or liability for any aspect of the records
relating to or payments made on account of Notes by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary relating
to such Notes.
Payments in respect of the principal, premium, if any, and interest on any
Notes registered in the name of a Global Note Holder on the applicable record
date will be payable by the Trustee to or at the direction of such Global Note
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the Persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of
receiving such payments and for any and all other purposes whatsoever.
Consequently, none of the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, and interest).
The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants
with such payment, in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depositary. Payments by the Depositary's Participants and
the Depositary's Indirect Participants to the beneficial owner of Notes will
be governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
CERTIFICATED SECURITIES
Subject to certain conditions, any Person having a beneficial interest in
the Global Note may, upon request to the Company or the Trustee, exchange such
beneficial interest for Notes in the form of Certificated Securities.
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Upon any such issuance, the Trustee is required to register such Notes in the
name of, and cause the same to be delivered to, such Person or Persons (or the
nominee of any thereof). In addition, if (i) the Company notifies the Trustee
in writing that the Depositary is no longer willing or able to act as a
depositary and the Company is unable to locate a qualified successor within 90
days or (ii) the Company, at its option, notifies the Trustee in writing that
it elects to cause the issuance of Notes in the form of Certificated
Securities under the Indenture, then, upon surrender by the relevant Holder of
its Global Note, Notes in such form will be issued to each Person that such
Holder and the Depositary identify as the beneficial owner of the related
Notes.
Neither the Company nor the Trustee shall be liable for any delay by the
related Global Note Holder or the Depositary in identifying the beneficial
owners of Notes and each such Person may conclusively rely on and shall be
protected in relying on, instructions from the Global Note Holder or of the
Depositary for all purposes (including with respect to the registration and
delivery, and the respective principal amounts, of the Notes to be issued).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture will require that payments in respect of the Notes (including
principal, premium, if any, and interest) be made by wire transfer of
immediately available funds to the accounts specified by the Global Note
Holders. The Company expects that secondary trading in the Certificated Notes
also will be settled in immediately available funds.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange the Notes in accordance with the
procedures set forth in the Indenture. The Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer
documents, and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar is not required to transfer or exchange any Note
selected for redemption. Also, the Registrar is not required to transfer or
exchange any Note for a period of 15 days before a selection of the Notes to
be redeemed.
The registered Holder will be treated as the owner of it for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent (which may include consents obtained in
connection with a tender offer or exchange offer for Notes) of the Holders of
at least a majority in principal amount of the Notes then outstanding, and any
existing Default under, or compliance with any provision of the Indenture may
be waived (other than any continuing Default or Event of Default in the
payment of interest on or the principal of the Notes) with the consent (which
may include consents obtained in connection with a tender offer or exchange
offer for Notes) of the holders of a majority in principal amount of the Notes
then outstanding. Without the consent of any Holder, the Company and the
Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency; to comply with the provisions described
under "Certain Covenants--Limitations on Mergers, Consolidations and Sales of
Assets;" to provide for uncertificated Notes in addition to or in place of
certificated Notes; or to make any change that does not adversely affect any
Holder.
Without the consent of each Holder affected, the Company and the Trustee may
not (i) reduce the amount of Notes whose holders must consent to an amendment,
supplement or waiver; (ii) reduce the rate of or change the time for payment
of interest, including default interest, on any Note; (iii) reduce the
principal of or change the fixed maturity of any Note or alter the provisions
(including related definitions) with respect to redemptions described under
"Redemption"; (iv) modify the ranking or priority of the Notes; (v) make any
change in the provisions of the Indenture relating to amendments, waivers of
past defaults or the absolute right of Holders to receive payment; (vi) waive
a continuing Default or Event of Default in the payment of principal of or
interest on the Notes; (vii) make any Note payable at a place or in money
other than that stated in the Note, or impair
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the right of any Holder to bring suit as permitted by the Indenture; or (viii)
except as provided in the Indenture, release any Subsidiary Guarantor from its
obligations under its Subsidiary Guarantee or make any change in a Subsidiary
Guarantee that would adversely affect the Holders.
The right of any Holder to participate in any consent required or sought
pursuant to any provision of the Indenture (and the obligation of the Company
to obtain any such consent otherwise required from such Holder) may be subject
to the requirement that such Holder shall have been the Holder of record of
any Notes with respect to which such consent is required or sought as of a
date identified by the Company in accordance with the terms of the Indenture.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest (as
defined in the Indenture), it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances
in the conduct of his own affairs. Subject to such provisions, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request of any Holder, unless such Holder shall have offered
to the Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
The Indenture and the Notes will be governed by the laws of the State of New
York without giving effect to principles of conflict of laws.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used and
defined in the Indenture. Reference is made to the Indenture for the full
definition of all terms used in the Indenture.
"Acquired Indebtedness" means Indebtedness of any Person that is not a
Restricted Subsidiary, which Indebtedness is outstanding at the time such
Person becomes a Restricted Subsidiary, or is merged into or consolidated
with, the Company or a Restricted Subsidiary; provided, however, that such
Indebtedness was not incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
directly or indirectly controlling or controlled by, or under direct or
indirect common control with, such specified Person. For purposes of this
definition, the term "control" means the power to direct the management and
policies of a Person, either directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or otherwise,
or (b) without limiting the foregoing, ownership of 20% or more of the voting
power of the voting common equity of such Person (on a fully diluted basis).
Notwithstanding the foregoing, the term "Affiliate" will not include, with
respect to the Company or any Restricted Subsidiary, any Restricted Subsidiary
or, with respect to any Restricted Subsidiary, the Company.
"Asset Sale" means, with respect to any Person, the sale, lease, conveyance
or other disposition (including, without limitation, by merger or
consolidation, and whether by operation of law or otherwise) of any of that
Person's assets (including, without limitation, the sale or other disposition
of Capital Stock of any Subsidiary of
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such Person, whether by such Person or by such Subsidiary) whether owned on
the Issue Date or subsequently acquired, in one transaction or a series of
related transactions, in which such Person and/or its Subsidiaries receive
cash and/or other consideration (including, without limitation, the
unconditional assumption of Indebtedness of such Person and/or its
Subsidiaries) having an aggregate fair market value of $10,000,000 or more as
to such transaction or series of related transactions (each such transaction
being referred to herein as a "disposition"); provided, however, that the
following transactions shall not constitute an Asset Sale: (i) a transaction
or series of related transactions that results in a Change of Control; (ii)
dispositions of land, building lots, homes, infrastructure, other buildings,
improvements, appurtenances and entitlements in the ordinary course of
business and dispositions of obsolete equipment; (iii) exchanges or swaps of
real estate by the Company in the ordinary course of business for real estate
of substantially equivalent value (or for real estate and cash or Cash
Equivalents which, in the aggregate, have a substantially equivalent value);
(iv) dispositions between or among the Company and any one or more Restricted
Subsidiaries or between or among Restricted Subsidiaries; (v) a disposition
that is a Permitted Investment (to the extent such Permitted Investment may be
deemed to constitute an Asset Sale) or a Restricted Payment permitted under
the Indenture; and (vi) dispositions of the Capital Stock of Ryan Mortgage
Acceptance Corporation IV.
"Attributable Debt" means, with respect to any Capitalized Lease
Obligations, the capitalized amount thereof determined in accordance with
GAAP.
"Bank Credit Facility" means the Amended and Restated Credit and Security
Agreement, dated as of May 5, 1995, among NVR Homes, as borrower, the Company,
as a guarantor, and the lenders named therein and BankBoston N.A., as agent
(together with the documents related thereto (including, without limitation,
any guaranty agreements), as such facility has been or may be amended,
restated, supplemented or otherwise modified from time to time (including the
new facility contemplated by the agreement in principle described above under
"Prospectus Supplement Summary--Recent Developments"), and includes any
facility extending the maturity of, increasing the total commitment of, or
restructuring (including, without limitation, the inclusion of Subsidiary
Guarantors thereunder that are Restricted Subsidiaries of the Company) all or
any portion of, the Indebtedness under such facility or any successor or
replacement facilities and includes any facility with one or more agents or
lenders refinancing or replacing all or any portion of the Indebtedness under
such facility or any successor facilities.
"Bankruptcy Law" means Title 11 of the United States Code, as amended, or
any similar federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or any
authorized committee thereof.
"Capital Stock" means any and all shares, interests, participations or other
equivalents (however designated) of or in a Person's capital stock or other
equity interests, and options, rights or warrants to purchase such capital
stock or other equity interests, whether now outstanding or issued after the
Issue Date, including, without limitation, all Preferred Stock of such Person
if such Person is a corporation or membership interests if such Person is a
limited liability company and each general and limited partnership interest of
such Person if such Person is a partnership.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligations will be the capitalized amount thereof determined
in accordance with GAAP.
"Cash Equivalents" means (a) U.S. government obligations; (b) GNMA
securities; (c) debt issued by other agencies of the United States of America;
(d) commercial paper rated either "A1" or comparable by S&P or "P1" or
comparable by Moody's; (e) Dutch auction preferred stocks rated either "AA" or
comparable by S&P or "Aa2" or comparable by Moody's; (f) certificates of
deposit issued by commercial banks or savings and loan
associations whose short-term debt is rated either "A1" or comparable by S&P
or "P1" or comparable by Moody's or a comparable rating by Thompson's Bank
Watch, or if such an institution is a subsidiary, then its
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parent corporation may have such a rating; (g) bankers acceptances issued by
financial institutions that meet the requirements for certificates of deposit;
(h) deposits in institutions having the same qualifications required for
investments in certificates of deposit; (i) repurchase agreements
collateralized by any otherwise acceptable collateral as defined above; (j)
money market accounts a majority of whose assets are composed of items
described by any of the foregoing clauses (a) through (i) through brokerage
firms deemed acceptable by the Company's management; and (k) investments in
mutual funds that are registered under the Investment Company Act of 1940, as
amended, which have net assets of at least $100,000,000 and at least 85% of
whose assets consist of securities having a rating of not less than AAA or its
equivalent by Moody's or investments or other obligations of the type
described in clauses (a) through (j) above (without regard to maturities).
"Change of Control" means the occurrence of any of the following events:
(i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation) in one or more series of related
transactions of all or substantially all of the assets of the Company on a
consolidated basis;
(ii) any "person" or "group" (as such terms are used in Section 13(d) of
the Exchange Act) is or becomes the beneficial owner (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more
than 50 percent of the total voting power of all securities generally
entitled to vote in the election of directors of the Company;
(iii) during any period of two consecutive calendar years, individuals
who at the beginning of such period constituted the Board of Directors
(together with any new directors whose election by such Board of Directors
or whose nominations for elections by the stockholders of the Company was
approved by a majority vote of the directors of the Company then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved) cease for
any reason to constitute a majority of the Board of Directors then in
office; or
(iv) the merger or consolidation of the Company with or into another
person or the merger of another person with or into the Company in a
transaction with the effect that immediately after such transaction the
stockholders of the Company immediately prior to such transaction hold less
than 50% of the total voting power of all securities generally entitled to
vote in the election of directors of the Person surviving such merger or
consolidation.
"Consolidated EBITDA" of any Person for any period means (a) the
Consolidated Net Income of such Person for such period, plus (b) the sum,
without duplication (and only to the extent such amounts are deducted in
determining such Consolidated Net Income), of (i) the provision for income
taxes for such period for such Person and its Subsidiaries (or, with respect
to the Company, for the Company and its Restricted Subsidiaries) (except to
the extent of tax benefits associated with an extraordinary loss) for such
period, (ii) depreciation and amortization expense of such Person and its
Subsidiaries (or, with respect to the Company, for the Company and its
Restricted Subsidiaries), (iii) Consolidated Interest Expense of such Person
for such period, and (iv) all other noncash, nonextraordinary charges
(excluding any non-cash charges to the extent they represent an accrual of or
reserve for cash charges in any future period or amortization of a prepaid
cash charge that was paid in a prior period) reducing Consolidated Net Income
for such period determined, in each case, on a consolidated basis for such
Person and its Subsidiaries (or, with respect to the Company, for the Company
and its Restricted Subsidiaries) in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" on any date (the "Transaction
Date") means, with respect to any Person, the ratio of (a) the aggregate
amount of Consolidated EBITDA of such Person attributable to continuing
operations and businesses for the Reference Period to (b) the sum of (i) the
aggregate Consolidated Interest Incurred of such Person (exclusive of amounts
attributable to discontinued operations and businesses, but in each case only
to the extent that the obligations giving rise to such Consolidated Interest
Incurred would no longer be obligations contributing to such Person's
Consolidated Interest Incurred subsequent to the Transaction Date) for the
Reference Period, plus (ii) dividends paid or accrued (unless paid to, or
accrued in favor of, the Company or its Restricted Subsidiaries) on
Disqualified Capital Stock of the Company and Restricted Subsidiaries of the
Company during the Reference Period times a fraction, the numerator of which
is
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one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of the Company; provided that for
purposes of such computation, in calculating Consolidated EBITDA and
Consolidated Interest Incurred, (w) the transaction giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio will be assumed to have
occurred (on a pro forma basis) on the first day of the Reference Period; (x)
the Incurrence of any Refinancing Indebtedness during the Reference Period or
subsequent thereto and on or prior to the Transaction Date (and the proceeds
of which were used to refinance Indebtedness other than Indebtedness under
revolving credit facilities) will be assumed to have occurred (on a pro forma
basis) on the first day of such Reference Period; (y) Consolidated Interest
Incurred attributable to any Indebtedness being Incurred bearing a floating
interest rate shall be computed as if the rate in effect on the Transaction
Date had been the applicable rate for the entire period, unless the Company or
any of its Restricted Subsidiaries is a party to an Interest Swap Obligation
(which shall remain in effect for the 12-month period after the Transaction
Date) that has the effect of fixing the interest rate on the date of
computation, in which case such rate (whether higher or lower) shall be used;
and (z) all members of the consolidated group of the Company on the
Transaction Date that were acquired during the Reference Period or on or prior
to the Transaction Date shall be deemed to be members of the consolidated
group of the Company, along with any Indebtedness incurred in connection with
the acquisition thereof, for the entire Reference Period.
"Consolidated Interest Expense" of any Person for any period means the
Interest Expense of such Person and its Subsidiaries or, with respect to the
Company, of the Company and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Interest Incurred" of any Person for any period means the
Interest Incurred of such Person and its Subsidiaries or, with respect to the
Company, of the Company and its Restricted Subsidiaries (other than the
Company's financial services segment Restricted Subsidiaries) for such period,
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Assets" of the Company as of any date means the total
amount of assets of the Company and its Restricted Subsidiaries (less
applicable reserves) on a consolidated basis at the end of the fiscal quarter
immediately preceding such date for which financial information is available,
as determined in accordance with GAAP, as reflected on the consolidated
balance sheet of the Company and its Restricted Subsidiaries as of the end of
such fiscal quarter.
"Consolidated Net Income" of any Person for any period means the aggregate
net income (or loss) of such Person and its Subsidiaries (or, with respect to
the Company, of the Company and its Restricted Subsidiaries) (collectively for
the purposes of this definition of Consolidated Net Income only, the "Relevant
Person") for such period, determined on a consolidated basis in accordance
with GAAP, excluding without duplication: (a) the net income (or loss) of any
other Person in which the Relevant Person has an ownership interest, other
than cash dividends or cash distributions during such period that have been
received by the Relevant Person; (b) extraordinary gains and losses, net of
the tax effects thereof; (c) except to the extent includable in Consolidated
Net Income pursuant to the foregoing clause (a), the net income (or loss) of
any Person that accrued prior to the date that such Person was acquired by the
Relevant Person or is merged into or consolidated with the Relevant Person or
any of its Subsidiaries (or in the case of the Company, any Person that is an
Unrestricted Subsidiary or prior to the date that such Person is acquired by
the Company as a Restricted Subsidiary or becomes a Restricted Subsidiary);
(d) the net income of any Restricted Subsidiary to the extent that (and only
so long as) the declaration or payment of dividends or similar distributions
by such Restricted Subsidiary of that income is prohibited by the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary during
such period; (e) any expense related to the amortization of reorganization
value in excess of amounts allocable to identifiable assets (as defined by
GAAP) and (f) any noncash expense related to the issuance of Qualified Capital
Stock of the Company pursuant to the Company's 1994 Management Incentive Plan.
"Consolidated Net Worth" of any Person as of any date means the
stockholders' equity (including any preferred stock that is classified as
equity under GAAP, but excluding Disqualified Capital Stock) of such Person
and its Subsidiaries (or, with respect to the Company, of the Company and its
Restricted Subsidiaries) on a
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consolidated basis at the end of the fiscal quarter immediately preceding such
date for which financial information is available, as determined in accordance
with GAAP.
"Currency Agreement" of any Person means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect such Person or any of its Subsidiaries or Affiliates against
fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, unless otherwise timely cured, an Event of
Default.
"Designation Amount" has the meaning set forth in the definition of
"Unrestricted Subsidiary."
"Disinterested Director" means a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest
in or with respect to the transaction being considered.
"Disqualified Capital Stock" means (a) with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms or by the
terms of any security into which it is convertible or exchangeable, is, or
upon the happening of an event or the passage of time would be, required to be
redeemed or repurchased by such Person or its Subsidiaries, including at the
option of the Holder, in whole or in part, or has, or upon the happening of an
event or passage of time would have, a redemption or similar payment due on or
prior to the Stated Maturity; and (b) with respect to any Restricted
Subsidiary, any Capital Stock (other than (i) Capital Stock owned by the
Company or a Restricted Subsidiary; and (ii) common stock with no preferences
or privileges and with no redemption or repayment provisions).
"Equity Investor" with respect to any Person means any other Person that has
made an investment in the capital stock, shares, interests, participation or
other ownership interests of such other Person (including any option, warrant
or right to acquire any such interest) or has made any capital contribution to
such other Person and owns a minority interest in such Person.
"Event of Default" has the meaning set forth in "Events of Default."
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means all of the Indebtedness of the Company and its
Subsidiaries that is outstanding on the Issue Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, as in effect on the date of the Indenture.
"Holder" means the person in whose name a Note is registered on the register
for the Notes.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing). Indebtedness of a Person existing at
the time such Person becomes a Restricted Subsidiary or is merged or
consolidated with or into the Company or any Restricted Subsidiary shall be
deemed to be Incurred at such time. Neither the accrual of interest, nor the
accretion of original issue discount, nor the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, nor
the payment of dividends on Disqualified Capital Stock in the form of
additional shares of the same class of Disqualified Capital Stock will be
deemed to be an Incurrence of Indebtedness or an issuance
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of Disqualified Capital Stock for purposes of the Indenture; provided, in each
such case, that the amount thereof is included for purposes of the
Consolidated Fixed Charge Coverage Ratio of the Company. In addition, the mere
extension of the term of lender commitments to extend credit or funds to the
Company or any of its Subsidiaries pursuant to a revolving credit agreement or
similar arrangement shall not be deemed to be an Incurrence of Indebtedness.
"Indebtedness" of any Person means, without duplication, (a) any liability
of such Person (other than accounts payable, other trade payables, general
contingency and tax reserves, liabilities for deposits and deferred income
which in accordance with GAAP are recorded as liabilities and accrued expenses
(including without limitation, obligations for insurance premiums) Incurred in
the ordinary course of business) (i) for borrowed money or under any
reimbursement obligation relating to a letter of credit or other similar
instruments (other than standby letters of credit, performance, completion,
surety or similar bonds or instruments issued for the benefit of such Person
or surety, performance, completion or payment bonds, earnest money notes or
similar purpose undertakings or indemnifications issued by, such Person in the
ordinary course of business); (ii) evidenced by a bond, note, debenture or
similar instrument (including a purchase money obligation) given in connection
with the acquisition of any businesses, properties or assets of any kind or
with services (other than any obligation to pay a contingent purchase price
which, as of the date of Incurrence thereof is not required to be recorded as
a liability in accordance with GAAP); or (iii) in respect of Capitalized Lease
Obligations (to the extent of the Attributable Debt in respect thereof), (b)
any Indebtedness of others that such Person has guaranteed to the extent of
the guaranty, (c) to the extent not otherwise included, Interest Swap
Obligations or the obligations of such Person under Currency Agreements, in
either case to the extent recorded as liabilities not constituting Interest
Incurred, net of amounts recorded as assets in respect of such agreements, in
accordance with GAAP, (d) all Indebtedness of others secured by a Lien (other
than a Permitted Lien) on any asset of such Person, whether or not such
Indebtedness is assumed by such Person, and (e) all Disqualified Stock issued
by such Person (the amount of indebtedness represented by any Disqualified
Stock will equal the greater of the voluntary or involuntary liquidation
preference plus accrued and unpaid dividends). The amount of Indebtedness of
any Person at any date shall be (A) the outstanding balance at such date of
all unconditional obligations as described above, net of any unamortized
discount to be accounted for as Interest Expense, in accordance with GAAP, (B)
the maximum liability of such Person for any contingent obligations under
clause (b) above at such date, net of, any unamortized discount to be
accounted for as Interest Expense in accordance with GAAP and (C) in the case
of clause (d) above, the lesser of (1) the fair market value of any asset
subject to a Lien securing the Indebtedness of others on the date that the
Lien attaches and (2) the amount of the Indebtedness secured.
"Indenture" means the Indenture as amended or supplemented from time to
time, including pursuant to any Authorizing Resolution, Officers' Certificate
or supplemental indenture pertaining to any Series.
"Interest Expense" of any Person for any period means, without duplication,
the aggregate amount of interest which, in conformity with GAAP, should be set
opposite the caption "interest expense" or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included on Capitalized Lease Obligations, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other noncash interest expense) plus, with respect to the Company and its
Restricted Subsidiaries, without duplication (including duplication of the
foregoing items), amortization of issue costs on Indebtedness, all interest
included as a component of cost of sales for such period, and all commissions,
discounts and other fees and charges owed with respect to bankers' acceptance
financing, and amortization and expensing of other financing fees and
expenses, and all interest actually paid by the Company or a Restricted
Subsidiary under any guaranty of Indebtedness (including, without limitation,
a guaranty of principal, interest or any combination thereof) of any other
Person during such period.
"Interest Incurred" of any Person for any period means, without duplication,
the aggregate amount of interest which, in conformity with GAAP, should be set
opposite the caption "interest expense" or any like caption on an income
statement for such Person (including, without limitation, imputed interest
included on Capitalized Lease Obligations, the interest portion of any
deferred payment obligation, amortization of discount or premium, if any, and
all other noncash interest expense) plus, with respect to the Company and its
Restricted
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Subsidiaries, without duplication (including duplication of the foregoing
items), all interest capitalized for such period, amortization of issue costs
on Indebtedness, all commissions, discounts and other fees and charges owed
with respect to bankers' acceptance financing, amortization and expensing of
other financing fees and expenses, and all interest actually paid by the
Company or a Restricted Subsidiary under any guaranty of Indebtedness
(including, without limitation, a guaranty of principal, interest or any
combination thereof) of any other Person during such period.
"Interest Swap Obligation" means any obligation of any Person pursuant to
any arrangement whereby such Person is entitled to receive from time to time
periodic payments calculated by applying either a fixed or floating rate of
interest on a stated notional amount in exchange for periodic payments made by
such Person calculated by applying a fixed or floating rate of interest on the
same notional amount; provided, that the term "Interest Swap Obligation" shall
also include interest rate exchange, collar, swap option, futures contracts or
other similar agreements providing interest rate protection.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition by such Person (whether for cash, property, services,
securities or otherwise) of Capital Stock, bonds, notes, debentures,
partnership, or other ownership interests, or other securities of such other
Person, (b) the making by such Person of any deposit with, or advance, loan or
other extension of credit to, such other Person (including the purchase of
property from such other Person subject to an understanding or agreement,
contingent or otherwise, to resell such property to such other Person), except
in the ordinary course of business, (c) the entering into by such Person of
any guaranty of, or other contingent obligation with respect to, Indebtedness
or other liability of such other Person, or (d) the making of any capital
contribution by such Person to such other Person.
"Investment Grade" shall mean BBB- or higher by S&P or Baa3 or higher by
Moody's or the equivalent of such ratings by S&P or Moody's.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind with respect to any Property.
"Moody's" means Moody's Investors Service, Inc. or any successor to its debt
rating business.
"Net Cash Proceeds" means (i) cash (in U.S. dollars or freely convertible
into U.S. dollars) received by the Company or any Restricted Subsidiary from
an Asset Sale net of all (a) brokerage commissions, and all other fees and
expenses (including, without limitation, fees and expenses of counsel and
investment bankers) related to such Asset Sale, (b) provisions for all income
and other taxes measured by or resulting from such Asset Sale, (c) payments
made to retire Indebtedness where payment of such Indebtedness is required by
instruments governing such indebtedness and secured by the assets sold
pursuant to and in connection with such Asset Sale, (d) amounts required to be
paid to any Person (other than the Company or Subsidiary) owning a legal or
beneficial interest in the assets subject to the Asset Sale, (e) appropriate
amounts to be provided by the Company or any Restricted Subsidiary thereof, as
the case may be, as a reserve, in accordance with GAAP, against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary thereof, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment liabilities
under any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee, and (ii) all
noncash consideration received by the Company or any of its Restricted
Subsidiaries from such Asset Sale promptly thereupon liquidated or converted
into cash, without duplication, net of all items enumerated in subclauses (a)
through (e) of clause (i) hereof.
"Non-Recourse Indebtedness" means, with respect to any Person, Indebtedness
(or any portion thereof) of such Person for which the sole legal recourse for
collection of principal, premium, and interest on such Indebtedness is against
the specific property identified in the instruments evidencing or securing
such Indebtedness, which property was acquired with the proceeds of such
Indebtedness or such Indebtedness was Incurred within 180 days after the
acquisition of such property, without any liability on the part of any such
Person for any deficiency with respect to principal, premium or interest.
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"Notes" means the 8% Senior Notes due 2005 issued under the Indenture, as
supplemented from time to time in accordance with the terms thereof.
"Officer" means the Chairman of the Board, the President, the Chief
Executive Officer, any Vice President, the Treasurer or the Secretary of the
Company or, as applicable, any Restricted Subsidiary.
"Permitted Business" means any business primarily engaged in homebuilding
(including townhomes, condominiums and single family homes), related financial
services, or other activities reasonably related or incident to the foregoing.
"Permitted Investment" means (a) Investments in Cash Equivalents, (b)
Investments in the Company or in its Restricted Subsidiaries, (c) Investments
by the Company or any Restricted Subsidiary of the Company in a Person, if as
a result of such Investment (i) such Person becomes a Restricted Subsidiary of
the Company or (ii) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary; (d) advances to Ryan
Mortgage Acceptance Corporation IV for the purpose of redeeming the bonds of
such entity; provided that (i) the net proceeds of the sale of the collateral
securing such bonds will be used to repay such advance with any remaining net
proceeds to be distributed as a dividend to NVRFS, (ii) at the time of such
Investment, a valid written commitment shall be in place from an investor not
affiliated with the Company to purchase such collateral within a specified
period of time, which period shall in no event exceed 60 days, and at a
specific price or yield and (iii) each advance is repaid within two Business
Days after the delivery of the collateral pursuant to such written commitment;
(e) loans or advances made in the ordinary course of business to officers,
directors or employees of the Company or any of its Restricted Subsidiaries in
an amount not to exceed $2,000,000 at any one time outstanding, (f)
Investments made prior to the Issue Date, (g) Investments in the form of
guaranties to the extent such guaranties are permitted to be Incurred pursuant
to the provisions described under "Certain Covenants--Limitations on
Indebtedness," (h) net cash Investments in and advances to Unrestricted
Subsidiaries in an amount not to exceed $20,000,000 at any one time
outstanding, (i) Investments having an aggregate fair market value (measured
on the date each such Investment is made and without giving effect to
subsequent changes in value) not to exceed $15,000,000 in any fiscal year and
not to exceed $30,000,000 at any one time outstanding, in any Permitted
Business and (j) Investments in NVR Mortgage Finance, Inc. to be used by NVR
Mortgage Finance, Inc. solely for the purpose of funding mortgage loans in the
ordinary course of business in an amount not to exceed $25,000,000; provided,
however, that (i) a valid take-out commitment is in place at the time of the
closing of the mortgage loan from an investor not affiliated with the Company,
and (ii) any particular advance remains outstanding for no more than 15
consecutive calendar days in any calendar month.
"Permitted Liens" means (a) Liens for taxes, assessments or governmental
charges or claims that either (i) are not yet delinquent, (ii) are being
contested in good faith by appropriate proceedings and as to which appropriate
reserves have been established or other provisions have been made in
accordance with GAAP, or (iii) solely encumber property abandoned or in the
process of being abandoned, (b) statutory Liens of landlords and carriers',
warehousemen's, mechanics', suppliers', materialmen's, repairmen's or other
Liens imposed by law and arising in the ordinary course of business and with
respect to amounts that, to the extent applicable, either (i) are not yet
delinquent or (ii) are being contested in good faith by appropriate
proceedings and as to which appropriate reserves have been established or
other provisions have been made in accordance with GAAP, (c) Liens Incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security, (d)
Liens Incurred or deposits made to secure the performance of tenders, bids,
leases, statutory obligations, surety and appeal bonds, performance bonds,
completion bonds, performance guaranty bonds, progress payments, government
contracts, utility services and other obligations of like nature in each case
Incurred in the ordinary course of business, (e) attachment or judgment Liens
with respect to judgments or proceedings which, with the passage of time,
would not constitute an Event of Default and which are being contested in good
faith by appropriate proceedings, (f) easements, dedications, assessment
district or similar Liens in connection with municipal or special district
financing,
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rights-of-way, zoning restrictions, reservations and other similar charges,
encumbrances or burdens not materially interfering with the ordinary course of
business, (g) leases or subleases granted to others not materially interfering
with the ordinary course of business, (h) Liens on assets securing Refinancing
Indebtedness which refinanced Indebtedness that was previously secured by such
assets, (i) any interest in or title of a lessor to property subject to any
Capitalized Lease Obligation Incurred in compliance with the Indenture, (j)
Liens existing on the date of the Indenture, including without limitation,
Liens securing Existing Indebtedness, (k) any right of first refusal, right of
first offer, option, contract or other agreement to sell or purchase an asset,
pay lot premiums or participate in the income or revenue derived therefrom,
(l) Liens securing Non-Recourse Indebtedness of the Company or a Restricted
Subsidiary, (m) Liens on property or assets of any Restricted Subsidiary
securing Indebtedness of such Restricted Subsidiary owing to the Company or
one or more of its Restricted Subsidiaries, (n) any legal right of, or right
granted in good faith to, a lender or lenders to which the Company or a
Restricted Subsidiary may be indebted to offset against, or appropriate and
apply to the payment of, such Indebtedness any and all balances, credits,
deposits, accounts or monies of the Company or a Restricted Subsidiary with or
held by such lender or lenders, (o) Liens in favor of the Trustee arising
pursuant to the Indenture, (p) Liens Incurred in the ordinary course of
business as security for the Company's or its Restricted Subsidiaries'
obligations with respect to indemnification in favor of title insurance
providers, (q) letters of credit, bonds or other assets pledged to secure
insurance in the ordinary course of business, (r) Liens on property of a
person existing at the time such person is merged into or consolidated with
the Company or any Restricted Subsidiary of the Company; provided, that such
Liens were not incurred in connection with, or in contemplation of, such
merger or consolidation; (s) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary of the
Company; provided that such Liens (a) were not incurred in connection with, or
in contemplation of, such acquisition and (b) do not extend to any assets of
the Company or any of its Restricted Subsidiaries other than the property so
acquired; (t) Liens incurred or pledges or deposits made in the ordinary
course of business to secure payment of workers' compensation, or to
participate in any fund in connection with workers' compensation, unemployment
insurance, old age pensions or other social security programs; (u) Liens
created by special assessment districts used to finance infrastructure
improvements; (v) interests of purchasers of housing units in such units
arising under the applicable contracts of sale or applicable law; (w) any
pledge or deposit of cash or property in conjunction with obtaining bonds or
letters of credit required to engage in constructing on-site and off-site
improvements required by municipalities or other governmental authorities in
the ordinary course of business; (x) purchase money mortgages (including,
without limitation, Capitalized Lease Obligations and purchase money security
interests); and (y) any other Liens which would not otherwise be permitted by
the foregoing; provided that the aggregate amount of obligations secured by
such other Liens outstanding at any one time does not exceed 10% of the
Company's Consolidated Net Worth at such time.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint
stock company, trust, unincorporated organization or government or any agency
or political subdivision thereof.
"Preferred Stock" of any Person means all Capital Stock of such Person which
has a preference in liquidation or with respect to the payment of dividends.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person, whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Qualified Capital Stock" means Capital Stock other than Disqualified
Capital Stock.
"Public Equity Offering" means an underwritten public offering by the
Company of its Qualified Capital Stock pursuant to a registration statement
effective under the Securities Act (other than a registration statement on
Form S-8 or similar form).
"Rating Agencies" shall mean (i) S&P and (ii) Moody's.
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"Reference Period" with regard to any Person means the four full fiscal
quarters of such Person ended on or immediately preceding any date upon which
any determination is to be made pursuant to the terms of the Notes or the
Indenture for which financial information is available.
"Refinancing Indebtedness" means Indebtedness that is an extension, renewal,
replacement or refunding of Indebtedness permitted to be Incurred by the
Indenture; provided, however, that (a) the maximum principal amount of
Refinancing Indebtedness (or, if such Refinancing Indebtedness does not
require cash payments prior to maturity or is otherwise issued at a discount,
the original issue price of such Refinancing Indebtedness) permitted may not
exceed (i) the principal amount of the Indebtedness being extended, renewed,
replaced or refunded plus reasonable financing fees and other associated
reasonable out-of-pocket expenses and any prepayment premium, penalty, consent
fees and accrued interest (collectively, "Refinancing Fees"); or (ii) if such
Indebtedness being extended, renewed, replaced, or refunded was issued at an
original issue discount, the original issue price, plus amortization of the
original issue discount to the time of the Incurrence of the Refinancing
Indebtedness plus Refinancing Fees, (b) except with respect to Indebtedness
Incurred to finance the acquisition, holding or development of real property
and related appurtenances and the construction of improvements thereon and
Incurred in the ordinary course of business and in compliance with the terms
of the Indenture, the Refinancing Indebtedness has a Weighted Average Life and
a final maturity that is equal to or greater than the Indebtedness being
extended, renewed, replaced or refunded at the time of such extension,
renewal, replacement or refunding, (c) the Refinancing Indebtedness shall rank
with respect to the Notes to an extent no less favorable in respect thereof to
the Holders than the Indebtedness being refinanced, and (d) the Company may
Incur Refinancing Indebtedness only to refinance Indebtedness of the Company
or a Subsidiary Guarantor, and a Subsidiary Guarantor may Incur Refinancing
Indebtedness only to refinance Indebtedness of the Company or a Subsidiary
Guarantor and a Restricted Subsidiary that is not a Subsidiary Guarantor may
incur Refinancing Indebtedness only to refinance Indebtedness of such
Restricted Subsidiary or another Restricted Subsidiary that is not a
Subsidiary Guarantor.
"Restricted Payment" means, with respect to any Person, (a) any dividend or
other distribution on shares of Capital Stock of the Company or any Restricted
Subsidiary, (b) any payment on account of the purchase, redemption or other
acquisition or retirement for value, in whole or in part, of any shares of
Capital Stock of the Company or any Restricted Subsidiary, (c) any defeasance,
redemption, repurchase, or other acquisition or retirement for value, or any
payment in respect of any amendment (in anticipation of or in connection with
any such retirement, acquisition, or defeasance), in whole or in part, of any
Indebtedness of the Company or a Restricted Subsidiary that is subordinate in
right of payment to the Notes, but only if such defeasance, redemption,
repurchase or other acquisition or retirement is made prior to the scheduled
payment on such Indebtedness and (d) any Investment (other than a Permitted
Investment); provided, however, that the term "Restricted Payment" does not
include (i) any dividend, distribution, or other payment on shares of Capital
Stock of the Company or a Restricted Subsidiary solely in shares of Qualified
Capital Stock of the Company or such Restricted Subsidiary, (ii) any dividend,
distribution, or other payment to the Company or any of its Restricted
Subsidiaries by any of its Subsidiaries, (iii) the purchase, redemption or
other acquisition or retirement for value of any shares of Capital Stock of a
Subsidiary owned by the Company, (iv) any defeasance, redemption, repurchase
or other acquisition or retirement for value, in whole or in part, of (A)
Indebtedness of the Company payable solely in shares of Capital Stock or
Subordinated Indebtedness of the Company, (B) Indebtedness or Disqualified
Capital Stock of a Restricted Subsidiary payable solely in shares of Capital
Stock of the Company or such Restricted Subsidiary or Subordinated
Indebtedness of the Company, or (C) Indebtedness of the Company owed to
Subsidiary Guarantors and Indebtedness of the Company that is subordinated in
right of payment to the Notes and owed to its Restricted Subsidiaries that are
not Subsidiary Guarantors, (v) any defeasance, redemption, repurchase, or
other acquisition or retirement for value, in whole or in part, of
Subordinated Indebtedness of the Company or a Restricted Subsidiary existing
on the Issue Date or (vi) any proportionate payment in respect of minority
interests in Restricted Subsidiaries to the extent that the payment
constitutes a return of capital that was not included in the Company's
shareholders' equity or a dividend or similar distribution not included in
determining the Company's Consolidated Net Income.
"Restricted Subsidiary" means each of the Subsidiaries of the Company which
is not an Unrestricted Subsidiary.
S-47
<PAGE>
"S&P" means Standard and Poor's Ratings Group or any successor to its debt
rating business.
"SEC" means the Securities and Exchange Commission or any successor agency
performing the duties now assigned to it under the TIA.
"Securities Act" means the Securities Act of 1933, as amended.
"Significant Subsidiary" means any Subsidiary of the Company which would
constitute a "significant subsidiary" as defined in Rule 1.02 of Regulation S-
X under the Securities Act and the Exchange Act.
"Stated Maturity," when used with respect to any Note, means June 1, 2005.
"Subordinated Indebtedness" means Indebtedness of the Company which is
subordinated in right of payment to the prior payment in full, including all
payment of principal, premium and all accrued interest (and post-petition
interest) on, and all other amounts owing in connection with the Notes.
"Subsidiary" of any Person means any corporation or other entity (other than
political subdivisions or enterprises thereof or governmental agencies) of
which at least 50% of the Capital Stock having ordinary voting power to elect
the Board of Directors or other persons performing similar functions is at the
time directly or indirectly owned or controlled by such Person.
"Subsidiary Guarantor" means NVR Homes, Inc. and any other Subsidiary of the
Company that is required to execute a Subsidiary Guarantee pursuant to the
Indenture.
"TIA" means the Trust Indenture Act of 1939, as in effect from time to time.
"Trustee" means the party named as such in the Indenture until a successor
replaces it pursuant to the Indenture and thereafter means the successor
serving under the Indenture.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Unrestricted Subsidiary" means each of the Subsidiaries of the Company so
designated by a resolution adopted by the Board of Directors of the Company as
provided below and whose creditors have no direct or indirect recourse
(including, without limitation, no recourse with respect to the payment of
principal or interest on Indebtedness of such Subsidiary) to the Company or a
Restricted Subsidiary. The Board of Directors of the Company may redesignate
an Unrestricted Subsidiary to be a Restricted Subsidiary; provided that (i)
any such redesignation will be deemed to be an Incurrence by the Company and
its Restricted Subsidiaries of the Indebtedness (if any) of such redesignated
Subsidiary for purposes of the Indenture as of the date of such redesignation,
and (ii) immediately after giving effect to such redesignation and the
incurrence of any such additional Indebtedness, the Company and its Restricted
Subsidiaries could incur $1.00 of additional Indebtedness pursuant to
paragraph (b) under the caption, "Limitations on Indebtedness." Subject to the
foregoing, the Board of Directors of the Company also may designate any
Restricted Subsidiary to be an Unrestricted Subsidiary; provided that (i) a
Restricted Payment will be deemed to be made at the time of such designation
and such designation will reduce the Basket to the extent of the book value
(in accordance with GAAP) of the Company's or a Restricted Subsidiary's
investment in the Subsidiary being designated an Unrestricted Subsidiary (the
"Designation Amount"), and (ii) immediately after giving effect to such
designation and reduction of the Basket, the Company and its Restricted
Subsidiaries could incur $1.00 of additional Indebtedness pursuant to
paragraph (b) under the caption "Limitations on Indebtedness." Any such
designation or redesignation by the Board of Directors of the Company will be
evidenced to the Trustee by the filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Company giving effect to such
designation or redesignation and an Officers' Certificate certifying that such
designation or redesignation complied with the foregoing conditions and
setting forth the underlying calculations of such Officers' Certificate.
"Weighted Average Life" means, as of the date of determination, with respect
to any debt instrument, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal payment of such debt instrument multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
S-48
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement dated April 8, 1998 (the "Underwriting Agreement"), each of the
underwriters named below (the "Underwriters") has severally agreed to purchase
from the Company, and the Company has agreed to sell to the Underwriters
severally, the principal amount of Notes set forth opposite the name of such
Underwriter below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
Salomon Brothers Inc ....................................... $101,500,000
Credit Suisse First Boston Corporation...................... 21,750,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 21,750,000
------------
Total..................................................... $145,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Notes offered hereby are
subject to the approval of certain legal matters by their counsel and to
certain other conditions. The Underwriters will be obligated to take and pay
for all of the Notes offered hereby if any of such Notes are purchased.
The distribution of the Notes by the Underwriters is being effected from
time to time in negotiated transactions or otherwise at market prices
prevailing at the time of sale, at prices relating to such prevailing market
prices or at negotiated prices. In connection with the sale of any Notes, the
Underwriters may be deemed to have received compensation from the Company
equal to the difference between the amount received by the Underwriters upon
the sale of the Notes and the price at which the Underwriters purchased such
Notes from the Company. In addition, the Underwriters may sell Notes to or
through certain dealers, and dealers may receive compensation in the form of
underwriting discounts, concessions or commissions from the Underwriters
and/or any purchasers of Notes for whom they may act as agent (which
compensation may be in excess of customary commissions). The Underwriters may
also receive compensation from the purchasers of Notes for whom they may act
as agent.
In connection with the Offering and in compliance with applicable law, the
Underwriters may engage in transactions which stabilize or maintain the market
price of the Notes at levels above those which might otherwise prevail in the
open market. Specifically, the Underwriters may over-allot in connection with
the Offering creating a short position in the Notes for their own account. For
the purposes of covering a syndicate short position or stabilizing the price
of the Notes, the Underwriters may place bids for the Notes or effect
purchases of the Notes in the open market. A syndicate short position may also
be covered by exercise of the over-allotment option described above. Finally,
the Underwriters may impose a penalty bid on certain Underwriters and dealers.
This means that the underwriting syndicate may reclaim selling concessions
allowed to an Underwriter or a dealer for distributing the Notes in the
Offering if the syndicate repurchases previously distributed Notes in
transactions to cover syndicate short positions, in stabilization transactions
or otherwise. The Underwriters are not required to engage in any of these
activities and any such activities, if commenced, may be discontinued at any
time.
The Company and the Underwriters have agreed to indemnify each other against
certain liabilities, including liabilities under the Securities Act of 1933,
or to contribute to payments in respect thereof.
Proceeds of the Offering will be used in part to refinance the 1993 Notes.
Salomon Brothers Inc and its affiliates hold an amount of 1993 Notes such that
the retirement of such 1993 Notes would require more than 10% of the net
proceeds of the Offering. As a result, more than 10% of the net proceeds of
the Offering may be deemed to be paid to Salomon Brothers Inc. Therefore, this
Offering is being made pursuant to Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. Credit Suisse First Boston
Corporation, Inc. has assumed the responsibilities of acting as a "qualified
independent underwriter" in pricing the Offering and conducting due diligence.
The Company has applied for listing of the Notes on the American Stock
Exchange. The Company has been advised by the Underwriters that they currently
intend to make a market in the Notes. However, the Underwriters are not
obligated to do so, and any market making may be discontinued at any time
without any notice. There can be no assurance as to whether an active trading
market for the Notes will develop.
S-49
<PAGE>
LEGAL MATTERS
Certain legal matters with respect to the Notes are being passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters
with respect to the Notes are being passed upon for the Underwriters by Latham
& Watkins, Washington, D.C.
S-50
<PAGE>
NVR, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996............. F-3
Consolidated Statements of Income for each of the Three Years Ended
December 31, 1997....................................................... F-5
Consolidated Statements of Shareholders' Equity for each of the Three
Years Ended
December 31, 1997....................................................... F-6
Consolidated Statements of Cash Flows for each of the Three Years Ended
December 31, 1997....................................................... F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders NVR, Inc.:
We have audited the accompanying consolidated balance sheets of NVR, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of NVR, Inc.
and subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
January 28, 1998
F-2
<PAGE>
NVR, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Homebuilding:
Cash and cash equivalents.................................. $ 41,684 $ 71,533
Receivables................................................ 3,398 2,927
Inventory:
Lots and housing units, covered under sales agreements
with customers.......................................... 165,132 126,456
Unsold lots and housing units............................ 51,434 37,940
Manufacturing materials and other........................ 7,475 7,297
-------- --------
224,041 171,693
-------- --------
Property, plant and equipment, net......................... 17,241 17,916
Reorganization value in excess of amounts allocable to
identifiable assets, net.................................. 69,366 75,818
Goodwill, net.............................................. 10,753 --
Contract land deposits..................................... 36,992 36,383
Other assets............................................... 22,424 21,008
-------- --------
425,899 397,278
-------- --------
Mortgage Banking:
Cash and cash equivalents.................................. 4,041 3,247
Mortgage loans held for sale, net.......................... 115,744 75,735
Mortgage servicing rights, net............................. 2,220 6,309
Property and equipment, net................................ 637 917
Reorganization value in excess of amounts allocable to
identifiable assets, net.................................. 11,700 12,788
Other assets............................................... 4,380 4,891
-------- --------
138,722 103,887
-------- --------
Total assets........................................... $564,621 $501,165
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
NVR, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Homebuilding:
Accounts payable......................................... $ 67,987 $ 54,894
Accrued expenses and other liabilities................... 94,931 85,260
Notes payable............................................ 5,728 86
Other term debt.......................................... 14,017 14,043
Senior notes............................................. 120,000 120,000
-------- --------
302,663 274,283
-------- --------
Mortgage Banking:
Accounts payable and other liabilities................... 8,925 7,409
Notes payable............................................ 108,393 67,463
-------- --------
117,318 74,872
-------- --------
Total liabilities...................................... 419,981 349,155
-------- --------
Commitments and contingencies
Shareholders' equity:
Common stock, $0.01 par value; 60,000,000 shares
authorized; 19,995,494 and 19,881,515 shares issued for
1997 and 1996, respectively............................. 200 199
Additional paid-in-capital............................... 164,731 157,842
Retained earnings........................................ 75,977 47,098
Less treasury stock at cost--8,900,972 and 6,307,108
shares at December 31, 1997 and 1996, respectively...... (96,268) (53,129)
-------- --------
Total shareholders' equity............................. 144,640 152,010
-------- --------
Total liabilities and shareholders' equity........... $564,621 $501,165
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
NVR, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Homebuilding:
Revenues............... $1,154,022 $1,045,930 $ 869,119
Other income........... 1,232 1,312 1,577
Cost of sales.......... (995,855) (906,255) (751,035)
Selling, general and
administrative........ (87,231) (71,184) (63,200)
Amortization of
reorganization value
in excess of amounts
allocable to
identifiable
assets/goodwill....... (6,635) (7,048) (7,048)
---------- ---------- ---------
Operating income..... 65,533 62,755 49,413
Interest expense....... (16,410) (16,611) (17,166)
---------- ---------- ---------
Homebuilding income.. 49,123 46,144 32,247
Mortgage Banking:
Mortgage banking fees.. 25,946 24,029 26,297
Interest income........ 6,415 5,351 4,744
Other income........... 674 47 46
General and
administrative........ (23,636) (23,507) (26,747)
Amortization of
reorganization value
in excess of amounts
allocable to
identifiable assets... (1,088) (1,088) (1,088)
Interest expense....... (3,544) (2,249) (2,090)
---------- ---------- ---------
Operating income..... 4,767 2,583 1,162
Total segment income..... 53,890 48,727 33,409
Income tax expense....... (25,011) (22,946) (17,009)
---------- ---------- ---------
Income before
extraordinary gains..... 28,879 25,781 16,400
Extraordinary gain--
repurchase of debt (net
of tax expense of $645
for the year ended
December 31, 1995)...... -- -- 927
---------- ---------- ---------
Net income............... $ 28,879 $ 25,781 $ 17,327
========== ========== =========
Basic earnings per share:
Income before
extraordinary gain.... $ 2.44 $ 1.76 $ 1.07
Extraordinary gain..... -- -- 0.06
---------- ---------- ---------
Basic earnings per
share................. $ 2.44 $ 1.76 $ 1.13
========== ========== =========
Diluted earnings per
share:
Income before
extraordinary gain.... $ 2.18 $ 1.70 $ 1.06
Extraordinary gain..... -- -- 0.06
---------- ---------- ---------
Diluted earnings per
share................. $ 2.18 $ 1.70 $ 1.12
========== ========== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
NVR, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Balance, December 31, 1994............. $ 181 $142,163 $ 4,299 $(17,121)
Net income........................... -- -- 17,327 --
Purchase of common stock for
treasury............................ -- -- -- (2,581)
Performance share activity........... 1 1,739 -- --
Warrant activity..................... -- 1 -- --
Option activity...................... 2 169 -- --
-------- -------- -------- --------
Balance, December 31, 1995............. 184 144,072 21,626 (19,702)
Net income........................... -- -- 25,781 --
Purchase of common stock for
treasury............................ -- -- -- (35,137)
Performance share activity........... -- 529 -- 1,710
Warrant activity..................... 15 13,146 (309) --
Option activity...................... -- 95 -- --
-------- -------- -------- --------
Balance, December 31, 1996............. 199 157,842 47,098 (53,129)
Net income........................... -- -- 28,879 --
Purchase of common stock for
treasury............................ -- -- -- (45,545)
Performance share activity........... -- 5,580 -- 2,406
Tax benefit from stock options
exercised........................... -- 464 -- --
Option activity...................... 1 845 -- --
-------- -------- -------- --------
Balance, December 31, 1997............. $ 200 $164,731 $ 75,977 $(96,268)
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
NVR, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 28,879 $ 25,781 $ 17,327
Adjustments to
reconcile net income
to net cash provided
(used) by operating
activities:
Extraordinary gain--
extinguishment of
debt................. -- -- (1,572)
Depreciation and
amortization......... 13,338 15,417 14,814
Gain on sales of
loans................ (16,731) (14,401) (8,320)
Deferred tax
provision............ (629) (322) (3,596)
Interest accrued and
added to bond
principal............ -- 1,180 2,749
Mortgage loans
closed............... (1,485,763) (1,243,945) (1,092,676)
Proceeds from sales of
mortgage loans....... 1,450,618 1,268,254 1,052,550
(Gain) loss on sales
of mortgage servicing
rights............... (1,069) 1,194 (5,534)
Net change in assets
and liabilities:
Increase in
inventories........ (31,354) (16,980) (45,175)
Decrease (increase)
in receivables..... 693 5,084 (2,191)
Increase (decrease)
in accounts payable
and accrued
expenses........... 20,556 (611) 20,720
Other, net............ 6,437 (1,869) (7,184)
----------- ----------- -----------
Net cash provided
(used) by
operating
activities....... (15,025) 38,782 (58,088)
----------- ----------- -----------
Cash flows from
investing activities:
Sale of marketable
securities........... -- -- 5,000
Proceeds from sales of
mortgage-backed
securities........... 15,126 45,835 1,069
Business acquisition,
net of cash
acquired............. (12,533) -- --
Purchase of property,
plant and equipment.. (3,053) (4,267) (3,590)
Principal payments on
mortgage-backed
securities........... 4,190 15,511 16,932
Purchase of mortgage
servicing rights..... -- (193) (10,664)
Proceeds from sales of
mortgage servicing
rights............... 14,199 23,518 16,050
Other, net............ 1,236 4,458 1,242
----------- ----------- -----------
Net cash provided
by investing
activities....... 19,165 84,862 26,039
----------- ----------- -----------
Cash flows from
financing activities:
Redemption of bonds... (18,019) (62,306) (20,104)
Repurchase of senior
notes................ -- -- (12,962)
Purchases of treasury
stock................ (45,545) (35,137) (2,581)
Net borrowings
(repayments) under
notes payable and
credit lines......... 29,523 (19,935) 51,663
Other, net............ 846 12,947 124
----------- ----------- -----------
Net cash provided
(used) by
financing
activities....... (33,195) (104,431) 16,140
----------- ----------- -----------
Net increase (decrease)
in cash................ (29,055) 19,213 (15,909)
Cash, beginning of
year................... 74,780 55,567 71,476
----------- ----------- -----------
Cash, end of year....... $ 45,725 $ 74,780 $ 55,567
=========== =========== ===========
Supplemental disclosures
of cash flow
information:
Interest paid during
the year............. $ 21,255 $ 22,160 $ 25,214
=========== =========== ===========
Income taxes paid
during the year, net
of refunds........... $ 23,018 $ 26,492 $ 16,745
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
NVR, Inc. ("NVR" or "The Company"), its wholly-owned subsidiaries and certain
partially-owned entities. All significant intercompany transactions have been
eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents includes short-term investments with original
maturities of three months or less.
Homebuilding Inventory
Inventory is stated at the lower of cost or market value. Cost of lots and
completed and uncompleted housing units represent the accumulated actual cost
thereof. Field construction supervisors' salaries and related direct overhead
expenses are included in inventory costs. Interest costs are not capitalized
into inventory. Upon settlement, the cost of the units is expensed on a
specific identification basis. Cost of manufacturing materials is determined
on a first-in, first-out basis.
Reorganization Value in Excess of Amounts Allocable to Identifiable Assets
Reorganization value in excess of amounts allocable to identifiable assets
("reorganization value") is being amortized on a straight-line basis over 15
years. Accumulated amortization as of December 31, 1997 and 1996 was $34,489
and $26,948, respectively. Determination of any impairment losses related to
this intangible asset is based on consideration of projected undiscounted cash
flows.
Goodwill
The excess of amounts paid for business acquisitions over the net fair value
of the assets acquired and the liabilities assumed ("Goodwill") is amortized
using the straight line method over ten years, and originated from the October
31, 1997 acquisition of Fox Ridge Homes, Inc. See Note 2. Accumulated
amortization was $182 at December 31, 1997. Determination of any impairment
losses related to this intangible asset is based on consideration of projected
undiscounted cash flows.
Mortgage Loans Held for Sale
Mortgage loans held for sale are valued at the lower of cost or market on a
net aggregate basis.
Mortgage-Backed Securities and Mortgage-Backed Bonds
Prior to 1996, the Company's ownership interests in mortgage-backed
securities and the related mortgage-backed bonds were presented on a gross
basis on the consolidated balance sheets and income statements. Accordingly,
the book values of the mortgage-backed securities and mortgage-backed bonds
were presented
F-8
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
separately as assets and liabilities, respectively, on the consolidated
balance sheets, and interest income on mortgage-backed securities and interest
expense of the mortgage-backed bonds were presented separately as income and
expense, respectively, on the consolidated income statements. All of such
interests are at, or are nearing, the ends of their economic useful lives, and
as such, NVR does not anticipate that such assets will generate significant
amounts of income or cash flow in the future. The Company's consolidated
balance sheets for all periods presented reflect its ownership interests in
mortgage-backed securities net of the related mortgage-backed bonds as a
component of other assets of the mortgage banking segment, and the
consolidated statements of income for all periods presented reflect earnings
from such interests net of the related interest expense as a component of
other income of the mortgage banking segment.
Adoption of New Accounting Principles
In February 1997, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings
per Share. SFAS No. 128 supersedes APB Opinion No. 15, Earnings per Share
("Opinion No. 15") and requires the calculation and dual presentation of Basic
and Diluted earnings per share ("EPS"), replacing the measures of primary and
fully-diluted EPS as reported under Opinion No. 15. SFAS No. 128 is effective
for financial statements issued for periods ending December 31, 1997.
Restatement of prior period EPS data to conform with SFAS No. 128 is required.
The following weighted average shares and share equivalents are used to
calculate Basic and Diluted EPS for the years ended December 31, 1997, 1996
and 1995:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Weighted average number
of shares outstanding
used to calculate Basic
EPS.................... 11,838,743 14,620,593 15,334,148
Dilutive securities:
Warrants.............. -- 211,502 --
Stock Options......... 1,405,934 304,914 71,115
---------- ---------- ----------
Weighted average number
of shares and share
equivalents outstanding
used to calculate
Diluted EPS............ 13,244,677 15,137,009 15,405,263
========== ========== ==========
</TABLE>
The Company also adopted SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities during the
year ended December 31, 1997. Such adoption did not have a material impact on
the Company's financial condition or results of operations.
Revenues-Homebuilding Operations
NVR Homes, Inc. ("Homes"), a wholly owned subsidiary of NVR, builds light-
frame, low-rise residences which generally are produced on a pre-sold basis
for the ultimate customer. Revenues are recognized at the time units are
completed and title passes to the customer. Additionally, to a significantly
lesser degree, Homes sells house packages to builder-dealers and other
homebuilders and recognizes revenue at the time the product is delivered to
the builder-dealer or homebuilder.
Mortgage Banking Fees
Mortgage banking fees include income earned by NVR's mortgage banking
subsidiaries for originating and processing mortgage loans, servicing mortgage
loans held in the servicing portfolio, title fees, gains and losses
F-9
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
on the sale of mortgage loans and mortgage servicing and other activities
incidental to mortgage banking. Loan origination fees and direct loan
origination costs are deferred and the net deferred fees, or costs, are
recognized either upon the sale of the loan or as an adjustment of the yield
over the life of the loan.
Mortgage Servicing Rights
Mortgage servicing rights are recorded by allocating the total cost of
acquiring mortgage loans to the mortgage servicing rights and the loans
(without the mortgage servicing rights) based on their relative fair values.
NVR measures the impairment of the mortgage servicing rights based on their
current fair value. Current fair value is determined through the discounted
present value of estimated future net servicing cashflows using a risk-based
discount rate and assumptions based upon market estimates for future servicing
revenues and expenses (including prepayment expectations, servicing costs,
default rates, and interest earnings on escrows). For the purposes of
evaluating and measuring impairment of the mortgage servicing rights, they are
stratified using the predominant risk characteristic of the underlying
mortgage loans. NVR has determined that the predominant risk characteristic of
the underlying mortgage loans is interest rate. Impairment, and subsequent
changes in measurement of impairment, of any individual stratum is recognized
through a valuation allowance for that stratum. The mortgage servicing rights
are amortized to general and administrative expense in proportion to, and over
the period of, the estimated net servicing income.
Depreciation
Depreciation is based on the estimated useful lives of the assets using the
straight-line method. Amortization of capital lease assets is included in
depreciation expense.
Income Taxes
NVR files a consolidated federal income tax return. Deferred income taxes
reflect the impact of "temporary differences" between the amount of assets and
liabilities for financial reporting purposes and such amounts as measured by
enacted tax rules and regulations.
Financial Instruments
Except as otherwise noted in notes 1 and 4 to the financial statements, NVR
believes that insignificant differences exist between the carrying value and
the fair value of its financial instruments. The estimated fair value of NVR's
11% Senior Notes due 2003 ("Senior Notes") as of December 31, 1997 and 1996
was $130,776 and $127,044, respectively, with a carrying value of $120,000 at
both respective dates. The estimated fair values are based on quoted market
prices for these instruments.
Stock-Based Compensation
As permitted under SFAS No. 123, NVR has elected to continue to follow the
guidance of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, in accounting for its stock-based employee compensation
arrangements. The pro forma financial information required by SFAS No. 123 is
included in footnote 10.
2. ACQUISITION
NVR Fox Ridge, Inc., a wholly owned subsidiary of Homes, was formed during
1997 to purchase substantially all of the assets and assume certain
liabilities of Fox Ridge Homes, Inc. ("FRH"), a leading homebuilder in
Nashville, Tennessee. NVR Fox Ridge, Inc. was renamed Fox Ridge Homes, Inc.
("Fox Ridge")
F-10
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in November, 1997. To consummate the purchase on October 31, 1997, Fox Ridge
assumed approximately $15,160 of FRH's liabilities, paid FRH $14,250 in cash
at settlement on October 31, 1997, and issued a note payable for the remaining
$4,750 purchase price. The note bears interest at 200 basis points above the
federal funds target rate, and will be paid in three annual installments on
October 31, 1998, 1999 and 2000, including accrued interest.
Fox Ridge accounted for this acquisition using the purchase method, and the
operations of the acquired business have been included in NVR's consolidated
statements of income since its acquisition. Goodwill that was generated
pursuant to the purchase transaction is being amortized using the straight
line method over 10 years.
The following unaudited pro forma summary of combined operations was
prepared to illustrate the estimated effects of the 1997 acquisition of FRH as
if such acquisition had occurred on the first day of the respective periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1997 1996
----------- -----------
<S> <C> <C>
Homebuilding revenues............................... $ 1,192,684 $ 1,100,821
Net income.......................................... 29,343 28,209
Diluted earnings per share.......................... 2.22 1.86
</TABLE>
3. SEGMENT INFORMATION, NATURE OF OPERATIONS, AND CERTAIN CONCENTRATIONS
NVR is a holding company that operates in two business segments:
homebuilding and mortgage banking. The homebuilding segment is one of the
largest homebuilders in the United States and in the Washington, D.C. and
Baltimore, Maryland metropolitan areas, where NVR derived approximately 66% of
its 1997 homebuilding revenues. NVR's homebuilding segment primarily
constructs and sells single-family detached homes, townhomes and condominium
buildings in three distinct product lines, through two divisions and one
wholly owned subsidiary: Ryan Homes, NVHomes and Fox Ridge. Ryan Homes builds
moderately priced homes in sixteen metropolitan areas located in Maryland,
Virginia, Pennsylvania, New York, North Carolina, South Carolina, Ohio, New
Jersey, Delaware and Tennessee, and markets its homes primarily to first-time
buyers. NVHomes builds homes largely in the Washington, D.C. metropolitan
area, and markets its homes primarily to move-up buyers. Fox Ridge Homes, Inc.
builds moderately priced homes in Nashville, TN and also markets its homes
primarily to first-time homebuyers.
The mortgage banking segment, which operates under NVR Financial Services,
Inc. ("NVRFS"), currently includes a national mortgage banking operation and a
limited-purpose financing subsidiary (the "Limited-Purpose Financing
Subsidiary") which was formed to facilitate the financing of long-term
mortgage loans through the sale of non-recourse bonds collateralized by
mortgage-backed securities. The Company sells all of the mortgage loans it
closes into the secondary markets and sells its originated mortgage servicing
rights on a flow basis. A significant portion of the Company's mortgage
operations are conducted in the Washington, D.C. and Baltimore, Maryland
metropolitan area. Although NVR's mortgage banking operations provide
financing to a substantial portion of NVR's homebuilding customers, NVR's
homebuilding customers accounted for only 43% of the dollar amount of loans
closed in 1997.
Because there are no significant holding company revenues, unallocable
selling, general and administrative expense and assets other than its
investment in the homebuilding and mortgage banking subsidiaries, the holding
company (excluding its investment in its subsidiaries) is presented as part of
the homebuilding segment in the accompanying consolidated financial statements
and following:
F-11
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Homebuilding.......... $1,155,254 $1,047,242 $870,696
Mortgage Banking...... 33,035 29,427 31,087
---------- ---------- --------
$1,188,289 $1,076,669 $901,783
========== ========== ========
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Operating income:
Homebuilding.......... $ 65,533 $ 62,755 $ 49,413
Mortgage Banking...... 3,932 1,804 1,005
Intersegment
transactions*........ 835 779 157
---------- ---------- --------
$ 70,300 $ 65,338 $ 50,575
========== ========== ========
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C> <C>
Identifiable assets:
Homebuilding.......... $ 425,899 $ 397,278
Mortgage Banking...... 138,722 103,887
---------- ----------
$ 564,621 $ 501,165
========== ==========
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Depreciation and
amortization:
Homebuilding.......... $ 11,019 $ 10,899 $ 10,322
Mortgage Banking...... 2,319 4,518 4,492
---------- ---------- --------
Total............... $ 13,338 $ 15,417 $ 14,814
========== ========== ========
Capital expenditures:
Homebuilding.......... $ 2,708 $ 4,019 $ 2,448
Mortgage Banking...... 345 248 1,142
---------- ---------- --------
Total............... $ 3,053 $ 4,267 $ 3,590
========== ========== ========
</TABLE>
- --------
* Intersegment transactions primarily represent intercompany advances and
related interest income/expense of the mortgage banking segment.
4. RELATED PARTY TRANSACTIONS
During 1997, 1996, and 1995, NVR purchased, at market prices, developed lots
from a company that is controlled by a member of the board of directors. Those
purchases totaled $8,066, $6,612, and $8,877 during 1997, 1996 and 1995,
respectively. NVR expects to purchase the remaining lots under contract as of
December 31, 1997 over the next 18 to 24 months for an aggregate purchase
price of approximately $32,000.
During the years ended December 31, 1997, 1996 and 1995, one of the
executive officers of NVR was a partner in a law firm which billed NVR
approximately $375, $344 and $324, respectively, in fees and expenses for
legal services.
F-12
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During the year ended December 31, 1995, NVR paid $181 to a company
partially owned by the chief executive officer of NVR as rent for its
executive office space. Effective October 1995, the chief executive officer
divested his ownership interest.
During 1996, NVR repurchased, at market prices, 2,370,839 shares of its
common stock for an aggregate purchase price of $25,401 from certain investors
who at the time of the purchases were beneficial owners of greater than five
percent (5%) of the Company's common stock. In addition, during 1996, the
Company also repurchased, at market prices, 304,735 warrants to purchase the
Company's common stock at an aggregate purchase price of $166 from certain of
the aforementioned investors.
5. LOAN SERVICING PORTFOLIO, MORTGAGE LOAN COMMITMENTS AND OFF-BALANCE SHEET
RISK
At December 31, 1997 and 1996, NVRFS was servicing approximately 2,947 and
9,200 mortgage loans for various investors with aggregate balances of
approximately $224,000 and $579,000, respectively.
At December 31, 1997, NVRFS had capitalized mortgage servicing rights of
$2,220 which related to approximately $175 million of the aggregate $224
million in loans serviced. The mortgage servicing rights associated with the
remaining $49 million in loans serviced are not subject to capitalization
because the loans were originated and sold prior to NVR's adoption of SFAS No.
122 on January 1, 1995. At December 31, 1996, NVRFS had capitalized purchased
mortgage servicing rights of $6,309.
NVRFS assesses the fair value of the capitalized mortgage servicing rights
by stratifying the underlying loans by interest rate. The fair value of the
mortgage servicing rights is then determined through the present value of
estimated future net servicing cashflows using a risk based discount rate, and
assumptions based upon market estimates for future servicing revenues and
expenses (including prepayment expectations, servicing costs, default rates,
and interest earnings on escrows). The fair value of the capitalized mortgage
servicing rights was $2,471 and $7,563 at December 31, 1997 and 1996,
respectively. The fair value of the mortgage servicing rights not subject to
capitalization was $490 and $650 at December 31, 1997 and 1996, respectively.
Based on management's estimate of the fair value of the designated strata, no
impairment valuation allowance is necessary.
NVRFS amortizes the capitalized mortgage servicing rights in proportion to,
and over the period of, the estimated net servicing income. The amortization
for the periods ending December 31, 1997, 1996 and 1995 was $506, $1,627 and
$2,665, respectively.
In the normal course of business, NVR Finance enters into contractual
commitments involving financial instruments with off-balance sheet risk. These
financial instruments include commitments to extend mortgage loans to
customers and forward contracts to sell mortgage-backed securities to
broker/dealers. These instruments involve, to varying degrees, elements of
credit and market rate risk in excess of the amounts recognized in the balance
sheet.
NVR Finance's exposure to credit loss, in the event of non-performance by
the customers, is represented by the contractual amount of the commitment for
the mortgage loans. NVR Finance uses the same credit policies in making
commitments as it does for on-balance sheet mortgage loans.
There were mortgage loan commitments aggregating approximately $129,949 and
$94,901 outstanding at December 31, 1997 and 1996, respectively. There were
open forward delivery contracts aggregating approximately $195,719 and
$130,891 at December 31, 1997 and 1996, respectively.
NVR Finance enters into contractual commitments to extend credit to buyers
of single-family homes with fixed expiration dates. The commitments become
effective when the borrowers "lock-in" a specified interest
F-13
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
rate within time frames established by NVR Finance. All mortgagors are
evaluated for credit worthiness prior to the extension of the commitment.
Market risk arises if interest rates move adversely between the time of the
"lock-in" of rates by the borrower and the sale date to a broker/dealer. This
market risk is managed by entering into forward contracts as discussed below.
Since certain of the commitments are expected to expire without a loan
closing, the total contractual amounts do not necessarily represent future
cash requirements. Collateral for loans granted is obtained by a first
mortgage security interest in real estate whose appraised values exceed the
contractual amount of the commitment.
NVR Finance enters into optional and mandatory forward delivery contracts to
sell mortgage-backed securities at specific prices and dates to
broker/dealers. NVR Finance has established policies governing which
broker/dealers can be used to conduct these activities. Credit risk associated
with forward contracts is limited to the replacement cost of those forward
contracts in a gain position, and at December 31, 1997 and 1996 there were no
such positions. There were no counterparty default losses on forward contracts
in 1997, 1996 or 1995. Market risk with respect to forward contracts arises
from changes in the value of contractual positions due to fluctuations in
interest rates. NVR Finance limits its exposure to market risk by monitoring
differences between the total of commitments to customers and loans held for
sale and forward contracts with broker/dealers. In the event NVR Finance has
forward delivery contract commitments in excess of available mortgage-backed
securities, NVR Finance completes the transaction by either paying or
receiving a fee to/from the broker/dealer equal to the increase/decrease in
the market value of the forward contract. NVRFS has no market risk associated
with optional delivery contracts because NVRFS has the right but not the
obligation to deliver mortgage backed securities to broker/dealers under these
contracts.
6. PROPERTY, PLANT AND EQUIPMENT, NET
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
Homebuilding:
Office facilities and other.............................. $ 7,926 $ 7,460
Model home furniture and fixtures........................ 5,947 4,255
Manufacturing facilities................................. 7,199 7,964
Property under capital leases............................ 14,177 14,177
------- -------
35,249 33,856
Less accumulated depreciation and amortization........... (18,008) (15,940)
------- -------
$17,241 $17,916
======= =======
Mortgage Banking:
Office facilities and other.............................. $ 3,965 $ 4,284
Less accumulated depreciation and amortization........... (3,328) (3,367)
------- -------
$ 637 $ 917
======= =======
</TABLE>
Included in Homebuilding property, plant and equipment are amounts for land
totaling $1,732 at December 31, 1997 and 1996.
Certain property, plant and equipment listed above is collateral for various
debt of NVR and certain of its subsidiaries as more fully described in note 7.
F-14
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1997 1996
-------- --------
<S> <C> <C>
Homebuilding:
Notes payable:
Working capital revolving credit(a).................... $ -- $ --
Other(b)............................................... 5,728 86
-------- --------
$ 5,728 $ 86
======== ========
Other term debt:
Capital lease and financing obligations and mortgages
due in monthly installments through 2014(c)........... $ 14,017 $ 14,043
======== ========
Senior notes(d)........................................ $120,000 $120,000
======== ========
Mortgage Banking:
Mortgage warehouse revolving credit(e)................. $ 77,765 $ 61,259
Mortgage repurchase facility(f)........................ 30,628 6,204
-------- --------
$108,393 $ 67,463
======== ========
</TABLE>
- --------
(a) On September 30, 1993, Homes as borrower and NVR as guarantor entered into
a working capital revolving credit agreement (the "Working Capital
Revolving Credit" or "Senior Bank Indebtedness"). This facility currently
provides for unsecured borrowings up to $60,000, subject to certain
borrowing base limitations, and is generally available to fund working
capital needs of Homes and for certain payments of NVR. Up to
approximately $24,000 of this facility is currently available for issuance
in the form of letters of credit of which $6,059 and $5,345 were
outstanding at December 31, 1997 and 1996, respectively. The Working
Capital Revolving Credit is for a three year period ending May 31, 2000
and outstanding amounts bear interest at the election of the Company, at
(i) the base rate of interest announced by the Facility agent or (ii) 2.0%
above the Eurodollar Rate. The weighted average interest rates for the
amounts outstanding under the facility were 8.1% and 8.0% for 1997 and
1996, respectively. NVR's guarantee is a guarantee of collection only and
is unsecured.
The Working Capital Revolving Credit agreement contains numerous operating
and financial covenants, including required levels of net worth, fixed
charge coverage ratios, and several other covenants related to the
construction operations of Homes. In addition, the Working Capital Revolving
Credit agreement contains restrictions on the ability of Homes and, in
certain cases, NVR to, among other things, incur debt and make investments.
Also, the Working Capital Revolving Credit agreement prohibits NVR from
paying dividends to shareholders.
(b) Other notes payable as of December 31, 1997 is principally comprised of a
$4,750 note payable issued in connection with the acquisition of Fox Ridge
(see Note 2). The weighted average interest rate was 7.5% during 1997.
(c) The capital lease and financing obligations and mortgages have either
fixed or variable interest rates ranging from 3.0% to 13.9% and are
collateralized by land, buildings and equipment with a net book value of
$11,602 and $12,181 at December 31, 1997 and 1996, respectively.
F-15
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following schedule provides future minimum lease payments under all
financing and capital leases together with the present value as of December
31, 1997:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
------------
<S> <C>
1998............................................................. $ 1,783
1999............................................................. 1,851
2000............................................................. 1,851
2001............................................................. 1,870
2002............................................................. 1,929
Thereafter....................................................... 34,748
--------
44,032
Amount representing interest..................................... (30,015)
--------
$ 14,017
========
</TABLE>
(d) On September 30, 1993, NVR received gross proceeds of $160,000 from the
sale of its Senior Notes. The Senior Notes bear interest at a rate of 11%
per annum, payable semi-annually on June 1 and December 1 of each year and
are due in 2003. The Senior Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after December 1, 1998 at
redemption prices ranging from 105.5% of par in 1998 to par beginning in
2001.
The Senior Notes are senior obligations of the Company and rank pari passu
in right of payment to all existing and future senior indebtedness of the
Company and senior in right of payment to all existing and future
subordinated indebtedness of the Company. The Senior Notes are secured by a
first priority pledge of the capital stock of Homes, Fox Ridge, NVRFS and
RVN, Inc. ("RVN") (Homes, Fox Ridge, NVRFS and RVN, collectively, the
"Guarantors"). The Senior Notes also are guaranteed on a senior, unsecured
basis by the Guarantors; provided, however, that the guarantee by Homes is
subordinated to up to $60,000 of Senior Bank Indebtedness. During the year
ended 1995, the Company purchased $15,000 in principal amount of its Senior
Notes in the open market. These transactions resulted in a pre-tax gain of
$1,572 for the year ended 1995, and is included in the accompanying
financial statements as an extraordinary item, net of applicable taxes.
Through December 31, 1997, the Company has repurchased $40,000 in the
aggregate of its Senior Notes in the open market.
The indenture governing the Senior Notes has, among other items,
limitations on asset sales by NVR and the Guarantors and requires that NVR,
on a consolidated basis, maintain net worth of at least $80,000. In
addition, the indenture limits dividends, certain investments and NVR's and
the Guarantors' ability to incur additional debt if NVR is in default under
the indenture or if NVR does not meet certain fixed charge coverage ratios.
(e) The mortgage warehouse facility (the "Mortgage Warehouse Revolving
Credit") of NVR Mortgage Finance, Inc. ("NVR Finance") currently has a
borrowing limit of $105,000. The interest rate under the Mortgage
Warehouse Revolving Credit is either: (i) the federal funds rate plus
either 1.35% or 1.5% depending on the type of collateral, or (ii) 1.5% to
the extent that NVR Finance provides compensating balances. The weighted
average interest rates for amounts outstanding under the Mortgage
Warehouse Revolving Credit line were 5.4% and 3.6% during 1997 and 1996,
respectively. The Mortgage Warehouse Revolving Credit is collateralized
primarily by mortgage loans and gestation mortgage-backed securities. The
Mortgage Warehouse Revolving Credit Agreement is an annually renewable
facility and currently expires in June 1998.
The Mortgage Warehouse Revolving Credit agreement includes, among other
items, restrictions on NVR Finance incurring additional borrowings and
making intercompany dividends and tax payments. In addition, NVR Finance is
required to maintain a minimum net worth.
F-16
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(f) NVR Finance from time to time enters into various gestation and repurchase
agreements. NVR Finance currently has available an aggregate of $145,000
of borrowing capacity in such uncommitted and committed facilities.
Amounts outstanding thereunder accrue interest at various rates tied to
the federal funds rate and are collateralized by gestation mortgage-backed
securities and whole loans. The uncommitted and committed facilities
generally require NVR Finance to, among other items, maintain a minimum
net worth and limit its level of liabilities in relation to its net worth.
The weighted average interest rates for amounts outstanding under the
uncommitted and committed facilities were 6.8% and 6.1% during 1997 and
1996, respectively.
Maturities with respect to the other notes payable, other term debt, and the
Senior Notes as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEARS ENDING
DECEMBER 31:
------------
<S> <C>
1998............................................................... $ 2,056
1999............................................................... 2,160
2000............................................................... 2,107
2001............................................................... 331
2002............................................................... 323
Thereafter......................................................... 136,078
</TABLE>
The $136,078 maturing after 2002 includes $120,000 in Senior Notes which
mature in April 2003.
Various debt agreements limit the ability of NVR's subsidiaries to transfer
funds to NVR in the form of dividends, loans or advances. NVR's subsidiaries
had net assets, after intercompany eliminations, of $261,806 as of December
31, 1997 that were so restricted.
At December 31, 1997, the homebuilding and mortgage banking segments had
restricted cash of $1,272 and $3,723, respectively, which includes customer
deposits, mortgagor tax, insurance, completion escrows and other amounts
collected at closing which relates to mortgage loans held for sale and to home
sales.
8. COMMON STOCK
There were 11,094,522 and 13,574,402 common shares outstanding at December
31, 1997 and 1996, respectively. As of December 31, 1997, NVR had reacquired a
total of 9,247,255 shares of NVR common shares at an aggregate cost of
$100,383. In February 1997 and 1996, 172,247 and 174,036 common shares,
respectively, were issued from the treasury in satisfaction of employee
benefit liabilities accrued at December 31, 1996 and 1995. The average cost
basis for the shares reissued from the treasury in 1997 was $13.97 per share,
and the average cost basis for those reissued in 1996 was $9.82 per share. In
addition, 117,472 stock options were exercised during 1997 with NVR realizing
$846 in equity proceeds.
On September 30, 1993, NVR issued warrants to purchase 2,162,828 shares of
common stock at an exercise price of $8.80 per share with an expiration date
of September 30, 1996. During 1996, 1,495,515 warrants were exercised for a
like number of common shares, with NVR realizing $13,161 in aggregate equity
proceeds. In addition, during 1996 NVR repurchased 561,135 warrants, at market
prices, for an aggregate purchase price of $309. NVR retired the repurchased
warrants with a charge to retained earnings equal to the purchase price. A
total of 106,178 warrants expired unexercised.
F-17
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Current:
Federal............. $22,539 $19,070 $16,383
State............... 3,101 4,198 4,222
Deferred:
Federal............. (1,030) (539) (3,071)
State............... 401 217 (525)
------- ------- -------
$25,011 $22,946 $17,009
======= ======= =======
</TABLE>
In addition to amounts applicable to income before taxes, the following
income tax expense (benefit) amounts were recorded in shareholders' equity:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Compensation expense for
tax purposes in excess
of amounts recognized
for financial statement
purposes............... $ (464) $ -- $ --
====== ===== =====
</TABLE>
Deferred income taxes on NVR's consolidated balance sheets are comprised of
the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------- -------
<S> <C> <C>
Total deferred tax assets................................... $23,561 $23,830
Less: valuation allowance................................... 2,852 2,852
------- -------
20,709 20,978
Less: deferred tax liabilities.............................. 9,158 10,056
------- -------
$11,551 $10,922
======= =======
</TABLE>
Deferred tax assets arise principally as a result of various reserves
required for financial reporting purposes which are not currently deductible
for tax return purposes. Deferred tax liabilities arise principally as a
result of depreciation and accounting for certain sales on the installment
method for tax return purposes.
Management believes the Company will have sufficient available carry-backs
and future taxable income to make it more likely than not that the net
deferred tax asset will be realized. Taxable income was $66,833, $56,159 and
$43,454 for the years ended December 31, 1997, 1996 and 1995.
Tax benefits realized in subsequent periods related to unrecognized deferred
tax assets as of September 30, 1993 will be recorded as a reduction of
reorganization value in excess of amounts allocable to identifiable assets.
For the years ended December 31, 1997, 1996 and 1995, $0, $7,000 and $0,
respectively, of such benefits were realized. Unrecognized deferred tax assets
which arose as of September 30, 1993 amounted to $2,852 as of December 31,
1997 and 1996, respectively.
F-18
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A reconciliation of income tax expense in the accompanying statements of
income to the amount computed by applying the statutory Federal income tax
rate to income before income taxes, discontinued operations and extraordinary
gains is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------- ----------------- -----------------
<S> <C> <C> <C>
Income taxes computed at
the
Federal statutory rate.. $18,862 $17,054 $11,693
State income taxes, net
of Federal
income tax benefit...... 2,276 2,870 2,403
Non-deductible
amortization........... 2,639 2,848 2,848
Non-deductible expense.. 1,093 -- --
Other, net.............. 141 174 65
------- ------- -------
$25,011 $22,946 $17,009
======= ======= =======
</TABLE>
10. PROFIT SHARING AND INCENTIVE PLANS
Profit Sharing Plans--NVR has a trustee-administered, profit sharing
retirement plan (the "Profit Sharing Plan") and an Employee Stock Ownership
Plan ("ESOP") covering substantially all employees. The Profit Sharing Plan
and the ESOP provide for annual contributions in amounts as determined by the
NVR Board of Directors (the "Board"). The combined retirement plan expense for
the years ended December 31, 1997, 1996 and 1995 was $3,081, $4,627 and
$3,993, respectively. During 1997 and 1996, the ESOP purchased in the open
market 110,569 and 150,000 shares respectively of NVR common stock using cash
contributions provided by NVR. As of December 31, 1997, all shares held by the
ESOP have been allocated to participant accounts.
Management Incentive Plans--Management long-term incentive plans provide
several types of equity incentives to NVR's executives and managers. The
equity incentives take the form of stock options and performance share awards
as described below. Stock options issued under the management long-term
incentive plans are issued with an exercise price equal to the market value of
the underlying shares on the date of grant.
Under the Management Incentive Plan adopted by the Board in 1993,
participants received options to purchase a total of 1,117,949 NVR shares (the
"1993 NVR Share Options"). The 1993 NVR Share Options issued under the
Management Incentive Plan were fully vested as of December 31, 1996, and
generally expire 10 years after the dates upon which they were granted.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
MANAGEMENT INCENTIVE PLAN OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
------------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
the beginning of the
year................... 1,076,424 $7.60 1,085,450 $7.59 1,130,213 $7.58
Granted................. -- -- 6,503 8.21 24,528 7.96
Canceled................ (5,000) 7.62 (800) 7.62 (46,965) 7.62
Exercised............... (117,472) 7.64 (14,729) 7.16 (22,326) 7.62
--------- ----- --------- ----- --------- -----
Outstanding at end of
year................... 953,952 $7.60 1,076,424 $7.60 1,085,450 $7.59
========= ===== ========= ===== ========= =====
Exercisable at end of
year................... 953,952 $7.60 1,076,424 $7.60 868,360 $7.59
========= ===== ========= ===== ========= =====
</TABLE>
Exercise prices for Management Incentive Plan options outstanding at
December 31, 1997 range from $5.06 to $9.11 per share, and their weighted
average remaining contractual life equals 5.75 years.
F-19
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the 1994 Management Incentive Plan (the "1994 Incentive Plan"),
executive officers and other key employees of the Company are eligible to
receive stock options (the "1994 NVR Share Options") and performance shares
(the "1994 Performance Shares"). There are 48,195 1994 NVR Share Options and
1,124,929 1994 Performance Shares authorized for grant under the 1994
Incentive Plan. The 1994 NVR Share Options generally expire 10 years after the
dates upon which they were granted, and vest in one-third increments on each
of December 31, 1997, 1998 and 1999, with vesting based upon continued
employment.
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
1994 INCENTIVE PLAN OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
- ------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
the beginning of the
year................... -- $ -- -- $ -- -- $ --
Granted................. 35,000 14.00 -- -- -- --
Canceled................ -- -- -- -- -- --
Exercised............... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Outstanding at end of
year................... 35,000 $ 14.00 -- $ -- -- $ --
========= ========= ========= ========= ========= =========
Exercisable at end of
year................... 11,667 $ 14.00 -- $ -- -- $ --
========= ========= ========= ========= ========= =========
All 1994 Incentive Plan options outstanding at December 31, 1997 have an
exercise price of $14.00 per share, and their weighted average remaining
contractual life equals 9.2 years.
A total of 1,105,200 1994 Performance Shares have been granted to employees
as of December 31, 1997 and one-third of the 1994 Performance Shares have
vested. Up to one-third of the total 1994 Performance Shares authorized may
vest on each of December 31, 1998 and 1999 if certain earnings targets are met
or exceeded. All 1994 Performance Shares that do not vest are forfeited back
to NVR on December 31, 1999.
During 1996, the Company's Shareholders approved the Board of Directors'
adoption of the Management Long-Term Stock Option Plan (the "Management Long
Term Stock Option Plan"). There are 2,000,000 non-qualified stock options
("Options") authorized under the Management Long Term Stock Option Plan. The
Options generally expire 10 years after the dates upon which they were
granted, and vest in one-third increments on each of December 31, 2000, 2001
and 2002, with vesting based upon continued employment.
<CAPTION>
1997 1996 1995
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
MANAGEMENT LONG-TERM EXERCISE EXERCISE EXERCISE
STOCK OPTION PLAN OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
- -------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding at
the beginning of the
year................... 1,554,000 $ 10.58 -- $ -- -- $ --
Granted................. 216,000 16.51 1,554,000 10.58 -- --
Canceled................ -- -- -- -- -- --
Exercised............... -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Outstanding at end of
year................... 1,770,000 $ 11.30 1,554,000 $ 10.58 -- $ --
========= ========= ========= ========= ========= =========
Exercisable at end of
year................... -- $ -- -- $ -- -- $ --
========= ========= ========= ========= ========= =========
</TABLE>
Exercise prices for Management Long-Term Incentive Plan options outstanding
at December 31, 1997 range from $10.625 to $22.625 per share, and their
weighted average remaining contractual life equals 9.6 years.
F-20
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The weighted average fair values of grants made in 1997 and 1996 for
management incentive plans were $10.13 and $6.14, respectively. The fair
values of the options granted were estimated on the grant date using the
Black-Scholes option pricing model based on the following weighted average
assumptions:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Estimated option life.................................... 10 years 10 years
Risk free interest rate.................................. 6.79% 7.10%
Expected volatility...................................... 35.16% 28.9%
Expected dividend yield.................................. 0.0% 0.0%
</TABLE>
Directors' Incentive Plans--The NVR Directors' Long Term Incentive Plan
provides for each eligible director to be granted options ("Directors'
Options") to purchase 22,750 shares of common stock with a maximum number of
shares issuable under the plan of 364,000. There were 182,000 Directors'
Options granted to eligible directors on September 30, 1993, leaving 182,000
options available for future grants as of December 31, 1997. The option
exercise price for those options granted on September 30, 1993 was $16.60 per
share, which exceeded the fair value of the underlying shares on the date of
grant. None of the Directors' Options granted have been canceled or exercised
since the grant date. The options became exercisable six months after the date
of grant and expire in September 2003. Pursuant to the plan, each outside
director also received a one-time cash payment of $200 during 1997 for the
achievement of certain performance goals under a five-year measurement period
beginning September 30, 1993.
In addition, there were 192,000 NVR share options authorized and granted in
1996 to the Company's outside directors under the Directors' Long Term Stock
Option Plan (the "Directors' Long Term Plan"). There are no additional options
available for grant under this plan. The option exercise price for the options
granted was $10.25 per share, which was equal to the fair market value of the
Company's Shares on the date of grant. The Options were granted for a 10 year
period beginning from the date of grant, and vest in one-third increments on
each of December 31, 1999, 2000, and 2001. The weighted average grant-date
fair value of the options granted during 1996 was $5.98 per share. The fair
value was calculated using the Black-Scholes option pricing model, under the
following assumptions: i) the estimated option life was equal to ten years,
ii) the risk free interest rate was 7.1% (based on the U.S. Treasury Strip
quote on the date of grant, iii) the expected volatility equaled 28.9%, and
iv) the estimated dividend yield was 0%.
SFAS No. 123 requires companies who continue to apply Opinion 25 to account
for their stock-based employee compensation arrangements to provide pro forma
net income and earnings per share as if the fair value based method had been
used to account for compensation cost. Accordingly, pro forma net income and
earnings per share would have been $27,637 ($2.09 per diluted share), $24,849
($1.64 per diluted share), and $17,327 ($1.12 per diluted share) for the years
ended December 31, 1997, 1996 and 1995, respectively, if the Company had
accounted for its stock based employee compensation arrangements using the
fair value method. The 1997, 1996 and 1995 effects of applying SFAS No. 123
for providing pro forma disclosures are not likely to be representative of the
effects on reported net income and earnings per share for future years because
the number of option grants and the fair value assigned to the grants could
differ.
11. COMMITMENTS AND CONTINGENT LIABILITIES
NVR is committed under several non-cancelable operating leases involving
office space and equipment, manufacturing facilities and equipment. Future
minimum lease payments under these operating leases as of December 31, 1997
are as follows:
F-21
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------
<S> <C>
1998................................................................. $ 4,418
1999................................................................. 2,559
2000................................................................. 1,626
2001................................................................. 1,031
2002................................................................. 831
Thereafter........................................................... 3,558
-------
$14,023
=======
</TABLE>
Total rent expense incurred under operating leases was approximately $3,425,
$3,180 and $3,363 for the years ended December 31, 1997, 1996 and 1995,
respectively.
During the ordinary course of operating the mortgage banking and
homebuilding businesses, NVR is required to enter into bond or letter of
credit arrangements with local municipalities, government agencies, or land
developers to collateralize its obligations under various contracts. NVR had
approximately $13,364 of contingent obligations under such agreements as of
December 31, 1997. NVR believes it will fulfill its obligations under the
related contracts and does not anticipate any losses under these bonds or
letters of credit.
NVR and its subsidiaries are also involved in litigation arising from the
normal course of business. In the opinion of management, and based on advice
of legal counsel, this litigation will not have any material adverse effect on
the financial position or results of operations of NVR.
12. MORTGAGE-BACKED SECURITIES, NET OF MORTGAGE-BACKED BONDS, AND RELATED
ASSETS AND LIABILITIES
Mortgage-backed securities ("MBS") serve as collateral for the related
mortgage-backed bonds ("Bonds") sold to third parties. The MBS cannot be sold
except upon specified call dates of the Bonds. The calling of the Bonds at
those dates is solely at the option of the Company. Principal and interest
payments on the MBS are used to make the quarterly payments on the Bonds. In
addition, prepayments of the underlying MBS are passed through as repayments
of the Bonds so that the Bonds may be fully paid prior to their stated
maturities. The Bonds are not guaranteed by NVR or any of its subsidiaries,
other than the issuing Limited-Purpose Financing Subsidiary.
The MBS and the reserve amounts which constitute the collateral for the
Bonds of a series are held by a trustee for the benefit of the bondholders.
The specific collateral pledged to secure a particular series is not available
as collateral for any other series. In addition, the Company may, under
certain circumstances, redeem certain series of Bonds. In such certain
circumstances, the Bonds are redeemed at par and any market appreciation or
depreciation accrues to the Company.
During 1997, NVR sold, at a premium, MBS totaling $15,126, the proceeds of
which were used to redeem in full the related outstanding Bonds which totaled
$14,074. The sales of the MBS resulted in a pre-tax gain of $590, which was
substantially offset by a pre-tax loss on the related Bonds of $552.
During 1996, NVR sold, at a premium, MBS totaling $45,835, the proceeds of
which were used to redeem in full the related outstanding Bonds which totaled
$44,518. The sales of the MBS resulted in a pre-tax gain of $2,077, which was
partially offset by a pre-tax loss on the related Bonds of $1,586.
F-22
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following comprise the assets and liabilities of the Limited Purpose
Financing Subsidiary:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1997 1996
------- -------
<S> <C> <C>
ASSETS:
Mortgage-backed securities, net.......................... $20,010 $37,294
Funds held by trustee.................................... 245 557
Other assets............................................. 1,030 1,388
------- -------
Total assets........................................... 21,285 39,239
------- -------
LIABILITIES:
Accrued expenses and other liabilities................... 681 771
Mortgage-backed bonds.................................... 21,243 39,211
Unamortized discounts.................................... (648) (747)
------- -------
Total liabilities...................................... 21,276 39,235
------- -------
Mortgage-backed securities, net of mortgage-backed bonds,
and related assets and liabilities...................... $ 9 $ 4
======= =======
</TABLE>
The weighted average portfolio yield on the MBS was 9.1% and 8.9% at
December 31, 1997 and 1996, respectively. The Bonds mature through May 1, 2017
and bear interest ranging from 8.0% to 9.0%.
F-23
<PAGE>
NVR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. QUARTERLY RESULTS [UNAUDITED]
The following table sets forth unaudited selected financial data and
operating information on a quarterly basis for the years ended December 31,
1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues--homebuilding operations...... $238,987 $281,437 $316,874 $316,724
Gross profit--homebuilding operations.. $ 31,518 $ 38,628 $ 44,566 $ 43,455
Mortgage banking fees.................. $ 5,122 $ 6,698 $ 6,407 $ 7,719
Income before discontinued operations
and extraordinary gain................ $ 5,763 $ 9,043 $ 9,006 $ 5,067
Earnings per share before discontinued
operations and extraordinary gain
(1)................................... $ 0.42 $ 0.71 $ 0.68 $ 0.39
Contracts for sale, net of
cancellations (homes)................. 1,445 2,041 1,366 1,834
Settlements (homes).................... 1,315 1,494 1,639 1,659
Backlog, end of period (homes) (2)..... 2,596 3,143 2,870 3,195
Loans closed........................... $297,698 $349,253 $396,117 $442,695
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-----------------------------------
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues--homebuilding operations...... $200,235 $283,532 $312,658 $249,505
Gross profit--homebuilding operations.. $ 26,390 $ 38,175 $ 42,283 $ 32,827
Mortgage banking fees.................. $ 5,999 $ 6,819 $ 6,225 $ 4,986
Income before discontinued operations
and extraordinary gain................ $ 3,740 $ 8,770 $ 8,274 $ 4,997
Earnings per share before discontinued
operations and extraordinary gain
(1)................................... $ 0.23 $ 0.56 $ 0.58 $ 0.34
Contracts for sale, net of cancella-
tions (homes)......................... 1,492 1,801 969 1,428
Settlements (homes).................... 1,107 1,556 1,672 1,360
Backlog, end of period (homes)......... 2,856 3,101 2,398 2,466
Loans closed........................... $289,228 $321,795 $338,895 $294,027
</TABLE>
- --------
(1) Earnings per share before discontinued operations and extraordinary gains
represent diluted earnings per share as defined in SFAS No. 128. Quarterly
data for the year ended December 31, 1996 and for the first three quarters
of 1997 have been restated from earnings per share data previously
published in the Company's Form 10-Q's for the respective quarters
pursuant to the requirements of SFAS No. 128.
(2) As discussed in Note 2, Homes acquired Fox Ridge on October 31, 1997. The
acquisition of Fox Ridge increased the Company's backlog by 150 units on
the date of the acquisition.
F-24
<PAGE>
PROSPECTUS
$400,000,000
NVR, INC.
DEBT SECURITIES
------------
NVR, Inc. ("NVR" or the "Company") may from time to time offer in one or
more separate series unsecured, non-convertible debt securities ("Debt
Securities") with an aggregate public offering price of up to $400,000,000 (or
its equivalent in another currency based on the exchange rate at the time of
sale) in amounts, at prices and on terms to be determined at the time of
offering. The Debt Securities may be offered, separately or together, in
amounts, at prices, with subsidiary guarantees and on other terms to be set
forth in one or more supplements to this Prospectus (each, a "Prospectus
Supplement").
The specific terms of the Debt Securities in respect of which this
Prospectus is being delivered will be set forth in the applicable Prospectus
Supplement and will include, where applicable, the specific title, aggregate
principal amount, currency, form (which may be registered or bearer, or
certificated or global), authorized denominations, maturity, rate (or manner
of calculation thereof) and time of payment of interest, terms for redemption
at the option of the Company or repayment at the option of the holder, terms
for sinking fund payments, covenants and initial public offering price.
The Debt Securities may be offered directly, through agents designated from
time to time by the Company, or to or through underwriters or dealers. If any
agents or underwriters are involved in the sale of any of the Debt Securities,
their names, and any applicable purchase price, fee, commission or discount
arrangement between or among them, will be set forth, or will be calculable
from the information set forth, in the applicable Prospectus Supplement. See
"Plan of Distribution." No Debt Securities may be sold without delivery of the
applicable Prospectus Supplement describing the method and terms of the
offering of such series of Debt Securities.
------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
U.S. SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------
THE DATE OF THIS PROSPECTUS IS APRIL 6, 1998.
<PAGE>
WHERE TO OBTAIN ADDITIONAL INFORMATION
The Company files annual, quarterly and special reports, proxy statements
and other information with the U.S. Securities and Exchange Commission (the
"SEC" or "Commission"). You may read and copy any document the Company has
filed with the SEC at the SEC's public reference rooms in Washington, D.C.,
New York, New York, and Chicago, Illinois. Please call the SEC at 1-800-SEC-
0330 for further information on its public reference rooms. The Company's SEC
filings are available to the public from the SEC's world wide web site at
http://www.sec.gov. You may obtain a copy of the Company's SEC filings at no
cost by writing or telephoning the Company's Corporate Secretary at:
Corporate Secretary
NVR, Inc.
7601 Lewinsville Road, Suite 300
McLean, Virginia 22102
(703) 761-2000
In addition, since the Company's Common Stock is listed on the American
Stock Exchange, its SEC filings may be inspected and copied at the offices of
the American Stock Exchange at 86 Trinity Place, New York, New York 10006.
The SEC allows the Company to "incorporate by reference" certain information
it files with the SEC, which means that the Company may disclose important
information in this Prospectus by referring the reader to the documents that
contain the information. The information incorporated by reference is
considered to be a part of this Prospectus, and later information filed with
the SEC will update and supersede this information. The Company incorporates
by reference the documents listed below and any future filings made with the
SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 until the offering of Debt Securities covered by this Prospectus is
completed:
(1) the Company's Annual Report on Form 10-K for the year ended December
31, 1997;
(2) the Company's Current Report on Form 8-K dated April 6, 1998; and
(3) the portions of the Company's Proxy Statement on Schedule 14A for the
Annual Meeting of the Company's Shareholders to be held on May 5, 1998 that
have been incorporated by reference into the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997.
The Company has filed with the SEC a Registration Statement on Form S-3
under the Securities Act of 1933 relating to the Debt Securities offered by
this Prospectus. This Prospectus is a part of the Registration Statement, but
does not contain all of the information in the Registration Statement. For
further information concerning the Company and the Debt Securities, reference
is made to the Registration Statement and the exhibits filed with it, which
may be examined at the locations listed in the first paragraph under this
heading.
Readers should rely only on the information provided or incorporated by
reference in this Prospectus or in the applicable Prospectus Supplement.
Readers should not assume that the information in the Prospectus and the
applicable Prospectus Supplement is accurate as of any date other than the
date on the front cover of the document.
The Company is not making an offer to sell the Debt Securities in any state
where an offer is not permitted.
2
<PAGE>
THE COMPANY
The Company, formed in 1980 as NVHomes, Inc., is a holding company that
currently operates, through its subsidiaries, in two business segments: (1)
the construction and marketing of homes and (2) financial services, including
a mortgage banking operation. Unless the context otherwise requires,
references to "NVR" or the "Company" include its subsidiaries.
NVR is one of the largest homebuilders in the United States and in the
Washington, D.C. and Baltimore, Maryland metropolitan areas, where NVR derived
approximately 66% of its 1997 homebuilding revenues. NVR's homebuilding
operations construct and sell single-family detached homes, townhomes and
condominium buildings in two distinct product lines, through two divisions:
Ryan Homes and NVHomes. Ryan Homes builds moderately priced homes in 16
metropolitan areas located in Maryland, Virginia, Pennsylvania, New York,
North Carolina, South Carolina, Ohio, New Jersey, Delaware and Tennessee, and
markets its homes primarily to first-time buyers. NVHomes builds homes largely
in the Washington, D.C. metropolitan area, and markets its homes primarily to
move-up buyers.
In addition to building and selling homes, NVR provides a number of
mortgage-related services through its national mortgage banking operations,
which operate in 15 states. NVR's mortgage banking operations provide
financing to a substantial portion of NVR's homebuilding customers. NVR's
mortgage banking business sells all of the mortgage loans it closes into the
secondary markets, but it retains the servicing rights associated with a small
portion of those loans. NVR's mortgage banking business generates revenues
primarily from origination fees, gains on marketing of loans, title fees, and
sales of servicing rights.
The Company is a Virginia corporation. Its executive offices and the
executive offices of the Guarantors are located at 7601 Lewinsville Road,
Suite 300, McLean, Virginia 22102 and the telephone number is (703) 761-2000.
THE GUARANTORS
One or more of the following direct or indirect wholly owned subsidiaries of
the Company, and one or more additional subsidiaries of the Company, may be
guarantors: NVR Financial Services, Inc., a Pennsylvania corporation, NVR
Homes, Inc., a Virginia corporation, RVN, Inc., a Delaware corporation, and
Fox Ridge Homes, Inc., a Tennessee corporation (the "Guarantors"). If so
provided in a Prospectus Supplement, one or more of the Guarantors would fully
and unconditionally guarantee on a joint and several basis the Company's
obligations under the Debt Securities being offered and sold, subject (a) to
any subordination provisions described in the Prospectus Supplement, and (b)
in the case of the guarantees generally, to such guarantee not constituting or
resulting in a violation of any applicable fraudulent conveyance or similar
law of any relevant jurisdiction, in which case, the liability of the
Guarantor under its guarantee will be reduced to the maximum amount, after
giving effect to all other contingent and fixed liabilities of such Guarantor
(which generally consists of indebtedness and other obligations of such
Guarantor, including trade payables), permissible under applicable fraudulent
conveyance or similar law.
USE OF PROCEEDS
Unless otherwise indicated in the applicable Prospectus Supplement, the
Company intends to use the net proceeds from the sale of Debt Securities for
general corporate purposes.
3
<PAGE>
RATIOS OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges, the ratio of earnings to
fixed charges of its homebuilding operations, and the ratio of earnings to
fixed charges of each of the Guarantors, was as set forth below for each
period indicated:
<TABLE>
<CAPTION>
THREE NINE
MONTHS MONTHS YEAR
YEAR ENDED DEC. 31, ENDED ENDED ENDED
-------------------------- DEC. 31, SEPT. 30, DEC. 31,
1997 1996 1995 1994 1993(1) 1993(1) 1992
---- ---- ---- ---- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Homebuilding operations
NVR, Inc (excluding the
Company's mortgage
banking subsidiaries,
limited purpose
financing operations,
and reorganization
items)(2) ............. 4.0 3.8 2.9 2.1 (3) 2.8 1.1
Total consolidated
Company(4) ............ 3.4 2.9 2.2 1.6 (5) (5)(6) (5)(6)
NVR Financial Services,
Inc. .................. 1.6 1.2 1.1 (7) (7) 1.3 1.2
NVR Homes, Inc. ........ 2.7 3.6 3.0 2.5 (8) 6.14 4.3
RVN, Inc. .............. (9) (9) -- -- -- -- --
Fox Ridge Homes, Inc. .. (10) 7.7 6.3 2.9 (10) (10) 30.8
</TABLE>
- --------
(1) Effective September 30, 1993, NVR L.P., which was a master limited
partnership, was reorganized as NVR, Inc. under a plan of reorganization.
(2) For purposes of computing the ratio of earnings to fixed charges of the
Company's homebuilding segment, the segment's earnings have been calculated
by adding its fixed charges to its pre-tax income from continuing
operations. The homebuilding segment's fixed charges consist of its
interest costs, whether expensed or capitalized, the interest component of
rental expense and the amortization of debt issuance costs. Effective
October 1, 1993, the Company discontinued the capitalization of interest
costs into inventory.
(3) Homebuilding earnings were insufficient to cover homebuilding fixed charges
for the three months ended December 31, 1993 by $5.2 million. The ratio for
the three months ended December 31, 1993 was adversely affected by a $9
million non-cash charge related to the "step-up" of inventory for fresh
start accounting and reporting in accordance with AICPA Statement of
Position 90-7.
(4) For purposes of computing the Company's consolidated ratio of earnings to
fixed charges, consolidated earnings have been calculated by adding fixed
charges to pre-tax income from continuing operations. Fixed charges consist
of interest costs, whether expensed or capitalized, the interest component
of rental expense and amortization of debt issuance costs. Effective
October 1, 1993, the Company discontinued the capitalization of interest
costs into inventory.
(5) Consolidated earnings were insufficient to cover fixed charges for the
three months ended December 31, 1993, the nine months ended September 30,
1993 and the year ended December 31, 1992 by $9.1 million, $4.4 million and
$5.4 million, respectively.
(6) Reorganization costs related to the Company's bankruptcy proceedings
totaled approximately $25 million and $14.3 million for the nine-month
period ended September 30, 1993 and the year ended December 31, 1992,
respectively.
(7) Earnings of NVR Financial Services, Inc. were insufficient to cover fixed
charges for the year ended December 31, 1994 and the three months ended
December 31, 1993 by $0.6 million and $3.7 million, respectively.
(8) Earnings of NVR Homes, Inc. were insufficient to cover fixed charges for
the three months ended December 31, 1993 by $1.5 million.
(9) RVN, Inc. incurred no interest charges during the three months ended
December 31, 1996 and the year ended December 31, 1997.
(10) Fox Ridge Homes, Inc. ("Predecessor") was acquired on October 31, 1997.
For the ten months ended October 31, 1997, the Predecessor's ratio of
earnings to fixed charges was 4.6. For the two months ended December 31,
1997, the Successor's ratio of earnings to fixed charges was 3.0. For the
year ended December 31, 1993, the Predecessor's ratio of earnings to
fixed charges was 4.7.
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DESCRIPTION OF DEBT SECURITIES
The following discussion describes certain general provisions of the Debt
Securities to which this Prospectus and any applicable Prospectus Supplement
may relate. The particular terms of the Debt Securities being offered and the
extent to which these general provisions may apply will be set forth in the
indenture or supplemental indenture under which the particular Debt Securities
are issued, and will be described in a Prospectus Supplement relating to such
Debt Securities. A form of the Senior Indenture (as defined herein) and a form
of the Subordinated Indenture (as defined herein) under which Debt Securities
may be issued have been filed as exhibits to the Registration Statement of
which this Prospectus is a part, and can be examined at the locations listed
above under "Where to Obtain Additional Information." All section references
appearing in this Prospectus are to sections of each Indenture unless
otherwise indicated, and capitalized terms used but not defined below shall
have the respective meanings set forth in each Indenture.
GENERAL
The Debt Securities will be nonconvertible, unsecured general obligations of
the Company and may be either senior Debt Securities ("Senior Securities") or
subordinated Debt Securities ("Subordinated Securities"). The Debt Securities
will be issued under one or more indentures (the "Indentures"). Senior
Securities and Subordinated Securities will be issued under separate
indentures (respectively, a "Senior Indenture" and a "Subordinated
Indenture"), in each case between the Company and a trustee (a "Trustee"). The
Indentures will be subject to and governed by the Trust Indenture Act of 1939.
The statements made under this heading relating to the Debt Securities and the
Indentures are summaries of their anticipated provisions, do not purport to be
complete and are qualified in their entirety by reference to the Indentures
and Debt Securities themselves.
The indebtedness represented by Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Senior Debt of the
Company, as described below under "--Ranking."
A substantial portion of the Company's operations are conducted through
subsidiaries. If so provided in a Prospectus Supplement, the Debt Securities
will have the benefit of guarantees from one or more of the Guarantors, all of
which are direct or indirect subsidiaries of the Company. The Company's
subsidiaries are separate and distinct legal entities and have no obligation,
contingent or otherwise, to pay any amounts due pursuant to the Debt
Securities or to make any funds available therefor, whether by dividends,
loans or other payments, other than as expressly provided in a guarantee. The
payment of dividends or the making of loans and advances to the Company by its
subsidiaries may be subject to contractual, statutory or regulatory
restrictions, which, if material, would be disclosed in the applicable
Prospectus Supplement. Moreover, such payments, loans and advances would be
contingent upon the earnings of the subsidiaries. Any right of the Company to
receive assets of any of its subsidiaries upon liquidation or recapitalization
of the subsidiaries (and the consequent right of the holders of Debt
Securities to participate in those assets) will be subject to the claims of
the subsidiaries' creditors. In the event that the Company is recognized as a
creditor of a subsidiary, the Company's claims would still be subject to any
security interest in the assets of such subsidiary and any indebtedness of
such subsidiary senior to that of the Debt Securities, and would be dependent
primarily upon the receipt of funds from its subsidiaries.
Except as set forth in the applicable Indenture or in one or more
supplemental indentures and described in an applicable Prospectus Supplement,
the Debt Securities may be issued without limit as to aggregate principal
amount, in one or more series, in each case as established from time to time
in or under authority granted by a resolution of the Board of Directors of the
Company or as established in the applicable Indenture or in one or more
supplemental indentures. All Debt Securities of one series need not be issued
at the same time and, unless otherwise provided, a series may be reopened,
without the consent of the Holders of the Debt Securities of such series, for
issuances of additional Debt Securities of such series.
It is expected that each Indenture will provide that there may be more than
one Trustee thereunder, each with respect to one or more series of Debt
Securities. Any Trustee under an Indenture may resign or be removed with
respect to one or more series of Debt Securities, and a successor Trustee may
be appointed to act with
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respect to such series. In the event that two or more persons are acting as
Trustee with respect to different series of Debt Securities, each such Trustee
will be a trustee of a trust under the applicable Indenture separate and apart
from the trust administered by any other Trustee, and, except as otherwise
provided in the Indenture or supplemental indenture, any action permitted to
be taken by each Trustee may be taken by each such Trustee with respect to,
and only with respect to, the one or more series of Debt Securities for which
it is Trustee under the applicable Indenture.
The Prospectus Supplement relating to any series of Debt Securities being
offered will contain the specific terms thereof, including, without
limitation, the following:
(1) The title of such Debt Securities and whether such Debt Securities
are Senior Securities or Subordinated Securities;
(2) The aggregate principal amount of such Debt Securities and any limit
on such aggregate principal amount;
(3) The percentage of the principal amount at which such Debt Securities
will be issued and, if other than the principal amount thereof, the portion
of the principal amount payable upon declaration of acceleration of the
maturity thereof;
(4) The date or dates, or the method for determining such date or dates,
on which the principal of such Debt Securities will be payable;
(5) The rate or rates (which may be fixed or variable), or the method by
which such rate or rates are to be determined, at which such Debt
Securities will bear interest, if any;
(6) The date or dates, or the method for determining such date or dates,
from which any such interest will accrue, the dates on which any such
interest will be payable, the regular record dates for such interest
payment dates, or the method by which record dates may be determined, the
persons to whom such interest will be payable, and the basis upon which
interest is to be calculated if other than that of a 360-day year of twelve
30-day months;
(7) The place or places where the principal of (and premium, if any) and
interest, if any, on such Debt Securities will be payable, where such Debt
Securities may be surrendered for registration of transfer or exchange and
where notices or demands to or upon the Company in respect of such Debt
Securities and the applicable Indenture may be served;
(8) The period or periods within which, the price or prices at which and
the other terms and conditions upon which such Debt Securities may be
redeemed, in whole or in part, at the option of the Company, if the Company
is to have such an option;
(9) The obligation, if any, of the Company to redeem, repay or purchase
such Debt Securities pursuant to any sinking fund or analogous provision or
at the option of a Holder thereof, and the period or periods within which
or the date and dates on which, the price or prices at which and the other
terms and conditions upon which such Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to such obligation;
(10) If other than U.S. dollars, the currency or currencies in which such
Debt Securities are denominated and payable, which may be a foreign
currency or units of two or more foreign currencies or a composite currency
or currencies, and the terms and conditions relating thereto;
(11) Whether the amount of payments of principal of (and premium, if any)
or interest, if any, on such Debt Securities may be determined with
reference to an index, formula or other method (which index, formula or
method may, but need not be, based on a currency, currencies, currency unit
or units or composite currency or currencies) and the manner in which such
amounts are to be determined;
(12) Any additions to, modifications of or deletions from the terms of
such Debt Securities with respect to Events of Default, amendments, merger,
consolidation and sale or covenants set forth in the applicable Indenture;
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(13) Whether such Debt Securities will be issued in certificate or book-
entry form;
(14) Whether such Debt Securities will be in registered or bearer form
and, if in registered form, the denominations thereof if other than $1,000
and any integral multiple thereof and, if in bearer form, the denominations
thereof and terms and conditions relating thereto;
(15) The applicability, if any, of the defeasance and covenant defeasance
provisions of the Indenture and any additional or different terms on which
such series of Debt Securities may be defeased;
(16) Whether and under what circumstances the Company will pay any
additional amounts on such Debt Securities in respect of any tax,
assessment or governmental charge and, if so, whether the Company will have
the option to redeem such Debt Securities in lieu of making such payment;
(17) Whether and the extent to which such Debt Securities are guaranteed
by the Guarantors and the form of any such Guarantee; and
(18) Any other terms of such Debt Securities not inconsistent with the
provisions of the applicable Indenture (Section 301).
The Debt Securities may provide for less than the entire principal amount
thereof to be payable upon declaration of acceleration of the maturity thereof
("Original Issue Discount Securities"). Special federal income tax, accounting
and other considerations applicable to Original Issue Discount Securities will
be described in the applicable Prospectus Supplement.
Except as set forth in the applicable Indenture or in one or more
supplemental indentures, the applicable Indenture will not contain any
provisions that would limit the ability of the Company to incur indebtedness
or that would afford Holders of Debt Securities protection in the event of a
highly leveraged or similar transaction involving the Company or in the event
of a change of control. Reference is made to the applicable Prospectus
Supplement for information with respect to any deletions from, modifications
of or additions to the Events of Default or covenants of the Company that are
described below, including any addition of a covenant or other provision
providing event risk or similar protection.
"Significant Subsidiary" means any Subsidiary that is a "significant
subsidiary" (within the meaning of Regulation S-X promulgated by the SEC under
the Securities Act of 1933) of the Company.
"Subsidiary" means a corporation or a partnership a majority of the
outstanding voting stock or partnership interests, as the case may be, of
which is owned or controlled, directly or indirectly, by the Company or by one
or more other Subsidiaries of the Company. For the purposes of this
definition, "voting stock" means stock having voting power for the election of
directors, or trustees, as the case may be, whether at all times or only so
long as no senior class of stock has such voting power by reason of any
contingency.
DENOMINATION, INTEREST, REGISTRATION AND TRANSFER
Unless otherwise described in the applicable Prospectus Supplement, the Debt
Securities will be issuable in denominations of $1,000 and integral multiples
thereof (Section 302).
Unless otherwise specified in the applicable Prospectus Supplement, the
principal of (and applicable premium, if any) and interest on any series of
Debt Securities will be payable at the corporate trust office of the Trustee,
the address of which will be stated in the applicable Prospectus Supplements.
At the option of the Company, payment of interest may be made by check mailed
to the address of the person entitled thereto as it appears in the applicable
register for such Debt Securities or by wire transfer of funds to such person
at an account maintained within the United States (Sections 301, 305, 306, 307
and 1002).
Any interest not punctually paid or duly provided for on any Interest
Payment Date with respect to a Debt Security ("Defaulted Interest") will
forthwith cease to be payable to the Holder on the applicable regular record
date and may either be paid to the person in whose name such Debt Security is
registered at the close of business
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on a special record date (the "Special Record Date") for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof is to be given
to the Holder of such Debt Security not less than ten days before to such
Special Record Date, or may be paid at any time in any other lawful manner,
all as more completely described in the applicable Indenture or supplemental
indenture (Section 307).
Subject to certain limitations imposed upon Debt Securities issued in book-
entry form, the Debt Securities of any series will be exchangeable for other
Debt Securities of the same series and of a like aggregate principal amount
and tenor of different authorized denominations upon surrender of such Debt
Securities at the corporate trust office of the applicable Trustee. In
addition, subject to certain limitations imposed upon Debt Securities issued
in book-entry form, the Debt Securities of any series may be surrendered for
registration of transfer or exchange thereof at the corporate trust office of
the applicable Trustee. Every Debt Security surrendered for registration of
transfer or exchange must be duly endorsed or accompanied by a written
instrument of transfer. No service charge will be made for any registration of
transfer or exchange of any Debt Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. If the applicable Prospectus Supplement
refers to any transfer agent (in addition to the applicable Trustee) initially
designated by the Company with respect to any series of Debt Securities, the
Company may at any time rescind the designation of such transfer agent or
approve a change in the location through which any such transfer agent acts,
except that the Company will be required to maintain a transfer agent in each
place of payment for such series. The Company may at any time designate
additional transfer agents with respect to any series of Debt Securities
(Section 1002).
Neither the Company nor any Trustee will be required to (1) issue, register
the transfer of or exchange Debt Securities of any series during a period
beginning at the opening of business 15 days before any selection of Debt
Securities of that series to be redeemed and ending at the close of business
on the day of mailing of the relevant notice of redemption; (2) register the
transfer of or exchange any Debt Security, or portion thereof, called for
redemption, except the unredeemed portion of any Debt Security being redeemed
in part; or (3) issue, register the transfer of or exchange any Debt Security
that has been surrendered for repayment at the option of the Holder, except
the portion, if any, of such Debt Security not to be repaid (Section 305).
MERGER, CONSOLIDATION OR SALE
The Company will be permitted to consolidate with, or sell, lease or convey
all or substantially all of its assets to, or merge with or into, any other
entity provided that (1) either the Company is the continuing entity, or the
successor entity (if other than the Company) formed by or resulting from any
such consolidation or merger or which has received the transfer of such assets
expressly assumes payment of the principal of (and premium, if any) and
interest on all of the outstanding Debt Securities and the due and punctual
performance and observance of all of the covenants and conditions contained in
each Indenture; (2) immediately after giving effect to such transaction and
treating any indebtedness that becomes an obligation of the Company or any
Subsidiary as a result thereof as having been incurred by the Company or a
Subsidiary at the time of such transaction, no Event of Default under the
Indentures or supplemental indentures, and no event which, after notice or the
lapse of time, or both, would become such an Event of Default, will have
occurred and be continuing; and (3) an officer's certificate and legal opinion
covering such conditions is to be delivered to each Trustee (Sections 801 and
803).
CERTAIN COVENANTS
Existence. Except as described above under "Merger, Consolidation or Sale,"
the Company will be required to do or cause to be done all things necessary to
preserve and keep in full force and effect its existence, rights (by articles
of incorporation, by-laws and statute) and franchises, but the Company will
not be required to preserve any right or franchise if it determines that its
preservation is no longer desirable in the conduct of the Company's business
and that its loss is not disadvantageous in any material respect to the
Holders of the Debt Securities.
Insurance. The Company will be required to, and will be required to cause
each of its Subsidiaries to, keep all of its insurable properties insured
against loss or damage at least equal to their then full insurable value.
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Payment of Taxes and Other Claims. The Company will be required to pay or
discharge or cause to be paid or discharged, before the same become
delinquent, (i) all material taxes, assessments and governmental charges
levied or imposed upon it or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (ii) all material lawful claims
for labor, materials and supplies that, if unpaid, might by law become a lien
upon the property of the Company or any Subsidiary; but the Company will not
be required to pay or discharge or cause to be paid or discharged any such
tax, assessment, charge or claim whose amount, applicability or validity is
being contested in good faith in appropriate proceedings (Section 1007).
ADDITIONAL COVENANTS AND/OR MODIFICATIONS TO THE COVENANTS DESCRIBED ABOVE
Any additional covenants of the Company and/or modifications to the
covenants described above with respect to any series of Debt Securities,
including any covenants relating to limitations on incurrence of indebtedness
or other financial covenants, will be set forth in the applicable Indenture or
supplemental indenture and described in the Prospectus Supplement relating
thereto.
GUARANTEES
In order to enable the Company to obtain more favorable interest rates and
terms with respect to Debt Securities, payment of the principal of (and any
premium) and interest on offered Debt Securities may (if so specified in the
applicable Prospectus Supplement) be guaranteed jointly and severally on a
full and unconditional basis by one or more of the Guarantors. Each guarantee
will be an unsecured obligation of the Guarantor issuing the guarantee. The
ranking of any guarantees of the Debt Securities and the terms of the
subordination, if any, will be set forth in the applicable Prospectus
Supplement.
If specified in the applicable Prospectus Supplement, the Company's
obligations under the Debt Securities will be guaranteed by one or more of
four of its subsidiaries, NVR Financial Services, Inc., NVR Homes, Inc., RVN,
Inc. Fox Ridge Homes, Inc. or any other Subsidiaries of the Company (the
"Guarantors"). See "The Guarantors" above.
The Indenture will provide that, in the event of any guarantee of the Debt
Securities by a Guarantor would constitute or result in a violation of any
applicable fraudulent conveyance or similar law of any relevant jurisdiction,
the liability of the Guarantor under such guarantee will be reduced to the
maximum amount, after giving effect to all other contingent and other
liabilities of such Guarantor permissible under the applicable fraudulent
conveyance or similar law.
EVENTS OF DEFAULT, NOTICE AND WAIVER
Each Indenture will provide that the following events are "Events of
Default" with respect to any series of Debt Securities issued thereunder,
subject to any modifications or deletions provided in any supplemental
indenture with respect to any series of Debt Securities: (1) default for 30
days in the payment of any installment of interest on any Debt Security of
such series; (2) default in the payment of principal of (or premium, if any,
on) any Debt Security of such series at its maturity; (3) default in making
any sinking fund payment as required for any Debt Security of such series; (4)
default in the performance or breach of any other covenant or warranty of the
Company contained in the applicable Indenture (other than a covenant added to
the Indenture solely for the benefit of a series of Debt Securities issued
thereunder other than such series), continued for 60 days after written notice
as provided in the applicable Indenture; (5) default in the payment of an
aggregate principal amount exceeding $10,000,000 of any indebtedness of the
Company or any mortgage, indenture or other instrument under which such
indebtedness is issued or by which such indebtedness is secured, such default
having occurred after the expiration of any applicable grace period and having
resulted in the acceleration of the maturity of such indebtedness, but only if
such indebtedness is not discharged or such acceleration is not rescinded or
annulled; (6) certain events of bankruptcy, insolvency or reorganization, or
court appointment of a receiver, liquidator or trustee of the Company or any
Significant Subsidiary or either of their property; and (7) any other Event of
Default provided with respect to a particular series of Debt Securities
(Section 501).
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If an Event of Default under any Indenture with respect to Debt Securities
of any series at the time outstanding occurs and is continuing, then in every
such case the applicable Trustee or the Holders of not less than 25% of the
principal amount of the outstanding Debt Securities of that series will have
the right to declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or indexed securities, such
portion of the principal amount as may be specified in the terms thereof) of
all the Debt Securities of that series to be due and payable immediately by
written notice thereof to the Company (and to the applicable Trustee if given
by the Holders). At any time after such a declaration of acceleration with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under any Indenture, as the case may be) has been made, but before
a judgment or decree for payment of the money due has been obtained by the
applicable Trustee, however, the Holders of not less than a majority in
principal amount of the outstanding Debt Securities of such series (or of all
Debt Securities then outstanding under the applicable Indenture, as the case
may be) may rescind and annul such declaration and its consequences if (1) the
Company has deposited with the applicable Trustee all required payments of the
principal of (and premium, if any) and interest on the Debt Securities of such
series (or of all Debt Securities then outstanding under the applicable
Indenture, as the case may be), plus certain fees, expenses, disbursements and
advances of the applicable Trustee and (2) all events of default, other than
the non-payment of accelerated principal (or specified portion thereof), with
respect to Debt Securities of such series (or of all Debt Securities then
outstanding under the applicable Indenture, as the case may be) have been
cured or waived as provided in such Indenture (Section 502). Each Indenture
also will provide that the Holders of not less than a majority in principal
amount of the outstanding Debt Securities of any series (or of all Debt
Securities then outstanding under the applicable Indenture, as the case may
be) may waive any past default with respect to such series and its
consequences, except a default (1) in the payment of the principal of (or
premium, if any) or interest on any Debt Security of such series or (2) in
respect of a covenant or provision contained in the applicable Indenture that
cannot be modified or amended without the consent of the Holder of each
outstanding Debt Security affected thereby (Section 513).
Each Trustee will be required to give notice to the Holders of the
applicable Debt Securities within 90 days of a default under the applicable
Indenture unless such default has been cured or waived; but the Trustee may
withhold notice of any default (except a default in the payment of the
principal of (or premium, if any) or interest on such Debt Securities or in
the payment of any sinking fund installment in respect of such Debt
Securities) if specified responsible officers of such Trustee consider such
withholding to be in the interest of such Holders (Section 601).
Each Indenture will provide that no Holders of Debt Securities of any series
may institute any proceedings, judicial or otherwise, with respect to such
Indenture or for any remedy thereunder, except in the cases of failure of the
applicable Trustee, for 60 days, to act after it has received a written
request to institute proceedings in respect of an Event of Default from the
Holders of not less than 25% in principal amount of the outstanding Debt
Securities of such series, as well as an offer of indemnity reasonably
satisfactory to it (Section 507). This provision will not prevent any Holder
of Debt Securities from instituting suit for the enforcement of payment of the
principal of (and premium, if any) and interest on such Debt Securities at the
respective due dates thereof (Section 508).
Subject to provisions in each Indenture relating to its duties in case of
default, no Trustee will be under any obligation to exercise any of its rights
or powers under an Indenture at the request or direction of any Holders of any
series of Debt Securities then outstanding under such Indenture, unless such
Holders offer to the Trustee reasonable security or indemnity (Section 602).
The Holders of not less than a majority in principal amount of the outstanding
Debt Securities of any series (or of all Debt Securities then outstanding
under an Indenture, as the case may be) will have the right to direct the
time, method and place of conducting any proceeding for any remedy available
to the applicable Trustee, or of exercising any trust or power conferred upon
such Trustee. A Trustee may refuse, however, to follow any direction that is
in conflict with any law or the applicable Indenture that may involve such
Trustee in personal liability or may be unduly prejudicial to the Holders of
Debt Securities of such series not joining therein (Section 512).
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Within 180 days after the close of each fiscal year, the Company will be
required to deliver to each Trustee a certificate, signed by one of several
specified officers, stating whether or not such officer has knowledge of any
default under the applicable Indenture and, if so, specifying each such
default and the nature and status thereof (Section 1008).
MODIFICATION OF THE INDENTURES
Modifications and amendments of an Indenture will be permitted to be made
only with the consent of the Holders of not less than a majority in principal
amount of all outstanding Debt Securities issued under such Indenture that are
affected by such modification or amendment; but no such modification or
amendment may, without the consent of the Holder of each such Debt Security
affected thereby, (1) change the stated maturity of the principal of, or any
installment of interest (or the premium, if any) on, any such Debt Security;
(2) reduce the principal amount of, or the rate or amount of interest on, or
any premium payable on redemption of, any such Debt Security, or reduce the
amount of principal of an Original Issue Discount Security that would be due
and payable upon declaration of acceleration of the maturity thereof or would
be provable in bankruptcy (3) change the place of payment, or the coin or
currency for payment, of principal (or premium, if any) or interest on any
such Debt Security; (4) impair the right to institute suit for the enforcement
of any payment on or with respect to any such Debt Security; (5) reduce the
percentage of outstanding Debt Securities of any series necessary to modify or
amend the applicable Indenture, to waive compliance with certain provisions
thereof or certain defaults and consequences thereunder or to reduce the
quorum or voting requirements set forth in the applicable Indenture; or (6)
modify any of the foregoing provisions or any of the provisions relating to
the waiver of certain past defaults or certain covenants, except to increase
the required percentage to effect such action or to provide that certain other
provisions may not be modified or waived without the consent of the Holder of
such Debt Security (Section 902).
The Holders of not less than a majority in principal amount of the
outstanding Debt Securities of each series affected thereby will have the
right to waive compliance by the Company with certain covenants in such
Indenture (Section 1010).
Modifications and amendments of an Indenture will be permitted to be made by
the Company and the respective Trustee thereunder without the consent of any
Holder of Debt Securities for any of the following purposes: (1) to evidence
the succession of another person to the Company as obligor under such
Indenture or to evidence the addition or release of any Guarantor in
accordance with the Indenture or any Supplemental Indenture; (2) to add to the
covenants of the Company for the benefit of the Holders of all or any series
of Debt Securities or to surrender any right or power conferred upon the
Company in the Indenture; (3) to add Events of Default for the benefit of the
Holders of all or any series of Debt Securities; (4) to add or change any
provisions of an Indenture to facilitate the issuance of, or to liberalize
certain terms of, Debt Securities in bearer form, or to permit or facilitate
the issuance of Debt Securities in uncertificated form, provided that such
action shall not adversely affect the interests of the Holders of the Debt
Securities of any series in any material respect; (5) to change or eliminate
any provisions of an Indenture, if such change or elimination becomes
effective only when there are no Debt Securities outstanding of any series
created prior thereto that are entitled to the benefit of such provision; (6)
to secure the Debt Securities; (7) to establish the form or terms of Debt
Securities of any series; (8) to provide for the acceptance of appointment by
a successor Trustee or facilitate the administration of the trusts under an
Indenture by more than one Trustee; (9) to cure any ambiguity, defect or
inconsistency in an Indenture, (10) to supplement any of the provisions of an
Indenture to the extent necessary to permit or facilitate defeasance and
discharge of any series of such Debt Securities, if such action does not
adversely affect the interests of the Holders of the Debt Securities of any
other series in any material respect; or (11) to make any change that does not
adversely affect the legal rights under an Indenture of any Holder of Debt
Securities of any series issued thereunder (Section 901).
Each Indenture will provide that in determining whether the Holders of the
requisite principal amount of outstanding Debt Securities of a series have
given any request, demand, authorization, direction, notice, consent or waiver
thereunder or whether a quorum is present at a meeting of Holders of Debt
Securities, (1) the principal
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amount of an Original Issue Discount Security that is deemed to be outstanding
will be the amount of the principal thereof that would be due and payable as
of the date of such determination upon declaration of acceleration of the
maturity thereof, (2) the principal amount of any Debt Security denominated in
a foreign currency that is deemed outstanding will be the U.S. dollar
equivalent, determined on the issue date for such Debt Security, of the
principal amount (or, in the case of Original Issue Discount Security, the
U.S. dollar equivalent on the issue date of such Debt Security of the amount
determined as provided in (1) above), (3) the principal amount of an indexed
security that is deemed outstanding will be the principal face amount of such
indexed security at original issuance, unless otherwise provided with respect
to such indexed security under the applicable Indenture, and (4) Debt
Securities owned by the Company or any other obligor upon the Debt Securities
or any affiliate of the Company or of such other obligor are to be
disregarded.
RANKING
Upon any distribution to creditors of the Company in a liquidation,
dissolution or reorganization, the payment of the principal of (and premium,
if any) and interest on any Subordinated Securities will be subordinated to
the extent provided in the applicable Indenture in right of payment to the
prior payment in full of all Senior Debt (Sections 1601 and 1602 of the
Subordinated Indenture), but the obligation of the Company to make payment of
the principal (and premium, if any) and interest on such Subordinated
Securities will not otherwise be affected (Section 1608 of the Subordinated
Indenture). No payment of principal (or premium, if any) or interest will be
permitted to be made on Subordinated Securities at any time if a default on
Senior Debt exists that permits the Holders of such Senior Debt to accelerate
its maturity and the default is the subject of judicial proceedings or the
Company receives notice of the default (Section 1602 of the Subordinated
Indenture). After all Senior Debt is paid in full and until the Subordinated
Securities are paid in full, Holders will be subrogated to the right of
Holders of Senior Debt to the extent that distributions otherwise payable to
Holders have been applied to the payment of Senior Debt (Section 1607 of the
Subordinated Indenture). By reason of such subordination, in the event of a
distribution of assets upon insolvency, certain general creditors of the
Company may recover more, ratably, than Holders of Subordinated Securities.
Senior Debt will be defined in the Subordinated Indenture as the principal
of (and premium, if any) and interest on, or substantially similar payments to
be made by the Company in respect of, the following, whether outstanding at
the date of execution of the applicable Indenture or thereafter incurred,
created or assumed: (1) indebtedness of the Company for money borrowed or
represented by purchase-money obligations, (2) indebtedness of the Company
evidenced by notes, debentures, or bonds or other securities issued under the
provisions of an indenture, fiscal agency agreement or other agreement, (3)
obligations of the Company as lessee under leases of property either made as
part of a sale and leaseback transaction to which the Company is a party or
otherwise, (4) indebtedness of partnerships and joint ventures which is
included in the consolidated financial statements of the Company, (5)
indebtedness, obligations and liabilities of others in respect of which the
Company is liable contingently or otherwise to pay or advance money or
property or as guarantor, endorser or otherwise or which the Company has
agreed to purchase or otherwise acquire, and (6) any binding commitment of the
Company to fund a real estate investment or to fund an investment in an entity
making a real estate investment, in each case other than (i) any such
indebtedness, obligation or liability referred to in clauses (1) through (6)
above as to which, in the instrument creating or evidencing the same pursuant
to which the same is outstanding, it is provided that such indebtedness,
obligation or liability is not superior in right of payment to the
Subordinated Securities or ranks equally with the Subordinated Securities,
(ii) any such indebtedness, obligation or liability which is subordinated to
indebtedness of the Company to substantially the same extent as or to a
greater extent than the Subordinated Securities are subordinated, and (iii)
the Subordinated Securities. As used in the preceding sentence, the term
"purchase money obligations" is defined to mean indebtedness or obligations
evidenced by a note, debenture, bond or other instrument (whether or not
secured by a lien or other security interest but excluding indebtedness or
obligations for which recourse is limited to the property purchased) issued or
assumed as all or a part of the consideration for the acquisition of property,
whether by purchase, merger, consolidation or otherwise, but does not include
any trade accounts payable. There will not be any restrictions in an Indenture
relating to Subordinated Securities upon the creation of additional Senior
Debt.
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<PAGE>
If this Prospectus is being delivered in connection with a series of
Subordinated Securities, the applicable Prospectus Supplement or the
information incorporated herein by reference will contain the approximate
amount of Senior Debt outstanding as of the end of the Company's most recent
fiscal quarter.
DISCHARGE, DEFEASANCE AND COVENANT DEFEASANCE
The Company may be permitted under the applicable Indenture to discharge
certain obligations to Holders of any series of Debt Securities issued
thereunder that have not already been delivered to the applicable Trustee for
cancellation and that either have become due and payable or will become due
and payable within one year (or scheduled for redemption within one year) by
irrevocably depositing with the applicable Trustee, in trust, funds in such
currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable in an amount sufficient
to pay the entire indebtedness on such Debt Securities in respect of principal
(and premium, if any) and interest to the date of such deposit (if such Debt
Securities have become due and payable) or to the stated maturity or
redemption date, as the case may be.
Each Indenture will provide that, if the provisions relating to defeasance
and covenant defeasance are made applicable to the Debt Securities of or
within any series, the Company may elect either (1) to defease and be
discharged from any and all obligations with respect to such Debt Securities
(except for the obligation to pay additional amounts, if any, upon the
occurrence of certain events of tax, assessment or governmental charge with
respect to payments on such Debt Securities, and the obligations to register
the transfer or exchange of such Debt Securities, to replace temporary or
mutilated, destroyed, lost or stolen Debt Securities, to maintain an office or
agency in respect of such Debt Securities and to hold moneys for payment in
trust) ("defeasance") (Section 1402) or (2) to be released from its
obligations with respect to such Debt Securities under certain specified
sections of Article Ten of such Indenture as described in the applicable
Prospectus Supplement and any omission to comply with such obligations shall
not constitute an Event of Default with respect to such Debt Securities
("covenant defeasance") (Section 1403), in either case upon the irrevocable
deposit by the Company with the applicable Trustee, in trust, of an amount, in
such currency or currencies, currency unit or units or composite currency or
currencies in which such Debt Securities are payable at stated maturity, or
Government Obligations (defined as described below), or both, applicable to
such Debt Securities which through the scheduled payment of principal and
interest in accordance with their terms will provide money in an amount
sufficient without reinvestment to pay the principal of (and premium, if any)
and interest on such Debt Securities, and any mandatory sinking fund or
analogous payments thereon, on the scheduled due dates therefor.
Such a trust will only be permitted to be established if, among other
things, the Company has delivered to the applicable Trustee an opinion of
counsel (to the extent specified in the applicable Indenture) to the effect
that the Holders of such Debt Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such defeasance or
covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such defeasance or covenant defeasance had not occurred, and such opinion
of counsel, in the case of defeasance, will be required to refer to and be
based upon a ruling of the Internal Revenue Service or a change in applicable
U.S. federal income tax law occurring after the date of the Indenture (Section
1404).
"Government Obligations" is defined to mean securities that are (1) direct
obligations of the United States of America or the government that issued the
foreign currency in which the Debt Securities of a particular series are
payable, for the payment of which its full faith and credit is pledged or (2)
obligations of a person controlled or supervised by and acting as an agency or
instrumentality of the United States of America or such government that issued
the foreign currency in which the Debt Securities of such series are payable,
the timely payment of which is unconditionally guaranteed as a full faith and
credit obligation of the United States of America or such government, which,
in either case, are not callable or redeemable at the option of the issuer
thereof, and also includes a depository receipt issued by a bank or trust
company as custodian with respect to any such Government Obligation or a
specific payment of interest on or principal of any such Government Obligation
held by such custodian for the account of the Holder of a depository receipt,
if (except as required by law) such
13
<PAGE>
custodian is not authorized to make any deduction from the amount payable to
the Holder of such depository receipt from any amount received by the
custodian in respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced by such
depository receipt (Section 101 of each Indenture).
Unless otherwise provided in the applicable Prospectus Supplement, if after
the Company has deposited funds and/or Government Obligations to effect
defeasance or covenant defeasance with respect to Debt Securities of any
series, (1) the Holder of a Debt Security of such series is entitled to, and
does, elect pursuant to the applicable Indenture or the terms of such Debt
Security to receive payment in a currency, currency unit or composite currency
other than that in which such deposit has been made in respect of such Debt
Security, or (2) a Conversion Event (as defined below) occurs in respect of
the currency, currency unit or composite currency in which such deposit has
been made, the indebtedness represented by such Debt Security will be deemed
to have been, and will be, fully discharged and satisfied through the payment
of the principal of (and premium, if any) and interest on such Debt Security
as they become due out of the proceeds yielded by converting the amount so
deposited in respect of such Debt Security into the currency, currency unit or
composite currency in which such Debt Security becomes payable as a result of
such election or such cessation of usage based on the applicable market
exchange rate. "Conversion Event" means the cessation of use of (1) a
currency, currency unit or composite currency both by the government of the
country that issued such currency and for the settlement of transactions by a
central bank or other public institutions of or within the international
banking community, (2) the ECU both within the European Monetary System and
for the settlement of transactions by public institutions of or within the
European Communities or (3) any currency unit or composite currency other than
the ECU for the purposes for which it was established. Unless otherwise
provided in the applicable Prospectus Supplement, all payments of principal of
(and premium, if any) and interest on any Debt Security that is payable in a
foreign currency that ceases to be used by its government of issuance shall be
made in U.S. dollars.
In the event the Company effects covenant defeasance with respect to any
Debt Securities and such Debt Securities are declared due and payable because
of the occurrence of an Event of Default other than the Event of Default
described in clause (4) above in the first paragraph under the caption "Events
of Default, Notice and Waiver" with respect to certain specified sections of
Article Ten of each Indenture (which sections would no longer be applicable to
such Debt Securities as a result of such covenant defeasance) or described in
clause (7) above in the first paragraph under "Events of Default, Notice and
Waiver" with respect to any other covenant as to which there has been covenant
defeasance, the amount in such currency, currency unit or composite currency
in which such Debt Securities are payable, and Government Obligations on
deposit with the applicable Trustee, will be sufficient to pay amounts due on
such Debt Securities at the time of their stated maturity but may not be
sufficient to pay amounts due on such Debt Securities at the time of the
acceleration resulting from such Default. The Company would remain liable,
however, to make payment of such amounts due at the time of acceleration.
The applicable Prospectus Supplement may further describe the provisions, if
any, permitting such defeasance or covenant defeasance, including any
modifications to the provisions described above, with respect to the Debt
Securities of or within a particular series.
NO CONVERSION RIGHTS
None of the Debt Securities will be convertible into or exchangeable for
common stock or any other securities or property of the Company or any
Subsidiary.
REDEMPTION OF SECURITIES
The Indenture provides that the Debt Securities may be redeemed at any time
at the option of the Company, in whole or in part, at the prescribed
redemption price, except as may otherwise be provided in connection with any
Debt Securities or series thereof.
14
<PAGE>
From and after notice has been given as provided in the Indenture, if funds
for the redemption of any Debt Securities called for redemption have been made
available on such redemption date, such Debt Securities will cease to bear
interest on the date fixed for such redemption specified in such notice, and
the only right of the Holders of the Debt Securities will be to receive
payment of the Redemption Price.
Notice of any optional redemption by the Company of any Debt Securities is
required to be given to Holders at their addresses, as shown in the Security
Register, not more than 60 nor less than 30 days before the date fixed for
redemption. The notice of redemption will be required to specify, among other
items, the Redemption Price and the principal amount of the Debt Securities
held by such Holder to be redeemed.
If the Company elects to redeem Debt Securities, it will be required to
notify the Trustee at least 45 days before the redemption date (or such
shorter period as is satisfactory to the Trustee) of the aggregate principal
amount of Debt Securities to be redeemed and the redemption date. If fewer
than all the Debt Securities are to be redeemed, the Trustee is required to
select the Debt Securities to be redeemed pro rata, by lot or in such manner
as it deems fair and appropriate.
GLOBAL SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global securities (the "Global Securities") to be
deposited with, or on behalf of, a depository identified in the applicable
Prospec-tus Supplement relating to such series. Global Securities may be
issued in either registered or bearer form and in either temporary or
permanent form. The specific terms of the depository arrangement with respect
to a series of Debt Securities will be described in the applicable Prospectus
Supplement relating to such series.
PLAN OF DISTRIBUTION
The Company may sell the Debt Securities to or through underwriters, and
also may sell them directly to other purchasers or through agents.
The distribution of the Debt Securities may be effected from time to time in
one or more transactions at a fixed price or prices, which may be changed, or
at market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of the Debt Securities, underwriters may receive
compensation from the Company or from purchasers of Debt Securities for whom
they may act as agents, in the form of discounts, concessions, or commissions.
Underwriters may sell the Debt Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions, or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agents. Underwriters, dealers, and agents that
participate in the distribution of the Debt Securities may be deemed to be
underwriters, and any discounts or commissions they receive from the Company,
and any profit on the resale of the Debt Securities they realize may be deemed
to be underwriting discounts and commissions, under the Securities Act. Any
such underwriter or agent will be identified, and any such compensation
received from the Company will be described, in the applicable Prospectus
Supplement.
Unless otherwise specified in the applicable Prospectus Supplement, each
series of Debt Securities will be a new issue with no established trading
market. The Company may elect to list any series of Debt Securities on an
securities exchange, but is not obligated to do so. It is possible that one or
more underwriters may make a market in a series of the Debt Securities, but
will not be obligated to do so and may discontinue any market making at any
time without notice. Therefore, no assurance can be given as to the liquidity
of the trading market for the Debt Securities.
Under agreements the Company and the Guarantors may enter into,
underwriters, dealers, and agents who participate in the distribution of the
Debt Securities may be entitled to indemnification by the Company and the
Guarantors against certain liabilities, including liabilities under the
Securities Act.
15
<PAGE>
Underwriters, dealers and agents may engage in transactions with, or perform
services for, or be customers of, the Company and the Guarantors in the
ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase the Debt Securities from
the Company at the public offering price set forth in such Prospectus
Supplement pursuant to delayed delivery contracts ("Contracts") providing for
payment and delivery on the date or dates stated in such Prospectus
Supplement. Each Contract will be for an amount not less than, and the
aggregate principal amount of Debt Securities sold pursuant to Contracts will
be neither less nor more than, the respective amounts stated in the applicable
Prospectus Supplement. Institutions with whom Contracts, when authorized, may
be made include savings banks, insurance companies, pension funds, investment
companies, educational and charitable institutions, and other institutions,
but will in all cases be subject to the approval of the Company. Contracts
will not be subject to any conditions except (i) the purchase by an
institution of the Debt Securities covered by its Contracts may not at the
time of delivery be prohibited under the laws of any jurisdiction in the
United States to which such institution is subject, and (ii) if the Debt
Securities are being sold to underwriters, the Company must have sold to such
underwriters the total principal amount of such Debt Securities less the
principal amount thereof covered by Contracts.
EXPERTS
The financial statements incorporated in this Prospectus by reference to the
1997 Annual Report on Form 10-K of the Company have been so incorporated in
reliance on the reports of KPMG Peat Marwick LLP, independent auditors,
incorporated by reference herein, and upon the authority of said firm as
experts in auditing and accounting.
LEGAL MATTERS
The legality of the securities covered by this Prospectus will be passed
upon by Hogan & Hartson L.L.P., Washington, D.C., counsel to the Company and
the Guarantors.
16
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE NOTES OR
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NOTES TO
ANY PERSON IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary............................................ S-1
Forward-Looking Statements............................................... S-7
Risk Factors............................................................. S-7
Use of Proceeds.......................................................... S-12
Capitalization........................................................... S-13
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... S-14
Business................................................................. S-18
Management............................................................... S-22
Description of Notes..................................................... S-23
Underwriting............................................................. S-49
Legal Matters............................................................ S-50
Financial Statements..................................................... F-1
PROSPECTUS
Where to Obtain Additional Information................................... 2
The Company.............................................................. 3
The Guarantors........................................................... 3
Use of Proceeds.......................................................... 3
Ratios of Earnings to Fixed Charges...................................... 4
Description of Debt Securities........................................... 5
Plan of Distribution..................................................... 15
Experts.................................................................. 16
Legal Matters............................................................ 16
</TABLE>
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$145,000,000
NVR, Inc.
8% Senior Notes due 2005
[LOGO OF NVR APPEARS HERE]
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PROSPECTUS SUPPLEMENT
APRIL 8, 1998
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Salomon Smith Barney
Credit Suisse First Boston
Friedman, Billings, Ramsey
and Co., Inc.
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